State of the Nation 2010


Executive Summary

Canada aims to be among the world's innovation leaders. To do so we must understand the components and connections in the science, technology and innovation (STI) system. A well-functioning STI system is built on the foundation of a strong talent pool, excellent research, public and private sector institutions that create value from research and development, strong systemic mechanisms for knowledge transfer and application, and successful commercialization of innovation within the private sector. It takes a well-functioning integrated system to move ideas from imagination to innovation to markets.

Innovation is more than research and development (R&D) — it is transforming knowledge into products and services that Canadians and others in today's global marketplace need, want and will pay for. To leverage knowledge into robust outcomes of better health, and strong and sustainable growth and jobs, we need to build and reinforce the paths to prosperity.

How good is Canada's science, technology and innovation system at delivering the outcomes we want?

Our talent pool is holding its own and the number of Canadian university graduates is rising, with especially rapid growth in doctoral degrees in science. Graduation rates in master's and doctoral science and engineering degree programs have risen substantially more than in other advanced economies and faster than the growth of advanced degrees in all fields of study. Fifteen-year-old Canadians continue to outperform most countries in reading, math and science. Canada remains in first place in the G7 in the proportion of citizens with an education beyond high school.

Broader outcome-based indicators of excellence in universities and colleges have yet to be defined and applied on an international basis. Canadian business has markedly increased the R&D it funds in universities, although this is still small — less than one tenth of overall R&D spending by business. Transferring knowledge from research institutions in universities and government to the marketplace and building a culture of innovation in business remain paths requiring attention. Generating wealth from commercialization is a valuable outcome of our commitment to science, technology and innovation (STI) — an outcome that benefits society both in economic and social terms. If we are underperforming in delivering the full value of our STI progress, we must seek to understand why and address these shortcomings.

Research and development performed by business in Canada is low by international standards. In addition, from 2007 to 2009 Canadian industry R&D declined further in both current and real dollar terms. Examinations of R&D intensity by industry, and in comparison with the same industries in other countries, indicate that in 2005, 8 out of 16 industries examined had lower R&D intensity than the OECD average. There were, however, some notable exceptions to Canadian levels of R&D performance. Business R&D intensity higher than the Organisation for Economic Co-operation and Development (OECD) average was performed in the paper, lumber and related industry; information and communications technologies (ICT) manufacturing industry; wholesale and retail trade as well as finance and communications service industries; transportation and storage industries; utilities; real estate and business services (including R&D and information technology (IT) services) industry.

Broadening the measure of innovation to include two important drivers of productivity growth — investments in machinery and equipment (M&E), and investments in information and communications technologies — revealed more challenging themes. In comparison with the United States (U.S.), over the period 2000 to 2007, M&E investment intensity in Canada has been less than three quarters of U.S. levels and ICT investment intensity was less than half of U.S. levels. However, the Canadian oil and gas extraction industry and finance, insurance, real estate and management of companies industry have registered higher M&E intensities than their U.S. counterparts. Data presented in State of the Nation 2010: Imagination to Innovation also suggest that it is worth considering trends in Canadian expenditures on IT services rather than only IT purchases, given their potential contribution to improving innovation and productivity.

Not all innovation is the result of R&D. Process innovation and incremental innovation can be strong contributors to productivity. Innovation success ultimately results from the ambition and attention of management teams.

Beyond benchmarking, what principles should guide efforts to strengthen Canada's innovation performance?

We must guard against complacency and continue to nurture talent at all levels. While 15-year-old Canadians' scores remained fairly stable, they fell in terms of rank in reading, science and math because others are improving faster. We must work to support students to better learn and apply their knowledge.

Research and development sub-priorities identified by the Science, Technology and Innovation Council (STIC) in 2008 can assist all innovation sectors to play from Canada's research and economic strengths. Even if one third of our resources are focused in these areas, it will help to reinforce Canadian excellence on a global scale.

Competition and peer review have led to improved Canadian R&D at international levels of excellence. The most recent example of this has been the quality and breadth of the Canada Excellence Research Chairs whose research spans basic to more applied research. The competition demonstrated that not only large but also smaller Canadian universities can carve out niches of expertise and build alliances to establish a global reputation.

Collaboration should be considered in a clusters context, among universities and colleges, and small and large companies. Support for clusters is one way to build critical mass in both short-term and long-term research areas of joint interest to companies and research organizations. Such collaborations also improve companies' ability to recruit Canada's highly qualified graduates. The participation of innovation intensive companies in such clusters and the active collaboration of the research and business communities will help ensure that Canada's world-class research can be successfully commercialized for the benefit of this country.

The Research and Development Review Expert Panel, due to report in autumn 2011, will address how we can better leverage public funds to improve innovation commercialization outcomes in industry. Its recommendations will be important for the future of Canada's STI system, and can reshape government programs to better incent private sector spending and to support entrepreneurship through simplified and better targeted assistance.

Between the 2008 and 2010 State of the Nation reports, Canadian industry has been buffeted by a severe financial crisis. As Canada emerges from the crisis, opportunities remain to work together to achieve the innovation goals we set for ourselves and to build paths to prosperity.

The State of the Nation 2010 report gets us closer to understanding how Canadian companies innovate. Data show that some Canadian industries are global leaders. We are also fortunate to have a strong talent pool that could deliver on high ambitions. The challenge is to deploy talent well, invest in advanced technology, integrate innovation into corporate and country strategies and leverage our efforts to deliver prosperity for all Canadians. This alignment will improve our lagging productivity growth. 2010 began with Canada's athletes inspiring the nation with their resolve and high ambition. STIC's State of the Nation reports are a starting point for benchmarking efforts in companies, universities and colleges, and governments across the country. Reflecting on the data in this report can help set ambitious goals that will put more Canadians and Canadian companies on global podiums.