State of the Nation 2012

Executive Summary


The Science, Technology and Innovation Council (STIC) has been mandated by the Government of Canada to produce a biennial report tracking, assessing and internationally benchmarking this country’s science, technology and innovation (STI) performance. In this third report, State of the Nation 2012—Canada’s Science, Technology and Innovation System: Aspiring to Global Leadership, we track where Canada is making progress and identify areas where Canada must devote greater attention to enhancing performance. Understanding this picture contributes to advancing the national STI dialogue, building consensus around avenues for urgent action, and generating the will to work strategically and cohesively towards common goals.

Science, technology and innovation underpin and animate virtually every aspect of modern life, driving economic growth and prosperity and fuelling advances that enhance health, environmental and social well-being. Canadians understand that, if we want to create jobs and opportunity in a competitive world and address the key societal challenges that confront us in the 21st century, STI must be an integral part of the national agenda. Canada’s relatively sound economic position provides us with an opportunity to build on and take better advantage of those STI areas where we are strong and enhance our performance in those areas where we are weak—to reach for global STI leadership and thereby reap the resulting economic and societal benefits.

As in the 2008 and 2010 reports, State of the Nation 2012 examines Canada’s funding for research and development (R&D) in an international context and Canada’s performance on key indicators related to business innovation, knowledge development and transfer, and talent development and deployment. The findings in State of the Nation 2012 reinforce much of what was learned in the previous reports: Canada has much to celebrate with respect to the high quality of our talent and our strength in generating new knowledge. However, there are vitally important areas where our performance is lagging, where we must improve—in some cases significantly. We cannot be satisfied with the status quo or with incremental progress—concerted action is needed to reach for global leadership.

State of the Nation 2012 shows that Canada’s gross domestic expenditures on R&D (GERD) declined from their peak in 2008 and, when measured in relation to gross domestic product (GDP), since 2001. In contrast, the GERD and GERD intensity of most other countries have been increasing. Canada’s declining GERD intensity has pushed its rank down from 16th position in 2006 to 17th in 2008 and to 23rd in 2011 (among 41 economies). While there have been shifts in funding among sectors in Canada over time, the more recent declines in the country’s total R&D funding efforts are attributable predominantly to private sector funding of R&D.

Business Innovation

Business innovation is an engine of productivity growth, increased international competitiveness and higher living standards. It is underpinned by investments in R&D, machinery and equipment (especially information and communications technologies (ICT)) and intangible assets. While we recognize that innovative activity is occurring that is not captured in official data, it is nonetheless clear in State of the Nation 2012 that Canadian firms are not sufficiently harnessing innovation to make competitive gains. In international rankings related to business innovation, Canada continues to place in the middle of the pack on most measures and, on some indicators, Canada’s rank has declined.

Canada’s performance is particularly poor on measures of business enterprise expenditures on research and development (BERD)—that is, the R&D performed by firms. Although preliminary data suggest that BERD in Canada increased very slightly in both 2011 and 2012, BERD intensity (i.e., BERD as a percentage of GDP) has been in almost continuous decline for the past decade. Canada’s rank among comparator countries on BERD-to-GDP fell to 25th in 2011 (of 41 economies). Where Canadian business has performed better is in its funding of R&D in the higher education sector. On this measure, Canada ranked seventh among comparator economies, with significantly better performance than the U.S. and Japan.

Although Canadian business investment in ICT is growing, on the international measure of ICT investment intensity (i.e., ICT as a percentage of non-residential gross fixed capital formation), Canada still ranks in the middle among countries of the Organisation for Economic Co-operation and Development (OECD). Of particular concern, Canada’s ICT investment gap with the United States (U.S.) is increasing—ICT investment intensity in the business sector in Canada averaged only 42 percent of U.S. levels over the period from 2000 to 2010. Canada also performs poorly on venture capital investment as a share of GDP, ranking 15th out of 27 comparator countries. As the Government of Canada considers recommendations to modernize its framework policies in support of increased competitiveness, Canadian firms have to become more innovative in order to maximize their success in the global economy.

Knowledge Development and Transfer

The development of knowledge is the root of a country’s STI ecosystem. Higher education expenditures on R&D (HERD) in Canada have increased significantly since the late 1990s, to reach $11.5 billion in 2012. Canada’s substantial investment in the higher education sector has reaped significant rewards, as the production and refinement of scientific knowledge in Canada continues to be characterized by vitality and high quality. With a share of only 0.5 percent of global population, Canada accounted for 4.4 percent of the world’s natural sciences and engineering publications in 2010. This positions Canada eighth after countries with significantly larger populations: the U.S., China, Germany, the United Kingdom, Japan, France and Italy.

But Canada continues to face chronic challenges in knowledge transfer—in effectively moving knowledge developed in higher education institutions to companies that have the ability to absorb it and translate it into commercially viable products and/or solutions to health, environmental and social problems. The most important form of knowledge transfer is “on two feet,” via the movement and interplay of people through, for example, students’ internships in companies, graduates’ employment in the workforce or industry-academia R&D collaboration. We know that there is a great deal of activity in Canada in these areas that is not reflected in available data, especially internationally comparable data. However, on the traditional indicators of knowledge transfer related to licensing activities and spinoff companies, where some limited international comparisons are possible, Canada continues to show disappointing results.

The most recent data available show stagnation in Canadian licensing activities and suggest that U.S. institutions are generally more successful than Canadian ones at creating licences, keeping them active and earning income from them. Similarly, while there was an increase in spinoff companies from higher education institutions in 2011—a promising sign—there was a general downward trend in spinoff creation between 2000 and 2010. Improvement in Canada’s knowledge transfer performance will be vital to ensuring that discoveries are translated into practical economic and societal benefits for Canadians.

It is important to note, too, that while HERD in Canada has been growing in dollar terms, the HERD-to-GDP ratio has fluctuated, declining to 0.66 percent in 2011 from its peak of 0.71 percent in 2009. In 2011 (the latest year for which international comparisons are available), while Canada continued to rank first in the G7 in HERD-to-GDP, its relative position deteriorated against the broader comparator group of economies. That year Canada ranked ninth out of 41 economies in HERD intensity (i.e., HERD-to-GDP), down from fourth in 2008 and third in 2006. With their significant investments in research and higher education, other countries are catching up and overtaking Canada.

Talent Development and Deployment

Science, technology and innovation are fundamentally human activities, making talent the key competitive differentiator in the global knowledge-based economy. On the talent front, Canada’s highly-educated population continues to be an asset, with 51 percent of the adult population having attained a university or college education, one of the highest levels in the world.

A country’s ability to produce doctoral graduates is an indicator of its potential to engage in cutting-edge research and to train the next generation of talent. Canada continues to produce fewer doctoral graduates (per 100,000 population) than many comparator countries, ranking 21st in the OECD on this indicator in 2010. However, Canada’s performance that same year was better with respect to science and engineering doctoral graduates (per 100,000 population), on which it ranked 15th among OECD countries. Between 2006 and 2010, Canada experienced 48.7 percent growth in the number of science doctoral graduates and 38.6 percent growth in the number of engineering doctoral graduates, growth rates notably surpassing those of many comparator countries.

But Canada cannot afford to be complacent. With other countries making significant investments in their research and education systems, Canada risks erosion of its competitive talent advantage. Canada could also do more to ensure that its talent is prepared to contribute fully to an innovative, productive and competitive economy, by nurturing talent that better understands the links between STI and business. Expanding the number of programs providing post-secondary students with work-integrated learning opportunities in companies and applied research projects, through internships for example, would contribute to this objective.

Canada also needs to do much better at deploying its STI talent—that is, effectively absorbing this talent into the labour force and utilizing its knowledge and skills to full advantage. On this front, Canada’s performance— reflected in the measure of employing human resources in science and technology (HRST) in the labour force—continues to disappoint. Canada’s HRST share of the services labour force is 39 percent, positioning Canada in the middle ranks among OECD countries on this measure. On manufacturing, the picture is dismal—the HRST share of the manufacturing labour force in Canada, at 11.5 percent, is among the lowest in the OECD.

Conclusion

To a significant extent, Canada’s success in the 21st century will be determined by our ability to harness science, technology and innovation to drive economic prosperity and societal well-being. STIC believes that Canada must strive not only for excellence in STI but also for global leadership. Realizing our full STI potential in this way will help us build strong institutions, companies, industries and communities, and position us among the world’s most prosperous, healthy and secure countries.

To reflect this ambition, in State of the Nation 2012 we have gone beyond examining OECD and other comparator countries (as we did in previous reports) to identify, on key internationally comparable STI indicators, the threshold that Canada would have to attain in order to break into the ranks of the world’s top five performing countries. We have gone still further to highlight five particularly important STI indicators on which Canada should aspire to join the ranks of the world’s top five performing countries:

  • BERD as a share of GDP;
  • business investment in ICT;
  • HERD as a share of GDP;
  • science and engineering doctoral degrees granted per 100,000 population; and
  • share of human resources in science and technology.

Attaining the highest standards of international excellence in these five “aspirational” indicators will help secure Canada’s future as a global STI leader, allowing us to reap greater economic and societal benefits for Canadians and contribute meaningfully to addressing key challenges faced by the global community. To realize this goal, all participants in our STI ecosystem must assume responsibility. We must work together not only to invest more in STI, but to invest more strategically and coherently, learn from the experience of global STI leaders, and be more agile seizing opportunities. That is how Canada will truly be able to “run with the best.”