Total investment in higher education R&D is floundering

Ron Freedman is CEO of Research Infosource Inc., based in Toronto.

New data from Statistics Canada¹ strip away the sheen from the higher education research and development (HERD) funding picture and reveal a moribund – and in some instances, downright disturbing pattern of investment by the three key funding sectors.

On the surface, current dollar funding of HERD by all funding sectors appears to have risen by a respectable 27.7 percent between 2020/2021 and 2024/2025, or an average of 5.5 percent per year.²  But underneath the surface, we find a far more muted picture.  In constant (inflation-adjusted) dollars, funding rose only 5.2 percent in total or about one percent per year.

Focussing on the three key funding sectors³ – Federal Government, Business Sector and Provincial Government – shows the underlying reasons.

Whereas current dollar funding data demonstrate a seemingly respectable 17.6-percent rise in Federal Government funding in the five-year period, constant dollar data in fact demonstrate a decline of -3.1 percent.  In other words, a real erosion in research spending power.

A major cause of federal funding stagnation was funds allocated to higher education Natural Sciences and Engineering (NSE) R&D. Current dollars funding appears to have increased by about 17.1 percent, but inflation-adjusted support declined by -3.5 percent.

Federal funding of research in the Social Science and Humanities (SSH) appears to have risen by 19.4 percent in the period, but funding declined by -1.6 percent when adjusted for inflation.

Provincial funding leads the way

In contrast with federal funding, Provincial Government funding of HERD jumped by 44.8 percent in current dollar terms and 19.3 percent when adjusted for inflation.

Statistics Canada is unable to reliably discern provincial government support for NSE or SSH research, so we are unable to make use of those provincial breakdowns.

Business support for NSE R&D plummets

Business support for NSE R&D disappointed. Total current dollar funding declined by 29.6 percent over five years but when adjusted for inflation support plummeted by 42 percent, reaching a nadir of $587.7 million in 2023/2024 from a peak of $1.1 billion in 2020/2021.

Unpacking the data

There is a lot to unpack in the new Statistics Canada release. However, the overall conclusion is clear. In real, inflation-adjusted terms, external support for research in the higher education R&D sector has barely held up, increasing 5.2 percent in five years.

Much of that apparent growth reflects increases in the salaries of university faculty that are included in Total HERD Funding. Absent those data, total funding would be far less than indicated.

Federal support is down in real terms, falling -3.1 percent over the five-year period. Federal NSE R&D funding fell by -3.5 percent and SSH R&D funding by -1.6 percent.

However, the SSH result is probably flattered by Tri-Council funding that is attributed to the Social Sciences and Humanities Research Council in the federal system of research accounting, rather than to any real increases in SSH funding.

In contrast, provincial government funding is the only sector that posted a real gain, expanding in total by 19.3 percent in five years.  The reason for this increase is unknown – at the present time, a black hole.

How did we end up in this situation?

First off, public-sector funding of higher education R&D – the largest component – is a bottom-up exercise. Total federal and provincial support is simply the sum of individual program funding decisions. If the program mix changes from time to time, or the funding allocated to each program changes, so does the total.

Program priorities are primarily determined by individual departments and agencies and so ultimately, those are bottom-up political decisions and not top-down resource allocation decisions.

There is no top-down planning for government-funded research, for instance no linking of external government research spending to GDP or to total government spending or to revenues.

I am not arguing for this approach, merely pointing out there is no automatic escalator mechanism for external government-funded research. Each year, government (i.e. departmental) research spending competes for resources with all other departmental and government spending.  From time-to-time multi-year funding decisions are made but these seldom recognize the effects of inflation and so there is a natural erosion in the spending power of allocated funds over time.

Worryingly, business support for R&D in the higher education sector plummeted by 42 percent in real terms in the period and shows no sign of a turnaround. The precipitous decline in business funding is a real cause for concern.

Business-academic research partnerships underpin much of the rationale for public sector support of higher education research in the first place. It has implications for training, technology and knowledge transfer, commercialization and research partnerships between business and academe.

Business-higher education research relationships (and possible financial partnerships) are influenced by a complex web of factors: Business confidence, firm-level financial circumstances, firm technology needs, prior relations with universities and colleges (and hospitals), specific government programs for technology or training collaboration with institutions, grant amounts, tax policies, intellectual policy ownership policies, financial repayment requirements, outreach efforts by institutions, red tape, decision timelines, and most importantly, personal relationships established between academic researchers and their counterparts in industry.

There is an urgent need for some zero-based budget thinking about how to re-invigorate higher education-business interaction.

The new data raise many “why” questions that need further explanation. It is apparent that there needs to be a top-to-bottom independent review of research funding in the higher education sector, with priority attention to relationships with business.

The discussion also needs to be taken up in public hearings by the appropriate Commons and Senate committees in order to establish a degree of political urgency.  A modern-day Lamontagne Committee report is called for.

Reluctantly, I say it appears that the key national research funding agencies seem to have missed recent funding trends. Or if they have not missed them, they have been powerless to do anything about the deteriorating situation.

As such, none of the major government players is positioned to lead such a comprehensive review. Another mechanism will need to be found to chart a path forward.

Footnotes:

[1] Table: 27-10-0025-01 (formerly CANSIM 358-0162), Release date: 2026-10-16.

[1] Total HERD funding includes an imputed portion of the salaries of university faculty.  This distorts the funding situation.  In any event most faculty research salaries are underwritten by provincial governments and should properly be recorded in the provincial government account.

[1] Private non-profit, municipal government and foreign funding sources are very small.