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Federal government must improve “catastrophic” innovation performance, say innovation experts and business groups

Mark Lowey
December 9, 2020

(NOTE: See accompanying story, “Feds defend innovation performance and initiatives to strengthen ecosystem,” for Innovation, Science and Economic Development Canada’s detailed responses to criticisms).

Innovation experts and business groups are stepping up calls for the federal government to fix a “weak and out of balance” ecosystem, as Canada continues to lag other countries in innovation performance and productivity.

Canada fell to 22nd place, behind Slovenia, among 60 countries in the 2020 Bloomberg Innovation Index. Only 13 Canadian companies were listed in this year’s Fortune Global 500 list.

“The situation in Canada is beyond catastrophic,” Dan Breznitz, professor and Munk Chair of Innovation Studies in the Munk School of Global Affairs & Public Policy at the University of Toronto, told Research Money.

Canada needs a real innovation policy that ensures entrepreneurs and companies actually innovate and bring improved products and services to the market, which is different from invention, he said.

When it comes to government and business R&D spending, “We are the lowest in the OECD [countries], while having the most educated labour force and some of the world’s top universities and research institutions,” Breznitz said. “It’s inconceivable that a modern rich economy with such a workforce is not also leading in innovation.”

The Business Council of Canada (BCC), in a report released in October, described Canada’s innovation ecosystem as “weak and out of balance,” while productivity rates “have lagged those of our peers for decades.”

“Our inability to commercialize ideas is probably the first priority or the first challenge that we need to address,” report author Robert Asselin, the BCC’s senior vice-president of policy, said in an interview.

“The second priority is being much more conscious of the importance of intellectual property (IP), so that we are able to retain and leverage our ideas here in Canada,” he said.

According to the Patent Cooperation Treaty, the international patent system, global filings on patents grew by 14% from 2014 to 2017. During the same period, patent filings from Canada shrank by 22% – the worst performance among 152 member-states.

Canada missed the global shift from the tangible to the intangible economy by not placing value on generating and owning valuable IP stock assets, said Jim Balsillie, chair of the Council of Canadian Innovators and former co-CEO of Research in Motion (now BlackBerry).

Given Canada’s world-class research and educated workforce, the country’s innovation performance is akin to a gifted student who doesn’t do his homework and is failing, Balsillie told a November 13 webinar by the Innovation Policy Lab at the Munk School. “[The federal approach to innovation] is just a series of face-plants, misfires and nothing burgers, even though we have all this potential.”

Unlike other countries, Canada has no national R&D or innovation targets or industrial sector-specific targets, said David Watters, president and CEO of Global Advantage Consulting Group, in a keynote talk at Research Money’s annual conference in October.

Yet government ministers frequently boast about how Canada is a world leader in innovation, he said. “This rhetoric is not going to get us improving our innovation performance. We have a problem and I think we need to address it fairly.”

Canada lags in key innovation performance indicators

In October, 133 leaders of fast-growing companies sent an open letter to Prime Minister Justin Trudeau, which stated: “We see less of a bold, cohesive plan for innovation in Canada and more of a patchwork – pilot programs and furtive policies rolled out in hope they will amount to something greater than the sum of the parts.”

The federal government needs to immediately implement its promised national IP and data strategies, Benjamin Bergen, executive director of the Council of Canadian Innovators (CCI), which coordinated the open letter, told Research Money.

Ottawa’s plan to spend billions of dollars in the post-COVID recovery needs to be backed by comprehensive policy “which allows Canadian firms to be at the centre of generating and owning IP, and owning and using the data that’s being driven out of the recovery,” Bergen said. “A lot of the really great patents and IP that we generate through our academic institutions are ultimately being hoovered up by foreign multinationals.”

In another innovation performance measure, Canada’s R&D expenditures are 36% below the average OECD country, representing a gap of $19 billion per year, Watters said. “Whereas we started off roughly the same as most OECD countries 15 years ago, our performance has steadily eroded.”

Canada’s government and business R&D expenditures are, respectively, 54% and 50% below the OECD average, he noted. Yet Canada’s higher education R&D expenditures are 59% above the OECD average.

Canada needs to consider whether it has the right structure for supporting R&D for Canadian needs, Watters said.

A good model, he noted, is the German Federation of Industrial Research Associations, comprising more than 100 associations from all industry sectors that support open and collective R&D, to benefit all 50,000 SME members. In contrast, Watters said, Canada’s one-on-one approach through the National Research Council-Industrial Research Assistance Program and the Strategic Innovation Fund typically helps primarily one company.

The BCC’s Asselin said it’s also crucial that governments invest in digital infrastructure and implement a demand-driven strategy to create a market to generate and procure new Canadian technologies and services. For example, the U.S. does this through the Defense Advanced Research Projects Agency and NASA.

COVID impacts could worsen innovation performance

Canada’s top three corporate performers of R&D, the aerospace, automotive parts and manufacturing, and energy sectors, were all hard hit by the pandemic and laid off several thousands of employees, Ömer Kaya, vice-president, research and business development at Global Advantage Consulting Group, told Research Money. “When we look at the potential impact of COVID on business spending in R&D, there is a strong potential for decline in these R&D investments.”

Most of the 110,000 members of the Canadian Federation of Independent Business (CFIB) are struggling to survive day-to-day, let alone invest in R&D and innovation, Corrine Pohlmann, the CFIB’s senior vice-president, national affairs and partnerships, said in an interview.

According to the CFIB’s most recent monthly survey of its members, as of late October and prior to new targeted restrictions in many provinces due to COVID’s second wave:

  • 66% of businesses are fully open;
  • 42% are fully staffed;
  • 28% are at full revenue;
  • 56% aren’t sure they’ll survive COVID’s second wave; and
  • 14% to 15% are actively considering permanently closing (25% in the hospitality sector).

“There’s a long way to go before our businesses are going to feel like they’re actually on the other side of this [pandemic],” Pohlmann said.

Kaya said that in the post-COVID recovery, the federal government should make the industry-led Economic Strategy Tables permanent, and use them as a mechanism to integrate innovation programs linked to four key strategies:

  • sustainable industries (green economy, digital economy, smart manufacturing, natural resources);
  • trade (trade diversification; accessing supply chains, implementing trade practices for high-growth SMEs);
  • R&D innovation (support for scale-ups vs. startups, tech adoption vs. invention, services vs. goods); and
  • skills (digital, managing networks, sales and marketing, collaborative research, diversity management).

Canada has 1.2 million SMEs, but only about 43,000 of these export their products and services. Government could better help SMEs with advisory and technical services, managerial skills and talents, to incentivize exports to diversified global markets, he said.

Asselin noted that a report released in October by the World Economic Forum suggests COVID’s impacts could help accelerate the global technological transformation, including digitization. “I’m actually hopeful that this will be a good development, because we could increase our productivity as a result if we take this digitization turn.”

Canada needs to continue the COVID-accelerated innovation in government processes, new business models and industry technologies, and also plug in post-secondary institutions and tools to train the talent needed for the economic recovery, said the CCI’s Bergen. “I think there’s sort of an awakening that’s happened with COVID, to really underscore to government officials that there are areas where we as Canadians need to be self-sufficient and have our own capacity.”

However, Breznitz and other innovation experts worry that once vaccines are rolled out and COVID-19 recedes, government and industry will revert to old ways of doing things.

Global production networks of products and services are shifting rapidly, Breznitz said. “We have to understand how we can change and where we can find niches or stages in which we excel, to ensure that we have profit and prosperity in Canada.”

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