STIC report's benchmarking of Canadian STI calls for aggressive policy response

Canada's performance "middle of the road"

Canada's first comprehensive benchmarking of its S&T and innovation (STI) system reveals serious gaps in the nation's performance and systemic weaknesses that must be corrected before meaningful productivity gains can be achieved. The report by the Science, Technology and Innovation Council (STIC) ranks Canada as a "solid, middle-of-the-road performer" that must deal forcefully with low business R&D spending, collaboration between sectors, supply of talent and international partnerships or risk being overtaken by more aggressive nations.

State of the Nation 2008 is the first of a biannual exercise by STIC to position Canada amongst the world's innovative nations by using more than 50 domestic and international standards of excellence. Some key indicators — particularly those that provide insight into the R&D performance of specific business sectors — could not be used due to lack of timely, comparable data. But STIC chairman Dr Howard Alper says the report is a critical first step upon which subsequent editions of the report will be built.

"Funding for government R&D has not kept pace with growth in the economy. As a share of GDP, Canadian funding for government R&D is well below the G-7 average, and the gap between Canada and the G-7 is growing."

- State of the Nation 2008

"The report points to a number of issues — positive and negative — in talent, literacy issues, collaboration among different groups. We need to do much more especially in areas like international partnerships," says Alper. "In two years, we'll see where we have improved or not. By having data on the different sectors we should be able to see the opportunities to advance the country … In 12 to 18 months, considerable progress (on sectoral data) will be made."

The difficulty of comprehensively tracking Canada's STI progress (or lack thereof) is of particular concern to STIC, which supports increasing resources and efforts to generate more surveys and analysis.

"Without the tools to understand how innovation happens, we will be unable to formulate appropriate strategies for improving innovation performance," states the report.

State of the Nation 208 closely follows a complementary report from the Council of Canadian Academies (CCA) on the reasons for Canada's low business R&D spending (R$, April 30/09). That study concluded that lack of business ambition was a major deterrent to enhancing Canadian innovative capacity and productivity, compounded by a predominance of upstream industries with too little contact with the customer. The CCA report zeroed in on Canada's decline in multifactor productivity (MFP) as a consequence of underinvestment in machinery and information and communications technologies.

Alper characterizes the CCA report as "very thoughtful" and singles out its insight on MFP as coinciding with STIC's observations on the STI landscape.

"Canada is having difficulty keeping pace with the best innovators ... Canada remains in the middle of the OECD pack of 30 countries and sixth in the G-7 in business R&D as a proportion of GDP. Low overall business R&D and commercialization in Canada has been a constant feature for 40 years."

- State of the Nation 2008

"One thing is clear and that is the need for a change in the culture of leadership in business and the need for business schools and faculties of management to modernize their curricula," he says.

building on niche strengths

Canada does possess world class STI attributes in several areas which are duly noted in the STIC report. A high level of public support for research, generous R&D tax credits, excellent scores among youth in science, math and reading skills and the performance of a small group of innovative companies are cited as evidence that Canada can compete with the world's best. But in each of these areas, weaknesses are evident that could undermine future performance.

Canadian public policy has emphasized support for university research, giving the country one of the highest rankings in the OECD. But poor commercialization results due to weak interaction between the academic sector and business and government has limited the impact of those investments.

"In the context of the knowledge-based economy, it is not considered sufficient for a country's universities to produce groundbreaking scientific research in isolation," states the report. "Effective links between the three principal funding/performing sectors are an important contributor to a successful national innovation system."

While the report acknowledges Canada's high standing in science and math scores, it notes that excellence in high school does not translate into students pursuing these disciplines at the post-secondary and graduate levels. As a percentage of all new degrees, Canada ranks 21st among OECD countries in the portion accounted for by science and engineering. A similar situation is also found with undergraduate and graduate degrees in business which lag far behind the US. That translates into a low level of formal business education among company managers and CEOs.

"If we adapt international best practices for Canada, focus our domestic efforts, maintain a watch on key indicators for success, relentlessly test the efficacy of our innovation support mechanisms , and act quickly to address areas of weakness, Canada will be able to compete with the best."

- State of the Nation 2008

Perhaps most troubling is the lack of correlation between Canada's generous R&D tax credits and business R&D expenditures. Indirect support through tax credits make up the lion's share of public support for business R&D. In 2007, tax assistance through the federal scientific research and experimental development (SR&ED) program totalled $3.7 billion.

But evidence is emerging that a more balanced mix between indirect and direct support can improve performance. "Direct government funding of business R&D, coupled with effective procurement policies, have proven effective for economic development in knowledge-based societies like Finland, the US and Korea," states the report.

"It's an issue that merits attention. It's another key component. Procurement policy is also crucial," says Alper.

The full report can be found at www.stic-csti.ca.

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