Canada’s innovation ecosystem ranks 17^th globally, according to the 2025 World Intellectual Property Organization’s Globe Innovation Index.

Canada demonstrates strong talent and academic research, but weak commercialization and low private sector R&D investment. Our country trails top performers like Switzerland, Sweden, the United States and Singapore – and is behind Estonia.

While boasting a highly educated workforce, top-tier talent and a high-ranking startup culture (4^th globally), Canada underperforms G7 peers by lagging 37 percent below Organisation for Economic Development and Cooperation countries’ average R&D spending. 

Switzerland, for example, spends 3.1 percent of its GDP on R&D funding, compared with Canada’s 1.7 percent of GDP.

Canada’s private sector R&D spending is 50 percent below the OECD average, unlike the U.S. and Germany, which have high business investment.

“Canada’s innovation system has a structural problem. And it needs a structural solution: an institution designed to make the system deliver, not just add to it,” Lawrence Zhang (photo at right) head of policy at the Information Technology and Innovation Foundation’s Ottawa-based Centre for Canadian Innovation and Competitiveness, said in a recent op-ed in Research Money

Canada continues to fall further behind peer countries in key measures of science, technology, and innovation performance, according to a report last November from the Council of Canadian Academies.

Canada still lacks the effective approaches to support the development and commercialization – across the continuum from research to deployment – of the most promising areas that could improve national competitiveness and provide greater overall economic and societal benefits, the report said. “Canada is not translating upstream strengths in research and talent into downstream economic benefits.”

Canada is missing an overarching industrial strategy, clearly defined strategic priorities, long-term planning, policy continuity and other key ingredients for success in its innovation ecosystem compared with places like the U.K., Switzerland and the European Union, according to an international panel at Research Money’s annual conference last year.

Rather than having coherent, aligned ecosystem, Canada spends over $8 billion annually on more than 130 innovation programs that operate in solos with different rules, timelines and processes.

The highest-funded program, the $4.5-billion Scientific Research and Experimental Development (SR&ED) tax credit program, focuses on subsidizing business R&D activity, not the steps leading to commercialization.

“The current system is shaped by incentives that are at times misaligned with the fundamental objective of promoting a more innovative and productive business sector,” Iain Stewart (photo at right), a senior fellow at the Munk School of Global Affairs & Public Policy at the University of Toronto, said in a working paper for the Munk School. He retired in 2024 after 30 years working in a range of federal departments and agencies, including as president of the National Research Council.

The misalignment of federal innovation programs reflects administrative constraints, fragmented responsibilities, outdated delivery models, and a persistent emphasis on early-stage R&D over technology adoption, commercialization and scaling-up successful technology companies, according to Stewart’s paper.

"After two and a half decades of a failure to reverse our declining innovation performance, it may be time to examine the shortcomings of the broader policy system,” said David Wolfe (photo at left), professor emeritus of political science at the University of Toronto Mississauga and co-director of the Innovation Policy Lab at the Munk School.

“The key point is that the federal public service lacks organizational mechanisms to capture lessons learned from previous policy experiments and incorporate them in subsequent policy development. This is compounded by the fact that within the central agencies and key line departments, the public service lacks a centre of expertise with responsibility for business innovation policy,” Wolfe said.

Canada’s innovation programs are not aligned and coordinated like in countries with successful innovation ecosystems

Canada and peer countries with advanced economies essentially have similar government agencies and organizations that do three things. They fund university and college research; they fund translation programs that support moving the results of that research and newly educated talent into the market; and they fund business R&D activities, leading to innovative new products and production processes.

Research and innovation systems vary in other advanced economies, but they often have the same general types of programs.

While the federal government has more than 130 programs, Stewart said in an interview that it is worth focusing on those that play core roles, have sufficient funding and are national in scope – and so hold out the potential to have real impact at scale.

For instance, the Tri-Council granting agencies, together with programs such as the Canada Foundation for Innovation, Canada Research Chairs, and federal scholarships are key to supporting exploratory research and training highly qualified personnel.

Research translation benefits from through large-scale collaboration and mobility initiatives such as Mitacs, Natural Sciences and Engineering Research Council of Canada partnership programs, college applied research, the Global Innovation Clusters, and National Research Council (NRC) collaborative activities.

Business innovation support is concentrated in key initiatives such as the SR&ED tax credit, NRC’s Industrial Research Assistance Program (IRAP), the Strategic Response Fund (which has largely replaced the Strategic Innovation Fund), and Innovative Solutions Canada, which seeks to fund innovations for government to procure and use in support of federal mandates.

Stewart said if the federal government focused on ensuring that these programs were well funded, well-designed, and professionally delivered by expert staff, Canada could improve its return on investment over time. 

The fundamental problem, he said, is that Canada lacks what he calls an overarching “guiding intelligence” for its innovation ecosystem, a systems operator responsible for managing how the programs are designed, delivered, work together and support Canada’s national priorities.

Other countries have built pathways from research to deployment

Zhang noted in an email to Research Money that the U.S., Australia and the U.K. retain fragmented funding systems, but all have built institutions that create visible pathways from research to commercialization and deployment.

CSIRO in Australia, and UK Research and Innovation alongside Innovate UK in the U.K., act as organizing nodes, he noted. “They do not eliminate fragmentation, but they make it navigable by linking research activity to application and use.”

Australia's CSIRO (Commonwealth Scientific and Industrial Organization) is a national science agency and one of the world’s largest multidisciplinary research institutions focused on direct research and commercialization, acting as a bridge between academic and industry.

Australia combines mission-oriented research, academic funding through the Australian Research Council and the National Health and Medical Research Council, and applied work through CSIRO, Zhang said.

The U.K., similarly, operates both UK Research and Innovation (UKRI) as an umbrella research system and Innovate UK as a commercialization arm, he said.

The U.K also unified its nine research councils into UKRI to harmonize strategy. Canada maintains separate research granting councils, which critics argue leads to "siloed and fragmented" programs. 

The United States funds academic research through the National Science Foundation, National Institutes of Health, and the National Endowment for the Humanities, while simultaneously running large-scale mission-driven and commercial R&D through agencies like the Defence Advanced Research Projects Agency, the Department of Defense, the Advanced Research Projects Agency-Energy and the National Institute of Standards and Technology.

But Canada’s innovation ecosystem is fragmented in a much more limiting way than these other countries, Zhang noted. It lacks both the scale-driven innovation pull seen in the U.S. and the institutional coordination present in the U.K. and Australia.

For Canada, “the result is not just complexity, but discontinuity. Research is funded, but not consistently translated into adoption, commercialization or domestic capacity,” Zhang said.

The difference between Canada and these other countries is not “fragmentation” of innovation programs, per se, he noted. “The difference is what that fragmentation produces . . . It is that the system [in Canada] has no mechanism to turn them into a pipeline” for technology adoption and commercialization.

In the U.S., individual agencies have enough scale, mandate and procurement power to shape markets on their own, he said.

DARPA, the Department of Defense, and ARPA-E do not need system-wide coordination to generate outcomes. Their budgets and missions create their own gravitational pull. That allows the system to function despite institutional sprawl.

“Canada does not have agencies with comparable scale or demand-side leverage, and is unlikely to build them,” Zhang said.

The U.K’s Contracts for Innovation emphasizes procurement-led innovation in newer programs, driving adoption of new technologies by government, and encouraging private investment alongside public funds.

In the U.S., the Small Business Innovation Research (SBIR) program’s focus is to foster innovation within federal agencies’ missions, with potential for procurement and clear roles for principal investigators and partner institutions.

The SBIR program uses procurement to "pull" innovation, mandating that agencies with R&D budgets over $100 million allocate 3.2 percent to small businesses.

In contrast, Canada’s model is mostly "front-end loaded," primarily using grants to "push" technology into the market.

Canada lacks a strategic procurement program to “pull” innovation

Canada’s public sector doesn't pull on the country’s innovation system the way the U.S. does, traditionally mainly through procurement and use by its military – a demanding first customer, Stewart said.

Canada lacks a similar set of public sector entities that pull on the country’s research and innovation system, consistently seeking innovative new solutions to Canada’s public sector needs and challenges.

So far, Canada has not set out and clearly articulated its future science and technology needs, and provided funding for academic and private sector innovators around objectives to make needed advances and provide solutions.

The current rapidly evolving context might change this, as the federal government seeks to expand defence and national security, invest in building vital new national-building infrastructure and projects, and encourage dual-use (civilian and military) products and services.

There have been past foundational steps in these directions, such as the Innovation for Defence Excellence and Security program, which funds research and development of technology of interest to National Defence.

Innovation, Science and Economic Development Canada’s Innovation Solutions Canada (ISC) program was created to emulate the U.S. SBIR program. However, total spending for SBIR in 2023 was US$6.3 billion, dwarfing the US$106 million spent by ISC.

ISC’s mandate is to support government procurement of innovative Canadian technologies from small and medium-sized enterprises.

But many federal government departments – especially National Defence – have consistently failed to meet their spending obligations (one percent of R&D expenditures) under the ISC program, resulting in significant shortfalls in funding for the program.

As a result, ISC’s annual funding will be reduced by $28.2 million in 2025-25 and up to $70 million thereafter.

According to a report, Federal Programs for Business Innovation, by independent Senator Colin Deacon’s (photo at right), office, the ISC program was cut despite delivering high returns on investment. ​In fact, the Canadian government reported that every $1.00 invested in the ISC program produced a $3.10 increase in GDP and a $1.40 increase in tax revenue.

Instead of reducing ISC’s budget, the federal government should strengthen the program and increase its funding, Deacon argued.

Stewart agreed, saying that developing effective programs takes time, expertise and an evolutionary approach, and efforts should be made to improve the program and not abandon them if they don’t work perfectly right out of the gate.

“Doing things well with commitment to the long term is what’s required to have impact,” he said.

Being able to improve programs would benefit from having better information about how they are doing. While the federal government invests substantial effort in program evaluation, it’s not clear the status quo provides the tools and insights needed to actually evaluate the effectiveness and impact of programs individually or in relation to one another, Stewart said in his working paper on business innovation supports.

Under Prime Minister Mark Carney’s government, federal Budget 2025 did include funding to implement the “Buy Canadian” strategy across federal departments.

Budget 2025 also allocated $79.9 million over five years, starting in 2026-27, to Innovation, Science and Economic Development Canada to launch a new Small and Medium Business Procurement Program.

One of the largest allocations in Budget 2025 is $81.8 billion over five years for defence and national security.

However, the federal government considers U.S.-headquartered companies with subsidiaries and substantial operations in Canada to be “Canadian companies” eligible for bidding on federal contracts. So it remains to be seen how many Canadian-headquartered companies will actually share in that $81.8 billion in funding.

Nonetheless, Stewart said the government’s Buy Canadian policy and “Build Canada” approach sets out big steps toward improving the government’s innovation and procurement programs.

As with the research and business innovation program suites, he noted, this new effort would also benefit from attention to providing a “guiding intelligence” – the innovation system operator – for the federal government to pull on Canada’s research and innovation system for solutions and targeted procurement of strategic technologies.

Providing the “guiding intelligence” to Canada’s innovation programs

The 2011 Jenkins Panel recommended the establishment of a Canadian Industrial Research and Innovation Council to rationalize and deliver federal business innovation programs. 

Stewart recommended in his working paper that the federal government should create a new business innovation agency to deliver its core national programs and be a centre of expertise in working effectively with entrepreneurs.

The new agency – established as a Crown corporation or, alternatively, a subsidiary of the National Research Council – would have the flexibility to hire private sector expertise at market rates, would do its own procurement, legal, IT, and contracting services, and “so would work to ensure it operates at  the speed of business with the responsiveness and accountability expected by business clients.”

A key aspect of the new agency would be learning about and improving the programs in its care. “The agency would act as a whole of government program policy hub – developing  new approaches for evermore effective programs, testing new delivery and support models through pilot initiatives, and advising other departments and central agencies on needed reforms,” Stewart said.

Budget 2022 proposed the Canada Innovation Corporation (CIC) – a new Crown corporation focused on improving business-facing innovation support.

The CIC concept originated with work by Dan Breznitz, professor and Munk Chair of Innovation Studies at the Munk School of Global Affairs & Public Policy at the University of Toronto. Breznitz’s proposed CIC incorporated dynamic aspects of the U.S. DARPA and Finland’s Business Finland.

Both a new business innovation agency (named the Canadian Innovation and Investment Agency) and a new academic research funding management organization, or capstone agency (named the Canadian Knowledge and Science Foundation) were recommended by the federal Advisory Panel on the Federal Research Support System, chaired by Frédéric Bouchard (photo at right), Dean of the Faculty of Arts and Sciences at the Université de Montréal, in its 2023 report.

However, Budget 2025 offered no update on CIC and provided no new details on a proposed new capstone research funding organization to provide better coordination across the federally funded research ecosystem.

The CIC as announced by the federal government was to build on the National Research Council-Industrial Research Assistance Program (IRAP) and include a broader mandate to experiment, adapt and scale programs that were demonstrably effective.

“The rationale for CIC was clear: to consolidate expertise, improve delivery, and create a centre of excellence for business innovation support,” Stewart said.

“A more coherent system, informed by user needs and grounded in real-world constraints, will be essential to realizing the full potential of public investment in innovation,” he said.

Incorporating expertise into both CIC and the new capstone organization will be crucial, Stewart added.

The reason NRC-IRAP works effectively and is highly regarded internationally is that its 270 industrial advisors are people who have actually worked in the private sector doing innovation and generating revenues in a business environment, he said.

CIC – if the government proceeds with it – needs similar expertise. Likewise, the new capstone organization needs the expertise of people who’ve actually worked in an academic research funding environment. Similarly, the new dual-use surge will need technology, commercial and security and defence expertise if it is to successfully bring solutions to market.

The federal government launched BOREALIS (Bureau of Research, Engineering and Advanced Leadership in Innovation and Science) last June as part of Ottawa’s updated defence policy.

BOREALIS’ core mission is to fast-track the delivery of advanced technologies from research labs to operational deployment in the Canadian Armed Forces and the Communications Security Establishment.

The mission includes aligning federal innovation efforts with specific security needs to keep pace with global technological advancements. A key element is creating a national network of "Defence Innovation Secure Hubs” where trusted partners can collaboratively develop, test and validate new technologies.

 Simply adding another organization won’t solve Canada’s innovation ecosystem problems

Canada’s innovation ecosystem won’t be solved only “by adding yet another organization to the jungle of existing organizations,” said David Watters (photo at left), president of the Ottawa-based Institute for Collaborative Innovation, founder and strategic advisor at Global Advantage Consulting Group, and former assistant deputy minister in Finance Canada.

Canada’s research and innovation performance “is not a problem to be solved by a new downstream ‘hardware;’ rather it's a problem to be solved by new upstream ‘software,’ he said in an email to Research Money.

The downstream “jungle of siloed organizations and programs” – which Watters called the symptoms of Canada’s innovation ecosystem –  are the consequence of the upstream “confused understanding of the purpose of research and the purpose of innovation,” he said.

“Unless you start by clarifying what each activity is intended to accomplish – research and innovation – any national system is likely to get the same result.”

The purpose of research activity is to produce new knowledge, and the purpose of publicly funded research is to produce new knowledge that meets public needs, Watters noted.

So research activity is not about academic papers, citations or patents, he added. “Rather it begins with the simple question: ‘What new knowledge do we need to find in order to improve the lives of Canadian citizens?”

The next question is, Watters said, is: “What does Canada need to do to undertake the research activity needed to try and find this new knowledge.

Canada produces only about two percent of new knowledge globally, so the country should look at the other 98 percent of new globally produced knowledge to see if it is relevant to solve the needs of Canadian citizens, he said. “We do not do this.”

As for Canada’s innovation activities and performance, “again we don't understand what it is, we don't understand where it is, and we don't understand how to do it,” Watters said.

Innovation is an activity to improve the performance of an individual, a group of individuals, an organization, a company or a nation, to achieve specific objectives by experimenting with new combinations of labour and capital – which requires imagination, he said.

Innovation happens everywhere, Watters noted. “It isn’t just found in business R&D labs or university research centres. Governments innovate, sport teams innovate, non-profits innovate, communities innovate, families innovate, and individuals innovate.”

Innovation activity at its core is simple, he said. You decide on a goal you want to achieve then and you experiment with a way of combining labour (talent) and capital (machinery and technology) in new ways to achieve it.

“You then try it and see if it works. If it does – then scale it up. If it does not, experiment with a different combination of labour and capital to achieve your desired result. If it does not work, you drop it.”

Canada’s governments and policymakers need to thoroughly understand the purpose of research and innovation, what research activities Canada needs to innovate, and where innovation happens, Watters said.

“This is the ‘software’ of research and innovation activity which unfortunately is not deeply understood,” he said. “So unless you get the software right, installing it in any new organization will not improve performance.”

Zhang said the first step to improving Canada’s innovation performance is “to admit that this is a structural problem, not a program design issue.” This should be admitted “at the Cabinet level, at the Deputy Minister level, and at the everyone in civil society who is writing op-eds and talking about innovation level.”

Before even putting pencil to paper to create a new Crown corporation to manage Canada’s innovation ecosystem, political leaders need to name the real issue: no one is responsible for making the system work end to end, Zhang said. Without that framing, any attempt to create a new Crown corporation will either be seen as duplicative, or get buried in interdepartmental compromise, he added.

Once that’s explicit, a focused process can begin: a mandate letter, feasibility design and legislative path for creating a new Crown corporation with authority across the pipeline.

Canada is already putting billions into R&D tax credits, grant programs and growth funds, Zhang noted.

“But because those tools aren’t sequenced or aligned, they don’t compound. Instead, they stall. Firms get stuck between programs. Technologies die in the demo stage. Good ideas don’t scale. The cost is rising: more spending, slower results, fewer firms making it big,” he said.

“If we don’t fix the structure, we’re not just wasting money, we’re falling further behind countries that have. Not because they spend more, but because they build coherent systems that actually work.”

List here to Part 1 of Research Money’s podcast with Iain Stewart in conversation with Jeffrey Crelinsten, publisher of Research Money. Part 2 is here.

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