Policy experts, business execs can't agree on value of Budget's innovation initiatives

11th annual RE$EARCH MONEY Conference

Starkly opposing views on the latest federal initiatives to support and stimulate innovation emerged as business executives and policy makers convened last week at the 11th annual RE$EARCH MONEY Conference to assess the 2012 Budget. While most agreed that the Budget's S&T measures represent a first step in responding to the Jenkins Report and the beginning of a fundamental shift towards industry-driven innovation, that's where the consensus ended.

Canada's prevailing innovation policy is largely based on support for corporate R&D and deepening the talent pool, but many contend that it's increasingly at odds with the needs of industries competing in a globalized business environment. The Budget includes more direct support for business and a less generous tax credit system but is weak in its support for sales and marketing that would assist firms in "going global" from the outset.

In addition, many existing programs in support of research and innovation are considered slow and cumbersome and are of limited value to growing firms who need support to quickly respond to market opportunities.

Peter Nicholson, a veteran policy maker, innovation leader and former head of the Council of Canadian Academies, told the conference that Canada's past successes — despite a low-innovation equilibrium — are becoming untenable as a profound disruption of traditional market and business models combines with low productivity and competitiveness to further disadvantage Canadian industry.

The dilemma is compounded by truncated end-user strategies (compared to the US) with a heavy reliance on branch plant operations.

"Innovation policy is largely an R&D policy with academic intermediaries. A philosophical shift is required to shift from R&D to market and sales support," said Nicholson. "R&D and talent are fine to start but we need to walk and chew gum at the same time. They're a mosquito bite compared to the market forces I've been discussing."

Financing for innovative firms has long been a major source of concern within the S&T community but the Budget's provision of $400 million in early-stage support was deemed by many as inadequate and misdirected. Tech entrepreneur Dr Adam Chowaniec said the funds — whose use the government has not yet revealed — could be better employed as additional tax credits for the private sector.

David Watters, president of Global Advantage Consulting Group Inc and a former senior official with Finance Canada and Industry Canada, concurred, suggesting they be used as seed funding for private capital, much like the current and successful tax credit program in British Columbia. He added that cloud funding — which was recently approved for capitalizing start-ups in the US — could also be a potent new source of effective capital.

Watters said the Budget is more notable for its "secret 13 or 14 pages" outlining a stronger emphasis on open trade to bolster the GDP, estimated at $9.7 trillion over the next five years. During that period, R&D will total more than $150 billion, relegating the Budget's $1.1 billion in new expenditures over the same period to "a drop in the bucket" status.

For innovative companies, the Budget's measures are mixed, depending on the sector and its composition of large and small firms. Lynda Leonard, senior VP of the Information Technology Association of Canada, is concerned with the reduction of tax relief through the Scientific Research and Experimental Development (SRED) tax credit program. She said that the Industrial Research Assistance Program (IRAP) is a positive move for smaller firms, but SRED is the only program accessible to larger companies, particularly in the information and communications technology sector.

There's too much focus on small- and medium-sized enterprises (SMEs) at the policy level, ignoring large, multinational companies that often have to compete internally to secure R&D mandates.

"New direct support is coming at the expense of the value of SRED which will produce outcomes we don't want," said Leonard, adding that the Budget is silent on the need for measuring outcomes.

energy strategy needed

Clean tech expert Celine Bak was more positive, noting that two out of three recommendations her group —Analytica Advisors — made prior to the Budget were included among the new initiatives. These are the concierge service that will be administered by IRAP and a permanent procurement program (Canadian Innovation Commercialization Program). The recomm- endation not included was a sector-specific strategy and support. She also noted that a national strategy for energy could assist in growing the clean tech sector and its inclusion in traditional energy sectors.

"The integration of new sectors (like clean tech) into traditional sectors is essential," she said. "We need a national vision and plan for energy. Clean tech could be the innovation leg."

David Ross, CEO of family-owned Ross Video, says there is little support to help growing firms commercialize products and find foreign sales talent, adding that the Export Development Corp is a notable exception. While Ross Video, Iroquois ON, has benefited greatly from IRAP and SRED as it grew from small- to mid-sized, SRED became less valuable as the company expanded into other countries. Ross suggested altering the SRED program so that its tax credits grow in tandem with an increase in export sales.

"Instead of creating a new program that is difficult to sell politically, if you made a tweak to SRED that said, if you are an exporter … SRED would increase as sales grow," he said. "You get to act like a start-up again. Reward success. It would help to develop the mid-sized companies everyone is looking for."

The role of innovation intermediaries was the focus of a key conference panel which sought to assess their contributions to innovative company growth and how the Budget supported their objectives.

Robert Luke, assistant VP Research & Innovation at George Brown College, was generally positive on the Budget's shift of granting council funding towards targeted areas — particularly the social sciences —and lauded initiatives such as $500 million for the Canada Foundation for Innovation and the doubling of the IRAP Budget. He urged more programs to require both universities and colleges to be involved as they bring different skill sets and values to collaboration.

"Engineers coming out of our universities are not taught how to make stuff," said Luke. "U of T engineering students come to our campus in the summer to learn."

Mario Thomas, managing director of the Centre for Commercialization of Research, took a far more negative view, asserting that the Budget contained few initiatives that could be called visionary and included cuts that reduce the impact of departments such as the Department of Foreign Affairs and International Trade.

"There's nothing in the Budget. It lacks courage and conviction — same old same old," said Thomas. "Cuts to DFAIT are a contradiction of what government says it wants to do, which is to help companies go global."

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