Support for business innovation targeted

The highly anticipated review of industry-directed federal R&D spending has kicked into high gear with the release of a consultation paper intended to encourage and frame debate on how best to allocate a major portion of the more than $7 billion Ottawa spends annually on R&D and innovation. Canadians are being asked to provide input to the Expert Review Panel on Research and Development before February 18th while panel members fan out across the country to engage stakeholders and policy observers in discussion.

The consultation process is expected to take between three and five months, after which the panel will reflect on the assembled input and make recommendations in mid-October to minister of state for science and technology, Dr Gary Goodyear. At the same time, the panel secretariat will prepare and periodically post research documents on its website (www.rdreview.ca) to stimulate discussion.

The panel's work and recommendations are the most closely watched examination of federal R&D spending since the release of the S&T Strategy in 2007.

The stakes couldn't be higher. More and more players are entering the highly competitive race to build knowledge-based economies around the world, accelerated by the impact of the Internet, new information and communications technologies and the determination of emerging nations such as China, India and Brazil to move up the innovation chain.

"With increased global competitiveness, the game has changed. This is absolutely the issue facing every nation state … Canada is ranked number one and number two in terms of public sector support for R&D yet the result is, we are middling in terms of outcomes, especially business R&D," says Tom Jenkins, panel chair and executive chairman and chief strategy officer of Waterloo-based Open Text Corp. "It's a huge conundrum for our generation. The stakes are quite high."

During his interview with RE$EARCH MONEY, Jenkins underscored the urgency of taking action by quoting from US president Barack Obama's January 25th State of the Union address, highlighting the sections dealing with R&D, S&T and innovation.

In his address, Obama said the current generation faces a "Sputnik moment", requiring investments in research, infrastructure and education. He elaborated on great investments in innovation by focusing on basic research, nuclear power , advanced biofuels and clean coal technologies.

"This is the country we're lagging in productivity against and they are also worried. What does that say about Canada?", says Jenkins, who was a member of the 2008 Competition Policy Review Panel chaired by LR "Red" Wilson (R$, July 7/08).

The six-member expert panel will build upon work already completed by the Council of Canadian Academies (CCA) and the Science, Technology and Innovation Council (STIC). Those bodies produced two influential reports — Innovation and Business Strategy: Why Canada Falls Short and State of the Nation 2008: Canada's Science, Technology and Innovation System — that single out the low level of business R&D spending in Canada as an issue of concern.

Those reports contend that until this issue is successfully resolved, Canada will continue to struggle in terms of productivity and competitiveness in relation to competing nations. Late last year, several major reports were released by the likes of Battelle and the Organisation for Economic Co-operation and Development (OECD). All give Canada poor marks for innovation and support for R&D, with may noting the weak performance of the private sector.

With the announcement of the expert panel last fall, many within the S&T community have questioned its composition, noting that only one member (Jenkins) comes from high-tech, while the majority are well-known academics (R$, October 14/10). Jenkins says while the panel may not include representatives from all sectors in which R&D plays a prominent role (manufacturing, natural resource extraction, etc), its members possess a wide diversity of knowledge of research and innovation.

"The panel is the epitome of diversity. We have a representative from each of the actors in the innovation chair and that speaks well for the panel. The consultation paper reflects that diversity," he says. "On the applied side, it's not representative (but) panels of five or six are very effective."

The 26-page consultation paper is broken into two main sections — public policy and business innovation and federal role and programs.

For public policy and business innovation, it notes that 80% of business expenditures on R&D (BERD) take place in Ontario and Quebec in sectors that account for 25% of gross domestic product. It draws heavily on the CCA report with the observation that "generally lower Canadian R&D spending within the same sectors in both the United States and Canada accounts for a greater portion of the (Canada-US BERD) gap" than does Canada's comparatively greater economic reliance on natural resource-related activities.

Further, the consultation paper highlights Canada's lower rate of graduate-level degrees and the paucity of venture capital in Canada relative to the US.

In the area of federal role in support for business R&D and programs, it notes that the mix or balance between direct (programmatic) and indirect (tax-based) incentives is a crucial issue that will be addressed. It also poses the question of whether Canada has too many small support programs.

"The policy mix needs to avoid inefficiencies arising from operating too many schemes at too small a scale," states the paper. The mix between direct and indirect support measures is another important consideration."

It references the STIC report which concluded that Canadian public support for business R&D "is heavily weighted towards tax incentives as opposed to direct measures" — a trend that has accelerated under the Conservative government.

The scientific research & experimental development (SR&ED) tax credit program is the single largest source of business R&D support, accounting for between $3 billion and $4 billion annually in foregone tax revenue, depending on the year. Jenkins says a review of SR&ED by the Finance department about three years ago has provided the panel with much useful information and that the program will receive a significant portion of the panel's attention.

SR&ED is just one of 44 programs listed in the consultation document as illustrative of the federal spending the panel is mandated to examine. Programs are categorized according to their intent: ideas and know-ledge (programs relating to more than one input to innovation), skills development, capital and financing and networks, collaborations and linkages.

Large, high-profile programs such as the Atlantic Innovation Fund, Strategic Aerospace & Defence Initiative and the Industrial Research Assistance Program are included along with the activities of the National Research Council and smaller targeted programs throughout government, including many strategic grants and chairs offered by the Natural Sciences and Engineering Research Council.

Yet the document makes clear that panel members have latitude in what they choose to examine:

"The Panel's activities may focus on any and all federal programs that have an impact on business or commercially oriented R&D," states the paper. "During the course of its work, the Panel may choose to examine programs that are not listed. It may also choose to exclude from examination some of the programs that are listed."

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