Ron Freedman

Canadian Innovation: Stuck in Neutral

By Ron Freedman

There are four major reviews of Canada's S&T system under way today. As it happens, all are being led or commissioned by Industry Canada. A new S&T strategy is being devised. An S&T benchmarking exercise is being conducted. A value-for-money review of the three granting councils is under way. In addition, Canada's strengths in science and technology, and future prospects are being studied by the new Council of Canadian Academies.

What are these exercises likely to report? Here's a prediction: Canada performs well on many international measures of S&T; Industry doesn't spend enough on R&D; Canada has one of the world's most generous tax credit systems for R&D; We have trouble financing innovative companies; we're not getting enough (commercialization) output from our investment in university R&D; we need to train more business-oriented highly qualified personnel. All four reviews will be silent on the topic of in-house federal R&D. In short, expect nothing new.

INNOVATIVE NEW APPROACHES REQUIRED

Following is what you are not likely to learn from the various reviews.

In the past five years, we've made no real progress on any important innovation indicator - except the input indicator for university research funding. Our gross expenditure on R&D (GERD) is stuck at around 1.8% of GDP. The number of industrial R&D performers is languishing between 10,000-11,000. Corporate R&D spending has declined in real terms. University output of published research papers in the world's leading scientific journals hasn't increased substantially in more than 15 years.

The proportion of Canadian university students pursuing graduate degrees in science and engineering is flat. In real terms, federal intramural spending on R&D is less than it was 10 years ago. University commercialization income has declined (although patenting has increased). Formation of university startups has stalled. In short, we're stuck in neutral and we require a new approach to improving national prosperity - one that is not incremental, has the potential to propel us to another level, and is not simply more of the same. In short, we need to make our innovation policies and programs as innovative as we want the economy to be. Here are a few suggestions.

1. Eliminate tuition for graduate training in science, technology and health disciplines. Provide half-price tuition for undergraduate training. Let's stop bemoaning the fact that sufficient numbers of young people aren't enrolling in science and technology programs. There's no single better or less expensive way to significantly boost the enrollment of Canadians in university S&T graduate programs and increase the number of qualified graduates.

GIVE UNIVERSITY TECHNOLOGY TO COMPANIES

2. Give all technology developed in our universities free, on a non-exclusive basis, to any Canadian company. Royalties can be negotiated based on sales, but not on licences. Total commercialization income to our universities ranges about $60 million a year, against costs of $40 million. The gross profit - around $20 million - is distributed to individual researchers, effectively leaving no profit for the institutions. For these paltry amounts, why bother negotiating complex licensing agreements and turning off potential licensees? Let's just give the knowledge away and let our entrepreneurs develop the technology. Federal and provincial governments should compensate universities and inventors for the increment in foregone licensing revenue (around $4 million per year). And firms could still negotiate exclusive licences, but they'll need to pay market value. The international publicity and branding value alone will exceed the cash costs.

ADVERTISE CANADIAN INNOVATION WIDELY

3. Advertise innovation resources. Why are company owners and managers not beating down the doors of our post-secondary institutions for help? The real challenge of university technology commercialization is that it is almost entirely based on a technology-push model. The biggest challenge is to stimulate industry demand for the knowledge and technology that our universities and colleges can offer. Start a program of hard-core radio, print (and possibly TV) advertising aimed at business owners and managers concerned with their companies' future, to drive them to universities and colleges that can provide them with technology, research and engineering help. We need to raise awareness and build ongoing relationships between the academic and business sectors.

4. Start a comprehensive push towards industrial modernization. Canada needs to ensure that all its industries are modern and competitive. Even such prosaic industries as forestry, mining and agriculture are already high-tech activities competing with other high-tech industries abroad. But too often, our domestic producers are lagging behind their competition in adoption of new technology and methods. It's going to be a very long time - if ever - before such glamour industries as biotech or nanotech begin to make any noticeable contribution to national prosperity or GDP. Meanwhile, we need to earn our way in the world. The best way is to ensure that every industry is as modern in its operations as possible, and competitive with its counterparts in the leading countries.

5. Flow-through shares for emerging technologies. We need to treat emerging technologies such as nanotech and biotech in the same way as we do oil exploration - they're high-risk enterprises with at best long-term payoff. We need to lessen risk for investors and entrepreneurs and extend the same tax benefits as we do for exploration.

REFORM SR&ED

6. Reform the SR&ED tax credit system. This much-touted but under-performing Goliath is an aging initiative that delivers mushy outcomes. Most users are opportunistic companies looking for handouts for normal business activities. Few companies are consistent R&D performers. Program leverage is scant. Approval standards have gone out the window. This is Canada's largest single innovation program and it's in dire need of change.

7. Update Unsolicited Proposal Fund and bring it back. Possibly no other federal innovation program did as much to launch and nurture new high-tech Canadian companies as did the old UP program. Developing technology solutions for public policy challenges is an important way of stimulating company formation and growth.

8. Adopt an SBIR-style program. In the US, the Small Business Innovation Research program targets the entrepreneurial sector. The risk and expense of conducting serious R&D efforts are often beyond the means of many small businesses. By reserving a specific percentage of federal R&D funds for small business, SBIR protects the small business and enables it to compete on the same level as larger businesses. SBIR funds the critical startup and development stages and it encourages the commercialization of the technology, product, or service, which, in turn, stimulates the US economy. Let's get on the SBIR bandwagon.

9. Rejuvenate IRAP. Canada's flagship technology outreach program is in the doldrums. Not only is the IRAP budget in decline, but for the past number of years the program hasn't been able to spend the funds it did receive. Canada needs a new IRAP - one that is less risk averse and designed for the economic realities of the 21st century.

10. Drive health science technology innovation through medicare. The billions of dollars Canadians spend each year on health care do little or nothing to stimulate technology-based economic development, at least at home. We need to harness medicare as a tool of economic development.

11. Revitalize federal labs. Federal government laboratories have been languishing for a decade. It's not merely a question of financial resources and infrastructure - both of which are sorely in need of renewed investment - but of role. No government in the past 20 years has been able to articulate what it wants its federal labs to accomplish. Yes, there's always "support for policy", but is that the best we can do? There is enormous talent in our federal labs but that talent isn't focussed on prosperity to the extent it can and should be. We need to renew the role of federal labs in a 21st century context.

Some of these ideas run counter to conventional thinking and involve an element of risk. One sure thing is that more-of-the-same policy will produce more-of-the-same results. If we want an innovative economy, we need innovative policy ideas.

Ron Freedman is a principal of The Impact Group and co-publisher of RE$EARCH MONEY.