Looking beyond Canada for innovation that works

Analysis

By Dr WE (Ted) Hewitt

In releasing their long-anticipated report this fall, the members of the Expert Panel for the Review of Federal Support to Business Research & Development have done this country a great service. But in its strict adherence to the rather circumscribed review guidelines established by the federal government, one may well ask if the report goes far enough.

In my view it does not. What is needed is a complete rethinking of the broader innovation system. Rather than focusing on programmatic changes, start from a clean slate by looking at what is working in international competitor economies.

In terms of dollars, for example, the Panel's report indicates that within the OECD, Canada performs poorly overall in terms of R&D investment — the sole exception being in the areas of research expenditures in higher education where rates of knowledge translation to industry are reputed to be lowest.

Other acknowledged innovation leaders, however — Sweden, Finland, Israel among them — have achieved rates of expenditure twice that of Canada at around 4%. The question in the end may not be so much the actual number, but the target. What should it be?

South Korea, another global innovation leader, has set its sights on a 5% target by 2013. And, in emerging economies, where such overarching goals may be less easily attained, governments are looking at other novel ways to support R&D, such as by tying funds available to R&D support agencies to government expenditures. In Brazil, for example, the Sao Paulo State Research Funding Agency, which supports both basic and applied, industry-relevant research, receives by law 1% of state expenditures each year. Thus, as the economy grows, so do investments in the furtherance of innovation.

choosing incentives

Of course, we need to think carefully about where incentives are targeted to ensure maximum leveraging. The Panel's focus, for example, is squarely on small- and medium-sized enterprises (SMEs). Undoubtedly we have our share of high-flyers. Yet there are limits to the R&D capacity of Canadian SMEs, many of which are tied to the very circumscribed product needs of the much larger manufacturers and assemblers on whom their income depends.

The greatest potential for increases in R&D investments in Canada may come from large multinationals which tend to do the bulk of their R&D work offshore. Perhaps we should consider more aggressive direct funding and leveraging programs to attract more of this investment and more of this work to Canada.

nrc should consider the fraunhofer model

Extracting full value from the know-ledge system in Canada offers other unique challenges that can only be met by a serious rethinking of how things are currently done. Proposing a functional dissection of the National Research Council may help, but it is not a game changer. Consider the model of the Fraunhofer Society of Germany. Owned by the German government, it maintains a network of over 50 institutes across that country.

Core government funding, however, amounts to no more than 30% of its operating costs; the remaining 70% comes from institute partners — most notably industry. The result is a highly effective and trusted innovation platform that serves as the de facto research organization for many of Germany's technology leaders and manufacturers of some of the best-known brands in the world.

Rather than dismantle the NRC, perhaps we should be thinking of using the Fraunhofer and other successful models to build a uniquely Canadian R&D powerhouse that works in collaboration with industry, government science, and the post-secondary sector.

As for our universities and colleges, these have received much criticism for their seeming inability to ensure appropriately high levels of collaboration with industry and particularly the transfer of intellectual property in the service of commercialization. To be fair, post-secondary institutions take their mission of service in this regard seriously. Collectively, they generate over $50 million each year in royalties from products and services, representing about 3% of the value of products sold each year — a remarkable $1.7 billion.

The Panel's report does note the near $800 million in collaborative research that universities undertake with industry each year. Even within the most research intensive institutions, however, this represents only about 10% of annual research expenditures. Imagine the impact on innovation if we could find a way to increase this to just 15%.

Getting there would require a serious rebooting of programs like the Industrial Research Assistance Program — now tied to NRC but with tenuous links to universities and colleges. Another option would be to expand funding for industry-focused university-college-industry networks such as the Centres for Excellence for Commercialization and Research, or new ones modeled on the UK's Knowledge Transfer Networks, such as the Quebec-based consortia CRIAQ (supporting sectoral R&D in aerospace) or PROMPT (supporting the ICT sector).

innovation for what?

Perhaps the most fundamental question to be asked in all this is why? Innovation for what? Much of the discussion around innovation, as compared to other successful economies, has occurred in the absence of any serious debate regarding the need for an industrial policy in Canada. In its place, we have areas of focus as defined by Canada's Science and Technology Innovation Council — in the life sciences, the environment, information and communications technology, natural resources and energy. Collectively these do not represent "policy"; only broad direction.

Undoubtedly we need to take action, and the R&D review panel has this exactly right — the Industrial Research and Innovation Council proposed by the panel may be just the vehicle to lead this. But the broader need is equally clear: as a nation, we need to set priorities, whether in terms of economic goals and objectives, rates of R&D investment, and perhaps most importantly, the establishment of novel and truly innovative programming that will get us where we want to go.

Dr WE (Ted) Hewitt recently completed a seven year term as VP research and international relations at the University of Western Ontario.