State of the Nation 2008

Assessment and Way Forward

By comparing Canada's performance against other countries, there is much that we can learn about the dynamism of our economy, and our ability to maximize the economic and social benefits of new research, products, services, processes and business models. We have choices to make and strengths on which we can build. There are also areas where our performance is not among the world's best. This is natural. No country leads in everything. To get to the very top, we need to know where we are now, understand how we got here, agree and act on where we choose to excel, and then track our performance relentlessly.

Canada is having difficulty keeping pace with the best innovators. Our benchmarking with others and against our own performance over time shows a pattern of modest improvement, but the effort has been insufficient to bring Canada to the G-7 average, let alone position Canada as an international leader. Canada remains in the middle of the Organisation for Economic Co-operation and Development (OECD) pack of 30 countries and sixth in the G-7 in business R&D as a proportion of Gross Domestic Product (GDP). Low overall business R&D and commercialization in Canada has been a constant feature for 40 years.

There are some distinct Canadian characteristics worth observing. Canada has one of the most advantageous innovation tax incentives in the world providing between $3 and $4 billion in the form of the Scientific Research and Experimental Development (SR&ED) tax credit. Eighty percent of venture capital (VC) is used in the information, communications and technology and pharmaceutical industries. Public policy and business realities have made universities more important centres of R&D than in other countries.

At the same time, we need to emphasize that innovation is more than R&D. Many companies are bringing value to the market by using knowledge that does not necessarily come from R&D. We have significant limitations in measuring this type of innovation — that is knowledge gained through learning by doing and using and through collaboration outside the firm.

There will be profound changes in the North American and global economies in the coming years, reflecting changes to the industrial structure and the emergence of new economic realities. The best way for Canada to adapt to these changes, and even excel under these trying circumstances, is to ensure that our economy is flexible, efficient and dynamic. Shaking off complacency to achieve a more innovative Canadian economy will not only need a dedicated commitment of resources: it will require providing the right stimulus and incentives for innovation; fostering a business culture that sees innovation as a key driver of value; and enhancing the capacity of all elements of our innovation system to work together to create value for all Canadians.

The STIC examined sets of indicators that measure the performance of individuals, institutions and companies. Current indicators are not sufficient to the task. For example, we chose not to include a more detailed discussion of business R&D by sector, as conclusions would have been based on 2002 data, which were the most recent data available.

We know that innovation activities that result in new products and processes are reasonably well captured in data presented, but innovation that results in new business models, business practices or market development is not. This is a result of relatively infrequent surveys of innovation in services, manufacturing and in resource-based industries, and often, the difficulty in comparing international results by sector.

We are also limited in understanding the dynamics of collaboration. Our data allow us to count the number of collaborations by companies or public research institutions, but we know very little about the kinds of collaboration being done. We also do not know which collaborations have been successful and which have not, whether collaborations differ by industry, or the extent to which these collaborations involve only domestic companies or are global in nature. Many of the same challenges exist for international patent data, which is why data on patents have not been included in this report.

Much of the information that we need to analyze the profound changes in our economy will have to come through surveys of innovation plans, activities, linkages and outcomes. Surveys will need to be carried out with sufficient frequency to illuminate change. Businesses and governments need to think now about how official statistics are structured and compiled. They need information to help them assess the economic and social impacts of innovation. At the same time information must be collected in ways that minimize costs to respondents, particularly small and medium-sized businesses.

Canada has a proud history of scientists who pushed back the frontiers of knowledge to benefit humankind. Canadians have made groundbreaking discoveries and turned scientific discoveries into the products and services that make our lives better. Just as we prepare our athletes to be the best, we must enable our scientists and entrepreneurs to learn by working and competing with the best. If Canadian research and entrepreneurship are conducted at international levels of excellence, they will continue to be a source of national pride and prosperity.

To move forward we recommend devoting attention to the following areas:

Talent — developing a highly qualified workforce attuned to innovation opportunities

  • Young Canadians are excelling in science, mathematics and reading in comparison to their peers in the OECD, ranking in the top five in each of these categories. We must keep up with others who are improving their rankings.
  • In comparison to those in other OECD countries, few Canadian students are completing Master's and Doctoral programs in areas that drive discovery and innovation. Companies, governments, and universities can encourage more Canadians to complete advanced degrees by educating students on the range of S&T careers and providing students with career opportunities in S&T development, application, management and financing.
  • Canadians in the workplace who apply and adapt new technologies can drive innovation to new levels. Canada has not made progress in a decade in increasing the proportion of Canadians with basic literacy and numeracy skills. Governments and employers must champion adult literacy and technology training to address this skills deficit.

Knowledge development and transfer

  • In Canada, governments at different levels and the private sector have chosen to build research capacity at institutions of higher learning. Focusing resources of all sectors on research priorities, conducting research at international levels of excellence and better using research facilities at universities and colleges to train students in state-of-the-art facilities can help improve innovation performance and benefit companies.
  • Turning R&D excellence into jobs and a better quality of life depends on building strong connections among customers and suppliers, scientists and managers and managers and teachers. We need to advance the transfer of knowledge between science and business.

Business Innovation

  • Canadian companies do not invest as much as their competitors around the world in R&D. We have made little progress in understanding why these competitors are more likely to see investments in the lab and on the shop floor as contributing to their business goals. This understanding is fundamental to evaluating the efficacy of policy instruments to stimulate innovation.
  • How Canadian technology companies finance their ventures and the availability of different sources of risk capital at different stages of business development can have a significant impact on commercialization success. Business associations and the venture capital industry can assist in the understanding of this area.

Tracking Progress

  • More resources and greater effort must be devoted within the innovation system to capturing data, which better explain how individuals, companies and other institutions innovate. This can be done through business R&D and innovation surveys, sector specific technology surveys and user surveys on information technologies and their applications. Without the tools to understand how innovation happens, we will be unable to formulate appropriate strategies for improving innovation performance.

Conclusion

All participants in the innovation system have a role to play in strengthening Canada's innovation capabilities. In the STIC's view, Canada has strong foundations on which to build. Many Canadians are leading the way with the support of all levels of government. 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.