Business groups urge fewer R&D incentive programs and smarter policies to support innovation

Mark Lowey
January 23, 2019

Governments should focus less on programs to incentivize private sector R&D and more on policy and regulations that support a sustainable innovation ecosystem in Canada, say executives at national business and innovator organizations.

Federal and provincial government innovation programming also needs to be much more linked to what businesses actually need to succeed and innovate, they told RE$EARCH MONEY.

“I think every time government is dissatisfied with the amount of innovation that is happening, they just throw another program on top of the myriad of programs that haven’t been working,” says Dan Kelly, president, CEO and chair of the Canadian Federation of Independent Business.

“While federal and provincial governments have made some good decisions over the last couple of years, I would say the trend line has been that governments are making it more difficult for entrepreneurs to innovate, and then lecturing them that they need to do more,” Kelly says. “Day after day, they’re passing new rules and labour regulations, increasing payroll taxes and pushing back against the gig economy to make businesses less productive.”

Cam Vidler, vice-president of industry and innovation at the Business Council of Canada, agrees that government innovation programming needs to be much more aligned with the actual “on-the-ground” needs of companies: “It’s not always a government investment conversation. A lot of times it’s about having the flexibility to deploy new technologies to meet regulations, the state of competition, or international trade exposure.”

Benjamin Bergen, executive director of the Council of Canadian Innovators, says Canada’s policymakers missed the global shift from a tangible to an intangible economy. “Canada has really lacked an appropriate policy framework where Canadian firms can accumulate intangible assets, which ultimately are pre-conditions for commercialization,” Bergen says. “In an intangible economy, it is the ownership of the intellectual property, the idea, where wealth and profits can be made from the commercialization of that.”

All three executives told RE$EARCH MONEY that a recent Statistics Canada report, which found foreign-owned firms in Canada are outperforming Canadian businesses, wasn’t an “apples-to-apples” comparison of firms of similar sizes.

READ MORE: StatCan report on foreign firms signals promise and peril for Canada's innovation sector

“Canada is a small business country and that comes with all sorts of strengths, but it also comes with some limitations,” Kelly notes. Vidler points out those foreign-owned affiliates typically are parts of multinational business networks that have advantages in innovation, such as sizeable capital and global supply chains, compared with more domestically-oriented businesses. “Foreign firms have had decades of accumulating valuable and intangible assets, first IP and now data, which they use to commercialize and scale and keep growing their revenue,” Bergen says.

Focus innovation support on business needs

Vidler is more concerned that Canadian governments — particularly the federal government — are still operating with an outmoded, supply-side view that innovation consists of investing upstream in an idea and then commercializing it to try and build new companies. “Instead, the focus should be on where the business problems are, what firms are trying to do with their customers and their production processes, and have that be your guiding light in terms of what your innovation investments are,” he says.

Kelly says businesses need more of the kinds of policy decisions that the federal government made in last November’s Economic Statement, which allowed for accelerated depreciation of productivity-enhancing business investment. The three executives cited other positive steps by Ottawa, including a report by the six industry-led Economic Strategy Tables, the Global Skills Strategy, and plans for national strategies on IP and data.

However, Vidler says governments at all levels also need to understand that a lot of innovation is now being driven by disruptive digital technology across many industrial sectors. For example, in response to customers’ demands for productivity improvements, Finning, the world’s largest Caterpillar dealer, invested in an in-house platform to gather data on the productivity of their equipment around the world and share it with customers.

The government regulatory environment also needs to catch up, Vidler adds. The railway industry has begun deploying Internet of Things (IOT) platforms with sensors that collect data on the performance of brakes and other equipment and predict potential failures. But under the current regulatory regime, engineers are still required to stop the train and visually check the brakes, even though the IOT data shows this approach is less safe. “If you don’t get recognition for deploying that technology, the commercial rationale for doing it isn’t there or isn’t as strong,” Vidler says.

Address skilled labour shortage and red tape

Kelly cites a 2016 survey by the Canadian Federation of Independent Business, in which members reported that the shortage of skilled labour was the No. 1 impediment to innovation and productivity enhancements. Red tape and paperwork was No. 2. (This week is CFIB’s “Red Tape Awareness Week”). Governments need to ensure the education system and immigration policies are targeted to the skilled labour needs of businesses, and that EI and other income support programs don’t impede people from entering the workforce, Kelly says. “We have hundreds of thousands of vacant positions in small and medium-sized firms.” The CFIB has suggested that government deliver a training tax credit through EI programs, to help SMEs do more on-the-job training.

Bergen notes that in successful innovation economies, like in the U.S., South Korea, Finland and Israel, government has strong links with industry: “You have to have a government which has mechanisms to get feedback from the scaling tech companies in order to understand what they need to be successful.”

Vidler says the Business Council of Canada has built a corporate innovator network of about 40 executives from member companies, to help governments better understand what Canada’s leading companies need in innovation programming, policy and regulations. “I think we’ll get more success and create a more sustainable innovation ecosystem if we’re anchored around some of those things.”


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