TPC plays key role in innovation

By David Crane

The United States spends significant amounts of money each year to help its businesses advance technologies and commercialize their application. This is accepted as part of the process of building a competitive economy. In Canada — when we try this kind of thing on a much smaller scale, such as Technology Partnerships Canada (TPC) — there is widespread criticism in the media and the official opposition pledges to abolish such initiatives. In the face of such criticism, Cabinet ministers become defensive while business leaders who benefit from such programs sit on the sidelines and let governments take the heat.

Why don’t we get it? It should seem obvious that economic growth and wealth creation depend upon our ability to develop new knowledge and successfully commercialize that knowledge. The Federal Reserve Bank of New York has published an important economic study indicating that future US job growth must come from successfully implementing new activities.

Even the Bush administration understands this. For example, in mid-February the US Department of Energy announced US$175 million for 12 projects with leading U.S. vehicle manufacturers — with a 50:50 cost-sharing between government and the companies — to develop technologies to increase the energy efficiency of passenger cars and commercial vehicles. There is no suggestion the US firms repay the amounts they received if the technologies achieve commercial success. The Small Business Innovation Research Program sets aside a share of US government R&D spending to help small and midsize companies advance new technologies. The FreedomCAR and Vehicle Technologies Program support industry research into next-generation motor vehicles. The list goes on.

In Canada, we have relied primarily on TPC, which was established in 1996 to share the costs with companies of advancing new but high-risk technologies to the point of commercial feasibility. There was ample evidence to indicate the existence of a “Valley of Death” for new technologies — that many new ideas with commercial possibilities might not get prototype or feasibility funding if left to companies themselves since the risk was too high. So there was a strong argument for risk-sharing funding by government, since the economic gains in terms of jobs and wealth creation could be significant if commercial feasibility could be demonstrated. In the case of TPC, government funding was limited to 30% and there was conditional repayment subject to commercial success.

Since research intensity in Canadian business is low by international standards — in manufacturing, for example, Canadian companies spend about 1% of value-added on R&D, compared to about 1.6% in the US, 2.3% in South Korea, 2.5% in Japan and 4% in Sweden — it is perhaps even more important that programs be in place to improve the environment for innovation.

Industry minister David Emerson is proving to be a strong advocate for a revitalized TPC. Such a program is necessary, he says, “if you believe technology will drive the economy to a higher level of competitiveness and a lot of technology won’t get done otherwise.” But there are likely to be several changes, aside from a name change. One could be to expand the range of sectors qualifying for conditional risk-sharing assistance; the existing program is limited to aerospace, enabling technologies and environmental technologies. Another could be to focus much more on small- and mid-size companies, which comprise the bulk of Canada’s manufacturing industry. Big projects where government is negotiating an investment decision or major project, such as those in automotive and aerospace, would be funded elsewhere. At the same time, the new initiative would provide for much greater transparency and accountability, as well as reducing the time needed for approvals.

Many of our most innovative technology companies have benefited from TPC. And it is these companies that represent some of Canada’s best chances of competing in the new global economy. They include: Research in Motion Ltd, Neurochem Inc, DALSA Corp, MacDonald Dettwiler & Associates Ltd, QuestAir Technologies Inc, Wi-Lan Inc., Westport Innovations Inc, ATS Automation Tooling Systems Inc, SemiBioSys Genetics Inc, Mechatronic Systems Inc, Northstar Energy Corp, ID Biomedical Corp, Com Dev Ltd., Sierra Wireless Inc, Zenon Environmental Inc, CRS Robotics Inc, Tundra Semiconductor Corp, Ballard Power Systems Inc, Gallium Software Inc, Mosaid Technologies Inc, and Iogen Corp.

In fact, while much of the debate on TPC has focused on funding for Bombardier Inc and Pratt & Whitney Canada, most of the TPC projects have been with small- and midsize firms. At the end of last year, 673 projects were being financed by TPC, with commitments of $2.7 billion towards projects with total investment of $13.6 billion — so TPC’s contribution was about 20%.

Most funding was provided by the companies themselves. Yet according to an October 2003 evaluation of TPC by Performance Management Network Inc, more than 85 per cent of projects would not have proceeded at all or would have been highly unlikely to proceed without TPC funding. Moreover, more than 90% of firms contacted reported that TPC funding led to the maintenance of highly skilled jobs while more than 80% reported that new highly skilled jobs had been created.

This same evaluation was highly critical of the emphasis by TPC officials on rapid repayment of TPC funding, since many projects entail long development and commercialization processes and, given that the projects are high risk, a good number could fail. “This focus is unrealistic and leads to unfortunate expectations among stakeholders and the public about TPC,” it said. Little attention, the report complained, “has been paid to the high level of technical success that is being achieved” despite the fact that “these projects have been shown to lead to an improved technical capability and firm competitiveness.”

When Emerson comes up with his new version of TPC sometime soon, it will be important not only to bring forward a better designed program with greater transparency and adequate funding. It will also be important to set the context clearly so that the public understands we are in an intense new world of global competitiveness. Without public-private partnerships in risk-sharing, Canadian businesses will be handicapped in facing this new world, or forced to relocate in countries where such funding is available.

David Crane (crane@interlog.com) is a writer & adviser on innovation strategy. His column appears Fridays in The Toronto Star.