New report calls for increases in R&D investment to close prosperity gap

The Institute for Competitiveness & Prosperity (ICP) has once again laid down the gauntlet for business and governments with a series of recommendations for closing Canada's productivity gap with the US. The Univ of Toronto-based economic and policy research unit is encouraging all players in the innovation system to abide by changes embodied in its AIMS recommendations — attitude, investments, motivations and structures.

Mindful of the fragile business climate and deficit positions of the federal and provincial governments, ICP is adamant that targeted investment and innovation-focused policies are essential for Canada's future well-being. In its latest report on ways to achieve sustainable productivity growth, the ICP says increased business investment in R&D and information and communications technology by business and robust government investments in post-secondary education are critical for closing the so-called prosperity gap with the US, which increased to $9,500 per capita in 2010.

The ICP found that the gap in ICT investment between the US and Canada was $2,400 or 50% while the gap in machinery and equipment was $1,400 or 24%, as of 2010. If these numbers were on par with the US, the report argues the prosperity gap would be closed considerably.

"Business leaders do not invest adequately to put our firms at the leading edge of technology and research — and therefore cannot compete on the basis of innovation and value added," states the report. "Governments have put health care spending ahead of education spending, no doubt reflecting the public view. We need to invest more."

The report recommends increasing the number of international students attending Canadian post-secondary institutions, increasing the number of master's degrees attained and improving the student experience.

Entitled The Innovation Imperative: Steps to Canada's Prosperity, the report also argues that recent changes in the tax system — the introduction of the HST and the planned reduction in corporate taxes — are important in establishing the right fiscal environment for innovation to flourish. As a next step it recommends lowering the marginal effective tax rates for low-income Canadians.

"Canada has taken bold strides to raise the motivations for new business investment. These changes are moving Canada from one of the worst jurisdictions among developed economies in the taxation of new business investment to one of the better ones," states the report. "We continue to recommend that provincial and federal governments explore the benefits of a carbon tax to realize the environmental and economic benefits."

The ICP is also bullish on expanding research investment beyond the hard sciences with greater recognition of the contributions of other sciences and management skills to competitiveness and prosperity.

The report also recommends that the federal government replace the net benefit test for takeovers of Canadians firms with bilateral reciprocity treaties.

"Foreign acquisitions of Canadian firms, while often painful to our collective psyche, are usually beneficial to our economy," it states. "It was not at all pleasant to have RTZ buy Alcan and turn it into a tightly-managed subsidiary. But it was critical that the United Kingdom allow Thomson to buy their Reuters ... That is reciprocity in action."

The full report can be found at: www.competeprosper.ca.

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