Dr Richard Hawkins, professor at the Science Technology and Society Program, University of Calgary

S&T and R&D strengths are not the same

By Dr Richard Hawkins

With its most recent report, the Council of Canadian Academies (CCA) has continued its valuable series of studies on S&T and innovation in Canada. Aside from periodic technical reports from Statistics Canada (which have dwindled steadily over the past decade) — this effort now represents virtually the only reliable analysis that conforms to international definitions and standards, and is presented in ways that are relevant for policy and accessible to policy makers.

This report focuses on what is really important about R&D in a modern industrial economy, namely, its relationship to how industries function. Focusing on Industrial R&D (IR&D) — activities undertaken primarily by industry for their own internally defined commercial reasons — clarifies this situation greatly.

It is important to consider that R&D is 100% risk for companies. For many, especially technology goods producers, a visibly significant R&D effort is an essential component of their business models. For others, the call can be much closer. Studies have even shown that in some industries, increasing an R&D budget drives investors away.

Governments and universities are not subject to the same intense calculations and may undertake or support research for a huge number of reasons unrelated to any market discipline. We need to appreciate the commercial and strategic realities of R&D in industry from its own perspective, and this report at least provides a baseline for doing this in Canada.

The report teaches much about how IR&D is distributed throughout Canadian industry and among jurisdictions. It also identifies some of the reasons for differences in IR&D performance across various sectors; e.g. the low incidence of Canadian head offices in many R&D intensive industries and the general decline of our manufacturing industries. Readers of the report will also be interested to learn that IR&D is widespread and extensive throughout many industries that are not always associated with R&D or innovation in Canada– e.g. wholesale trade, cultural industries and resource industries.

Interestingly, in synthesizing the results from Statistics Canada Innovation Surveys, the report found no necessary association between the propensity to perform R&D of any kind and the propensity to innovate.

Most importantly, the report is realistic about where and how Canada's IR&D effort will most likely bear fruit. It reinforces the need to build upon existing industrial strengths, which for Canada means resources and services, transforming them into a more diversified set of industrial competencies wherever possible.

shopworn approach to innovation

While generally pleased with the report, I do have several reservations, including its rather shopworn conceptual approach to the innovation issue and to the function of R&D. Were there no alternatives, fine. But there are alternatives — whole new emerging schools of thought — that are neither represented nor considered. Perhaps this would be appropriate for the next leg of the CCA's odyssey through the innovation archipelago.

Because of the nature of its mandate, the panel strays very quickly from the OECD definition of R&D, which actually covers the whole range of human knowledge. Instead, the panel retreats into a much narrower technology-centric definition.

"the panel also found little correspondence between where Canada is strong in S&T, where it spends most on R&D, and where most of our wealth is actually produced. The panel is not entirely clear as to what they think this means."

This a problem because the R&D spend of most industries is now more representative of the broader OECD definition than of the SR&ED definition, which excludes all product development expenses that are not related to engineering. It's unfortunate the panel did not consider data from the Statistics Canada – Industry Canada Survey of Innovation in Business Services.

Companies know that the "D" side of "R&D" is usually a lot more important than the "R" side, which is why they spend more money on it. The D side is what gets the R side to market and that is all that counts. It is also where they have to recruit human capital with the most diverse range of knowledge and skills.

To cast IR&D in the contemporary industrial milieu solely as lab science or bench engineering is to entirely miss the point. Although the panel is at frequent pains to dispel the linear model whereby innovation is seen to be the product of investment in science and engineering, the petticoats of this model are never entirely hidden.

We already know how Canada fares on traditional technology-centered R&D indicators based on patent and publication counts and engineering expenditures. We do badly, but actually not that badly. To figure out why, we have to know a lot more than these indicators alone can tell us.

more systemic approach required

We have to develop a more systemic approach that considers the processes and outcomes of innovation, not just the impacts of one of many sets of inputs. This is much more than any one report can deliver. But I am disappointed that the agenda was not pointed decisively in this direction. Instead, we get yet a lot more sifting of the same data yielding much the same inferences.

So what might policy makers, particularly legislators, take from this work? Here, a strength of the report is also potentially a danger. It provides a more precisely crafted third piece to the Canadian innovation puzzle. By decisively separating industrial R&D from the mess of other research-related inputs that, despite the official OECD definitions, typically infect national practices in defining R&D, the panel clarifies that S&T strengths are not the same as R&D strengths. Industrial strengths are not the same as either S&T or R&D strengths. Bravo! They are correct and this needs to be said.

But the panel also found little correspondence between where Canada is strong in S&T, where it spends most on R&D, and where most of our wealth is actually produced. The panel is not entirely clear as to what they think this means.

complex interaction between S&T and R&D

But they are clear — and I fully agree with them — that there is no linear relationship between these elements – an issue for policy makers, and particularly legislators, who tend to be attracted to symmetry like children to bright shinny objects. I fear this observation will be interpreted in the wrong way, as indeed it already is, and that future attempts to coordinate these streams will yield the same non-outcomes as previous ones.

Is it actually a bad outcome that these three streams are not coordinated? Would coordinating them produce a better outcome? If you look at why innovation happens, such asymmetries are not inherently bad. To the contrary, this is exactly how those new combinations emerge that is essential for innovation to occur. The panel flags this but unfortunately offers no practical alternative as to how policy makers might re-conceptualize this relationship in a productive way.

Such an outcome is always going to be elusive where the innovation issue is approached only from the input side. The panel was charged to investigate IR&D and that is precisely what it did. But R&D is not innovation. What matters is not how much R&D or IR&D we do compared to others, but whether what we do is effective in contributing to the result we desire – growth, jobs, productivity and general prosperity. The report pushes us a little bit down this path but there are miles to travel.

Canada lags in assessing S&T positions, options

So, while kudos are certainly due to the CCA for taking on this challenge, we should be concerned that the knowledge policy makers need to make decisions about this crucial issue is limited to perhaps only a half dozen CCA publications and a few miscellaneous reports by other public and private agencies.

This offers only a glimpse into the complexities of these issues. Many of our major international competitors in key high-value markets are streaks ahead of us both in the extent and frequency of assessing their STI positions and options, and in folding this knowledge into policy. In Canada, we still see few efforts in this direction despite nearly a decade of agitation from experts in both industry and the academy.

Dr Richard Hawkins is a professor at the Science Technology and Society Program, University of Calgary and a fellow with the Institute for Science Society and Policy, University of Ottawa.