State of the Nation 2010

1. Introduction

Canada has come through the financial crisis relatively well. But before breathing a sigh of relief, Canadians must prepare to tackle longer-term structural challenges to the economy. Our relatively strong Canadian dollar presents challenges to exporters but reduces the cost for Canadian companies to import newer advanced capital. Productivity growth is essential for an aging and smaller workforce to succeed in a highly integrated and competitive global economy. Innovation continues to matter because it can help meet these challenges.

Annual growth in Canada's labour productivity (output per hour worked) has been slowing and has been less than 1 percent for most of the last decade. In terms of growth in labour productivity, the Institut européen d'administration des affaires (INSEAD) ranked Canada 95th of 132 countries. The International Institute for Management Development (IMD) in Lausanne, Switzerland ranked Canada 45th of 58 countries. Part of Canada's low international standings in productivity growth is attributable to the fact that developing countries have a much greater potential for rapid productivity growth through technological convergence or catch-up from low productivity levels. Among 33 advanced economies in the IMD standings, Canada's productivity growth ranks 24th. As Canada's productivity continues to lag despite macro-economic reforms intended to improve economic performance, economists are increasingly focusing on a lack of innovation in Canada as a contributor to poor productivity performance.

Countries have made progress in efforts to understand how innovation occurs. In Canada, analysis is currently under way on the findings of its pilot 2009 Survey of Innovation and Business Strategy, some of the results of which are published in this report. The first comprehensive United States (U.S.) official statistics on innovation appeared in late 2010. The High-Level Panel on the Measurement of Innovation convened by the European Commissioner for Research, Innovation and Science issued a report in September 2010. The panel put forward two options. The first option was a list of three indicators of innovation: patent applications weighted by Gross Domestic Product (GDP); percentage of employment in knowledge intensive activities; and percentage of the value of medium- and high-tech goods as a share of both exports and imports. The second option was the share of fast growing innovative firms in the economy.

The Science, Technology and Innovation Council's (STIC) State of the Nation 2010 report opens with commentary on progress since the State of the Nation 2008 report, and a summary of progress on key indicators noted in the report. Section 3 proposes a list of 20 indicators to measure innovation performance going forward. These measures would serve to gauge innovation inputs including talent and research and development (R&D), as well as proxies for innovation outputs such as trademarks and licensing. Ideally these indicators would also capture the degree of collaboration between different elements in the innovation system. An indicator for future benchmarking could be based on components of Canada's technology intensive balance of payments. This would include international transactions for the use of patents, licences, trademarks, designs, technical services and industrial R&D carried out abroad. Together this short list of indicators could provide a common reference point for different parts of the innovation system.

Section 4 reviews progress on measuring innovation and Section 5 shows the flow of funds between sources and performers of R&D. Section 6 provides more detailed information on a longer list of indicators of business innovation, knowledge development and transfer, as well as talent.