In 2010 the federal government of Canada established an Expert Panel on Federal Support to Research and Development to provide advice on maximizing the effectiveness of federal support for basic research. To sustain the current level of prosperity Canada enjoys among first-world nations and maintain competitiveness in an increasingly challenging global context, the report specifies that significant advances are necessary in areas such as advanced materials, health, environmental sciences, and information and communications technologies (collectively classified as “high technology”).
Nevertheless, weak performance in business innovation and productivity growth (traditionally defined by BERD intensity) suggest that Canada is not well positioned to be an innovation leader. Among the report’s wide-ranging recommendations were a greater emphasis on direct support for business innovation, simplified program delivery and better access to risk capital for high-growth innovative firms.
There is good reason to be an innovation leader in the high technology industry. In the United States basic research has had an enormous impact on standard of living. A report by Edwin Mansfield cataloging the impact of academic research and industrial innovation on economic growth (Edwin Mansfield, “Academic Research and Industrial Innovation: An Update of Empirical Findings,” Research Policy 26, no. 7 (1998): 773-776) found that the social rate of return from investment in academic research was at least 40%. Likewise, a more recent study by the Science Coalition (Sparking Economic Growth: How Federally Funded University Research Creates Innovation, New Companies and Jobs, 2010) showed that “companies spun out of research universities have a far greater success rate than other companies.” Examples include Google, Medtronic and iRobot.
While these studies have provided the justification for public support of business research and development, the Expert Panel on Federal Support to Research and Development notes that “this justification is most compelling in instances where the activity is not likely to yield immediate profits or other benefits that can be limited to the individual research and development-performing firm, yet holds potential for longer-term benefits for society at large. Thus, the justification for government intervention is strongest in the case of basic research activities.”
Although the federal government appears to have understood that Canada’s long-term economic growth will be driven by science and innovation, their actions indicate otherwise. Doubling the size of the Industrial Research Assistance Program, shifting the funding priorities of the National Research Council away from basic research toward in favour of services that are driven by market and industry demand, promoting innovation through government procurement, investing in venture capital, and streamlining the Scientific Research and Experimental Development Tax Incentive Program) all fail to target basic early-stage research activities where justification for government intervention is strongest. Indeed, federal funding of the institutional costs of research for Canada’s universities average 23.3%, while the United States, United Kingdom and Australia provide 40-60%.
Federal stimulus packages designed to reposition Canada as an innovation leader should instead focus on expanding Canada’s ability to engage in early basic research while incentivizing programs that will help bring these discoveries to market. My next post will address how Canada can leverage this knowledge to strengthen its science and technology infrastructure.