POLICY EXPERTS WEIGH IN ON FEDERAL BUDGET

Paul Dufour, Principal, PaulicyWorks
"On a day when Canada's flagship technology company RIM was announcing yet more disappointing financial results, the federal Minister of Finance in his annual budget once again tried to address the gaping hole in Canada's innovation ecosystem-anemic private sector R&D performance.  Taking as his cue some of the recommendations of the Jenkins expert panel report on federal support for R&D, the Minister lamented the failure of the federal government to incite more R&D  and innovation from industry. This is not news. Canadian governments have tried unsuccessfully to affect behaviour in the private sector for decades now--- even the much-vaunted InnovAction strategy of 1987 launched by the Progressive Conservatives tried unsuccessfully to influence corporate behaviour with respect to innovative activity.  

To be sure, the generous R&D tax credits program (SR&ED) was an obvious target in yesterday's budget given its notoriety prompted by the Jenkins panel. And picking winners to shift federal support from non-targeted instruments like tax credits to grants and contributions is not beyond the pale for the Harper Government. Nor is the question of buttressing university research as surrogates for industrial R&D deficiencies.  Hence, the granting councils will be given new money (from reallocated funds of the spending review) to focus on university-industry partnership programs; the Business-led Networks of Centres of Excellence will be made permanent; and Genome Canada will get another $60M for applied research competition in health.  The "saupoudrage" (sprinkling) across several programs continues with two-year support to CANARIE, a large infusion into CFI, public funds for new venture capital and smart procurement, the usual ongoing support for CIFAR, targetted monies to selected research centres, and some largess to forestry innovation, in addition to the ongoing support to find alternatives to the isotope production technologies that caused a furor both at home and globally.

Expected as well was some action on the National Research Council targeted for remediation when the federal government appointed a new President two years ago. The NRC had been a focus of the Jenkin's panel report, but the budget remains coy about the changes saying only that the government will continue to consider ways to better focus the NRC on demand-driven research consistent with the suggestions of the Jenkins panel (for aficionados, the NRC mandate has always been explicit about serving industrial needs since its origins in 1916).   But NRC's long-standing  flagship Industrial Research Assistance Program (designed to support SMEs in technology assistance throughout the country) remains the "chouchou" [pet project] of the government and will benefit from significant re-allocated funding from the SR&ED.

Oddly, the budget appears silent on the digital economy strategy that was the pet issue of the former Industry Minister, now Treasury Minister. Little is said about public good science (not surprisingly) with a nod to mental health research, food security, NRCan's satellite data facilities, wildlife species at risk,  and national parks. The national science centres and museums do not take a hit, but are not given any new funding. The youth factor is not ignored with more funding for an industry internships program for graduates managed by MITACS, and aboriginal education gets needed attention. But environment and new energy are losers with the closure of the National Roundtable on the Economy and Environment and no new funding for the SDTC, the foundation established by the Liberals that supports clean technologies with private sector partners.

Sticking to its five year old S&T strategy, the federal government says little about any new strategy or vision.. meanwhile, Canada's competitors are ramping up their long-term focus on innovation and discovery. The global dimensions of the budget are thin (with large cuts to aid and foreign policy) , and references to the current round of free trade agreements focusing on key markets in Asia and Latin America. There is also a much anticipated international education report to be tabled soon to deepen educational links between Canada and international partners.  

In short, the science, technology and research communities overall have benefited from this budget, but can expect to be on the hook increasingly to show value for money.  Savvy communication to the public and polity will matter.

Dr. Richard Hawkins, Canada Research Chair in the Social Context of Technology, Professor in the Science, Technology and Society Program, and Fellow of the Institute for Sustainable Energy, Environment and Economy, University of Calgary

"There been much speculation about whether the first Federal budget from a majority Conservative government would strike out in bold new directions, or simply stay the course. For the most part it seems to have done the latter, especially on the science, technology and innovation file where rather higher expectations were at first indicated. The timely appearance of the Jenkins Report, and the apparent visibility of its sensible recommendations to policy makers in Ottawa, signaled some possibly significant changes in R&D policy at the very least. In the end, and despite moving in the general direction of several Jenkins recommendations, there is little here that indicates significant re-assessment or prioritization of the Canadian science, technology and innovation portfolio at the Federal level.

Most of the Jenkins recommendations that are reflected in the budget concern administrative changes that were long overdue and required no particularly imaginative stroke to address. Accordingly, most of the actions put forward mostly tweak the existing system in some respect. Where allocations are increased, the amounts are relatively minor - and made apparently without reference to any coherent strategy, as evidenced by substantial money trails, for connecting investments in "invention" (because that is all R&D is) with the broad scope and potential of Canadian industry as a whole to innovate, a phenomenon that goes well beyond invention and R&D as such. Contrary to the most visionary of the Jenkins recommendations, it would appear that the fate of the Federal science, technology and innovation portfolio is to remain largely a policy ghetto.  

The R&D tax credit system has been under critical scrutiny since it was begun, and most seem to agree that it has failed to meet expectations. Reforming it is a no-brainer, although it is not entirely clear whether the reforms outlined in this Budget will necessarily result in less federal money flowing to companies via this route, or that it will improve returns on this investment. The rules will change, but doubtless they will continue to reward lawyers and accountants in the accustomed fashion. Moreover, although certainly putting all of the eggs in the fiscal basket was a terrible strategy, simply redistributing them will not necessarily induce a better outcome. The actual evidence on this point, such as it is from rather too few economic studies, does not actually indicate that one form of government subsidy has much of an overall advantage over another. What really makes a difference is who actually does the R&D. As Jenkins rightly stressed, it is the business contribution, not the government contribution, that really counts here.

The most positive indication in the Budget is recognition that, ultimately, new companies don't need subsidies, they need markets. In every OECD country, government is the biggest single customer. Again, the evidence shows that this is the one form of government investment in R&D performers that can yield consistently high conversion coefficients in terms of inducing innovation-led growth in the private sector. For the Budget to acknowledge this is a positive step, although only a tiny new resource allocation appears to have been added to programs that assist companies in learning to leverage government contracts in this way.

Substantially increased support for IRAP, one of the few Federal programs that smaller innovative companies generally view with favor, is another positive step. However, the task of transforming the NRC as a whole has received a rather disappointing allocation  of $67m, an amount that might cover some of the cosmetic costs of conversion, but is completely out of line with what are likely to be the real costs of creating a much needed intermediate tier in Canada's innovation system, similar to Germany's Fraunhofer or Holland's TNO. Under its new leadership, the NRC is finally making this effort seriously. It is a shame that the Budget does not give them more encouragement.

The budget is at its most disappointing with respect to the role of higher education in the innovation system. This is important in that universities constitute the one part of the system the depends almost entirely upon the public purse. Statements about "reallocations" in research councils may be innocent, but they smack of  government setting the research agenda; prioritizing research spending according to assumptions that one form of knowledge has more market value than another. Economies grow largely because they are  able diversify and create new combinations of production factors. In a knowledge economy, diversity is everything, making the notion that you can pick or prioritize knowledge winners the most erroneous of all erroneous assumptions. Moreover, public investment in "blue sky" science has been shown consistently to yield the highest coefficients in terms of stimulating and supporting innovation. This unencumbered exploratory capability is also what virtually every survey has shown to be the principal value of university research to business. The Budget has a decidedly competitive agenda on the business side, but on the basic research side there is more than a tinge of winner picking.

The main focus of the Budget, however, is not on basic research, but on knowledge transfer, commercialization and industry partnerships. The problem is that there seems to be no awareness at all of how closely these outcomes are related to increasing our strengths in basic research. One cannot be prioritized and not the other. This is a lesson that our principal competitors learned long ago, but that we in Canada has yet to learn, so it seems.

The biggest overall winner in the Budget is the fossil fuels sector and the biggest loser is the environmental sector. The tragedy is that nobody seems to be making a connection between the goal of becoming an energy superpower and the goal of becoming a knowledge economy.  Indeed, with the curious exception of Forestry, none of Canada's huge resource and agri-food industries are mentioned in the same breath as R&D and innovation. If someone does not start connecting the resource, environment and agriculture files to the innovation file significantly and soon,  a budget ten years from now is likely to begin with the exactly the same dire statistics about business R&D performance in Canada as appear in the present one. If the goal is to be an energy super-power, and that is a reasonable goal, someone needs to look long and hard at what kind of superpower we want to be. Do we want to look like the US or Norway, who have leveraged energy resources intelligently to create knowledge industries, or like Venezuela and Saudi Arabia, who have not? If anyone would simply look, they would find that many Canadian companies are already very successful in this space. These should be our models.

The most significant omission from the Budget statement is any sense of overall strategy or plan for the future, based upon what Canada's current strengths and weaknesses are. A great opportunity has been  lost here, in favor of a rather helter-skelter assemblage of measures and allocations based upon a lot of dubious and sometimes spurious assumptions about innovation as an economic phenomenon and how it contributes to growth and employment. We can only hope that somewhere down the line someone will realize that new engines of growth are not created merely by turning the knobs on old engines.

Dr. Peter Phillips, Professor, Johnson-Shoyama Graduate School of Public Policy, University of Saskatchewan
"The focus on science, technology and innovation (STI) in yesterday's federal budget surprised me-really! While the Conservative government has been quietly talking about and studying our investments in science and their impact on the economy, it was far from clear until the budget speech that they would actually do anything.

As a scholar who studies innovation policy in Canada, I had the feeling that this government was never going to make any decisions.  The structure of federal STI institutions, programs and spending is mostly a holdover from the Chretien government, and it is beginning to show its age.  While the Conservatives in minority set up a range of expert advisory groups-such the Science and Technology Innovation Council (STIC) and the Jenkins expert panel on R&D-and got significant advice that things can and should be changed, they seemed to be indifferent to the policy issue.

During the general election in 2011, the Conservative Party platform was silent on the area of STI-moreover, there was virtually nothing said about STI during the campaign itself.  So it was hard to get a sense of what the government might do in this field.

In some ways, the details are secondary to the shift in message.  The budget-or as they style it 'Action Plan'-is entitled 'Jobs, Growth and Long-Term Prosperity' and the first set of substantive measures in the plan relate to supporting entrepreneurs, innovators and world-class research. Compared to past budgets, this is a dramatic shift in focus.

What that means in practice is less clear.  There were 17 specific measures the government announced in the budget details, ranging from $6.5 million over three years for research at McMaster University into health care delivery to $500 million over five years to sustain the Canadian Foundation of Innovation.

A quick scan of the 17 highlighted items suggests the government is seriously taking the advice it was given.  The key message of most of the expert advisory groups in recent years is that Canada's significant investments in science in the past decade have led to research excellence, but that too little of the results have been translated into use. In short the economic returns on the investment are inadequate.
This budget starts to address that.  First, core funding for science infrastructure (such as the CFI, the granting councils, Genome Canada, CANARIE and CIAR) has been sustained. But somewhat surprisingly, the rumored changes at the National Research Council appear to be proceeding, with $67 million allocated to refocus the institutes to become business-led and industry-relevant. Given that the NRC is Canada's single largest R&D organization, this will have a significant long-term impact on Canada's performance-some are enthusiastic and many are skeptical about the new direction.

Second, the budget has indicated the government intends to invest heavily in translating research results into use.  The government announced $400 million to spur creation of large-scale venture capital funds, another $100 million for the Business Development Bank of Canada, a federal agency, to support venture capital and $110 million to double resources for the NRC Industrial Research Assistance Program (IRAP), which offers support for small and medium sized businesses to adapt and adopt technology.  A half dozen other extended, renewed or new programs will spend $226 million to accelerate commercialization of science.

How does it add up?  The budget identifies almost $1.6 billion of discrete targeted spending (compared with a federal budgetary base of $10 billion annually on research related investments). But at the same time it  announced a set of changes to the Scientific Research and Experimental Development (SRED) program, including revising some of the rules and lowering the tax credit rate, with the plan to reduce the tax expenditure by about $1.3 billion, about one-third of the cost from 2011.  While some companies may be unhappy, there is significant support in the research and business community for the intent behind the changes, if not the impact.

If there is one take home message, it would be that science, technology and innovation policy and programming is now at the core of the government's fiscal plans and changes are happening. While the changes may be slow and small at the start, they could be the most important measures in the budget that will define the future of Canada."