Government support of research and development should focus on expanding its ability to engage in early basic research, where justification for government intervention is strongest, while incentivizing programs that will help bring these discoveries to market. To better appreciate this point we need look no further than across our largest border. Over the last three decades American universities have taken on a greater role in research and development as many large corporations have shut down or repurposed their central research laboratories.
Bell Labs (a subsidiary of AT&T until 1995) is an excellent example. Founded in 1925, Bell Labs built the world’s most advanced and reliable telecommunications networks due to seminal scientific discoveries initially funded by a government grant of 50,000 Francs (~$250,000 in current dollars) awarded by the French government to Alexander Graham Bell in 1880. Because so much of their results spilled over to other firms and industries, the incentive for Bell Labs to continue to perform this kind of foundational, generic research began to wane as competition in the telecommunications industry arose in the 1980s and 1990s. In response, Bell Labs was restructured to focus on more incremental technological improvements with shorter-term payoffs.
Like Bell Labs, American companies have since continued to shift their corporate research and development to later-stage applied research and development in response to competition pressures, and between 1991 to 2008 basic research as a share of total corporate research and development funding in the United States had fallen by 3.2%, while applied research had fallen by 3.7%. In contrast, development’s share has increased by 6.9% (from the National Science Board, Science and Engineering Indicators 2010, appendix tables 4-7, 4-8, 4-9 and 4-10).
This is not only true of the U.S. but of Canada as well:
“Today, more than ever, successful innovations come from companies involved in partnership arrangements, whether with other firms or with knowledge institutions. This is a significant change from 40 or 50 years ago, when innovations generally came from large firms acting on their own.
In short, the innovation landscape has changed. And the rate of change is accelerating.”
– The Honourable Gary Goodyear (Minister of State, Science and Technology), 12th Annual Re$earch Money Conference. April 9, 2013
The prioritization of investment toward shorter-term, less fundamental research, such as ispresently being implemented by the Canadian government, stifle innovation by shrinking the knowledge pool that sustain later-stage research and development pipelines. In the U.S., universities currently perform 56% of all basic research, compared to 38% in 1960, which they pass on to the private sector in the form of patents. Between 1991 and 2009, licensing income in the U.S. increased from $1.9 million per institution to $13 million per institution, and new start-ups formed as a result of university research increased from 212 in 1994 to 685 in 2009 (see Richard Kordal, Arjun Sanga and Reid Smith, eds., AUTM Licensing Activity Survey: FY2009 Summary: A Survey Summary of Technology Licensing (and Related) Activity for U.S. Academic and Nonprofit Institutions and Technology Investment Firms; and Robert D. Atkinson and Scott M. Andes, The 2008 State New Economy Index: Benchmarking Economic Transformation in the States.
The Expert Panel on Federal Support to Research and Development highlights this point by explaining that “the strength of the justification [for public support of research and development] declines as research activities progress through the various stages leading to commercialization – i.e., from basic research through to applied research, experimental development, and commercialization. The benefits of these successive activities are progressively more likely to be captured by the research and development performer, and there is correspondingly less likelihood of ‘spill-over’ to the larger economy.”
The Canadian government could not be better positioned to revitalize its science policy. Canadian postsecondary education is already recognized worldwide for its excellence, Canada presently graduates significantly more high-calibre research PhDs than it can gainfully employ, and the recent combination of automatic spending cuts the American public instituted to their federal budget this year, deadlocked Congress, and the diminishing support by the American government for the basic sciences has created a unique opportunity for Canada to reverse the brain-drain and establish itself as a world leader in knowledge market. By investing in more independent research positions that foster linkages between public and private sectors, re-evaluating the role scientists play in primary research institutions, restructuring patent laws to better reflect scientist contributions and incentive academics to partner with private companies to bring products to market, it is possible to leverage existing scientific infrastructure, bridge existing disconnects between research and development, and sling-shot Canadian innovation in the high technology sector into a dominant global role to drive economic growth in this country.
The Council of Canadian Academies ranked Canada’s science and technology as fourth in the world behind the U.S., the U.K. and Germany. It is time we start aiming for number one. Let this be this administration’s legacy.