Kathleen E Sendall, chair of the Expert Panel on the State of Industrial R&D in Canada

Innovation isn't about connecting the dots

By Kathleen E Sendall

For those of us in the business community, it's a familiar narrative: Canadian firms conduct less R&D and are generally less innovative than their U.S. counterparts. Equally familiar is the idea that this seemingly myopic strategy of Canadian firms is the main cause of the Canada-U.S. productivity gap, and that it's only a matter of time before it catches up with us.

Meanwhile, the business community responds with an equally common refrain: We would like to conduct more R&D and innovation, but it's too costly and too risky in a small Canadian market. In short, we need government help. Taken together, it is therefore not surprising that the approach to business innovation policy in Canada has been largely unsuccessful.

In fact, as the Senate Special Committee on Science Policy (1970) reported, "Since 1916 … the main objective of Canadian science policy has been to promote technological innovation by industry … Almost every decade since the 1920s has witnessed renewed attempts by successive governments to achieve it but, on the whole, they have all failed." Even with the best of intentions, the business community and policy-makers are wedded to fundamentally different narratives.

A recent report by a 14-member Council of Canadian Academies expert panel, which I chaired, goes a long way to reconcile these narratives using timely, significant, and robust evidence. The Council –—an independent, not-for-profit organization that produces evidence-based expert assessments to inform public policy development in Canada — was tasked by the Minister of Industry to assess the state of industrial R&D (IR&D) in Canada. The resulting report, The State of Industrial R&D in Canada, is one of the most detailed and systematic studies of IR&D ever undertaken in Canada. The expert panel examined the best available data (commissioning the first Canadian review of industry-level patenting and publication) and academic literature to benchmark Canada's IR&D performance and to shed light on its relationship with science, technology, innovation, productivity, and economic performance.

Consistent with a host of other studies, the panel's report reproduces the troubling finding that the rate of investment in R&D by the business sector in Canada is low and declining — roughly half the level of U.S. investment when expressed as a share of GDP. I doubt this is news to anyone. Where our work departs is in its fine-grained analysis of IR&D strengths at both the industry and regional levels. By highlighting four industries of IR&D strength (aerospace, ICT, oil & gas, and pharmaceuticals) and significant regional variations, the report calls into question the conventional wisdom that IR&D performance is weak across the entire Canadian economy.

The report demonstrates that the large share of the Canadian economy accounted for by natural resources does not explain the IR&D intensity gap with the U.S. Rather, the gap is driven by a low IR&D intensity in the manufacturing sector, owing to a smaller share of high-tech manufacturing firms in Canada than in the U.S. We found that IR&D is more personnel intensive and less capital intensive in Canada relative to other countries, and that fewer large firms undertake R&D here. These findings all have important implications for crafting the most effective public policies.

A conceptually challenging undertaking was the panel's effort to examine the alignment between the identified areas of IR&D strength and Canada's areas of excellence in S&T research and economic performance. We found a general lack of congruence; however, there were some particular areas of alignment (e.g., between academic research and IR&D in ICT and clinical medicine/ pharmaceuticals). Noting that the strong performance of the Canadian academic sector coincides with relatively weak IR&D and innovation performance, it seems as if the dots don't connect. Is IR&D not that important after all?

After many deliberations, the panel established that, in fact, we should not necessarily expect the dots to connect. First, the relationships between academic research, IR&D, and innovation are complex and non-linear. In a way, expecting alignment is an artifact of the classic linear ("science-push") model that is pervasive in public policy. Second, the type of knowledge produced in academia and private firms is likely to be different since both groups respond to fundamentally different incentives. As such, S&T performed in the academic sector is not necessarily aligned with the IR&D needs of the private sector. Third, there are various aspects of the Canadian innovation model/system and market structure that reduce the need to adopt IR&D and innovation as core business strategies. As the Panel opined, Canadian firms are (only) as competitive as they need be.

Connecting the dots aside, should we care about the state of IR&D? Canada has strong economic and employment growth, vibrant post-secondary education, and a high standard of living despite low levels of IR&D spending and rates of innovation. This thinking is parochial, and might be costly in a time of marked global change. IR&D is critical in the development of new ideas, technologies, and processes to improve business performance.

It is often the key to unlocking the door to a set of products that revolutionize the very way in which we live our lives, and to access the best ideas produced in other countries, benefitting all Canadians. Importantly, we as a country are faced with a new set of complex global and economic challenges, ranging from the rise of emerging economies to climate change. These challenges demand that all types of innovation be strengthened, particularly by IR&D.

I am confident that The State of Industrial R&D in Canada will serve as an important benchmark and tool for future policy and decision-making for many years to come. Strong IR&D performance is an essential part of developing capacity for the future, thereby ensuring that Canadian firms can successfully compete in a global economy that is increasingly centred on knowledge and technology. I hope this report contributes to this task.

For more information or to download a copy of the panel's report, visit the Council of Canadian Academies' website, www.scienceadvice.ca.

Kathleen E Sendall is chair of the Expert Panel on the State of Industrial R&D in Canada, director, CGG, director of Enmax Corp; vice chair, Alberta Innovates – Energy and Environment Solutions and member, Sustainable Development Advisory Council (SDAC).