Roger Voyer

Looking through the wrong end of the telescope

By Roger Voyer

The federal government is at it again. It wants to improve Canada’s ranking in research and development by moving the Gross Expenditures on R&D (GERD) from about 1.5% of GDP today to 2.5% by 2010. This rhetoric has been going on for the last 38 years, ever since the OECD started measuring the GERD/GDP ratio of its member countries. It was found that Canada’s GERD/GDP ratio was a little over 1% in 1963, while those of other leading industrialized countries were much higher (for example, the US GERD/GDP ratio was more than 3% while the Netherlands’ was close to 2%).

So, over the years, exhortations to do better came from bodies such as the Ministry of State for Science and Technology, the Science Council of Canada, the Senate Special Committee on Science Policy, the House Standing Committee on Industry, Science and Technology, Regional and Northern Development and CATA Alliance among others. However, Canada’s GERD/ GDP ratio has remained stubbornly around the 1.5% mark, except in the early 1970s when it dipped below 1%.

The GERD/GDP ratio is an input indicator; that is, it deals with expenditures and as such is not a good indicator of performance. But this indicator can be turned around and viewed as an output indicator where it becomes a better indicator of performance. Simply said, the level of R&D expenditures over the last 40 years is what the Canadian industrial and scientific structure could absorb effectively; spending more would ‘leak’ through the structure and not be money well spent. It would be pushing on a rope. Our industrial structure, as it exists today, does not require much R&D and the GERD/GDP ratio gives an indication of the performance of Canadian industry within this structure.

To improve the GERD/GDP ratio would require addressing structural issues such as the fact that:

• The natural resources sector — which remains important — does not do much R&D and little downstream developmental work. We are great at extracting resources from the ground but poor at making end products from these resources;

• The foreign owned sector of industry, which is large, does its R&D mainly at its home base. Whatever R&D is done in Canada is done here mainly because it is cheaper to do than at home (a substantial 35% differential with the US dollar) and the results are largely transferred to the parent without much downstream development and commercialization in Canada;

• Federal R&D funds have, for political reasons, to be spread across the country despite the fact that industrial development, especially knowledge-based industrial dev-elopment, takes place in only a few clusters in Canada, such as Montreal, Ottawa, Toronto, Kitchener-Waterloo, Saskatoon, Calgary and Vancouver;

• Canada’s financial sector and the federal/provincial governments are not in tune with the financing needs of the ‘new economy’;

• Except in the emerging knowledge-intensive sector, high-level skills are not needed to exploit natural resources, to work in assembly operations in the manufacturing sector or for the ‘Mac jobs’ in the service sector.

  By addressing these issues and correcting them, Canada’s industrial structure would change for the better. There would be more advanced industrial activity and the GERD/GDP ratio would take care of itself. It would go up because more R&D would be needed!

Roger Voyer is an associate of the Impact Group and an adjunct professor in the Faculty of Administration at the University of Ottawa.