CCA report fuses research and industrial R&D data to expose weak linkages between home-grown S&T and wealth creation

Canadian science and technology and industrial R&D are faced with a growing risk of becoming branch plants of research, innovation and competitiveness for other countries. While not new, this conclusion reached by an expert panel tasked to examine the issue says that the severity and urgency of the situation are increasing due to rapidly evolving global trends, the “start and sell” mentality of many tech entrepreneurs and the ecosystem damage inflicted between 2006 and 2015.

The expert panel report, entitled Competing in a Global Innovation Economy: The Current State of R&D in Canada, describes Canada’s research and innovation performance in a global context as “faltering” and the outflow of intellectual property to other jurisdiction as “alarming”.

“We were asked to look at issues impeding the relationships between R&D and wealth creation and the report is the most comprehensive to date,” says Dr Max Blouw, chair of the Council of Canadian Academies’ (CCA) Expert Panel on the State of Science and Technology and Industrial Research and Development in Canada and former president and vice-chancellor of Wilfrid Laurier Univ. “Our innovation capacity is high but our wealth creation is under threat. Our companies are small and don’t scale up while our patents go out of the country ... Canadian IP is being mobilized elsewhere.”

The CCA assessment was requested by Science minister Kirsty Duncan in 2016 and is a combined follow-on to the CCA’s previous assessments on the state of S&T and industrial R&D in Canada. The CCA is now the sole source of this type of insight following the decision of the now moribund Science, Technology and Innovation Council (STIC) to discontinue its biannual State of the Nation reports on Canada’s Science, Technology and Innovation System.

Previous reports on these two core issues by the CCA include:

• The State of Science and Technology in Canada (2006)
• Innovation and Business Strategy: Why Canada Falls Short (2009)
• Catalyzing Canada’s Digital Economy (2010)
• Informing Research Choices: Indicators and Judgment (2012)
• The State of Science and Technology in Canada (2012)
• The State of Industrial R&D in Canada (2013)
• Paradox Lost: Explaining Canada’s Research Strength and Innovation Weakness (2013)

The CCA report overlaps the Naylor report findings while adding new features of its own, providing analysis of federal research partnership programs, trends in regional R&D performance and barriers to the translation of research into innovation and wealth creation.

“For the first time, there’s a strong linkage between the production of knowledge … and what the private sector does,” says Dr Robert Luke, VP Research and Innovation at OCAD Univ and member of the CCA expert panel. “It’s the most interesting aspect (of the report) – the connective tissue and propensity to leverage excellent knowledge in Canada.”

Despite the comprehensive nature of the panel’s data collection, it acknowledges that significant gaps remain, particularly those pertaining to industrial R&D, the social sciences and humanities (SSH) and perhaps most importantly the lack of internationally comparable metrics on R&D outcomes and impacts. The report was revised late in the panel’s deliberations to incorporate data and findings in reports issued by the OECD and Statistics Canada late last year.

Luke says the lack of data pertaining to SSH is a problem at OCAD where the counting of patents fails to capture the contributions of research areas such as industrial design.

“Our outputs are often not counted, which is why new technology transfer metrics are being developed,” he says.

In its quest to improve upon the data and insight for S&T and industrial R&D, the CCA developed a composite indicator comprised of:

• research strength encompassing the magnitude of Canada’s share of research publications;
• impact of research based on average relative citations; and,
• growth in Canada’s research output in a global context.

“We combined these to get a better composite picture. I’ll be very interested in the reaction to our new indicator,” says Blouw. “Canada has a fabulous research underpinning and we are really innovative. Businesses are innovating like crazy but it’s not well connected to wealth creation.”

Based on this synthesis of metrics, the panel found that Canada excels in the fields of visual and performing arts, psychology and cognitive sciences, clinical medicine, public health and health services, and philosophy and theology. The same metrics revealed, however, a relatively low level of specialization in core disciplines in the natural sciences and engineering. It also discovered that Canada’s output and impacts in emerging, enabling, and strategic technologies are falling behind many countries – a somewhat surprising finding given Canada’s general research performance.

Even the rapidly expanding field of artificial intelligence (AI), which Canada helped to pioneer and to which it has recently allocated significant funding, is not immune from the growing influence of foreign firms.

“As international opportunities in AI research and the ICT industry have grown, many of Canada’s AI pioneers have been drawn to research institutions and companies outside of Canada,” the report states.” Citing OECD data, the panel notes that Canada’s share of patents in AI declined from 2.4% in 2000 to 2005 to 2% in 2010 to 2015. “Canadian AI researchers, however, remain involved in the core nodes of an expanding international network of AI researchers, most of whom continue to maintain ties with their home institutions,” the report states.

“With AI, we have to be careful what we laud ourselves for,” says Luke. “Other countries are catching up to us due to the high permeability of our research.”

The reason for Canada’s weak industrial R&D performance is partly structural, with R&D performance “more concentrated in industries that are intrinsically not as R&D intensive” – those defined as low and medium low tech sectors such as oil and gas, forestry, construction and finance. The report also notes just half of industrial R&D outlays are in high tech sectors, compared to the G7 average of 80%.

Compounding the negative impacts of declining domestic industrial R&D is the sharp increase in R&D performance by subsidiaries of foreign-controlled firms with 35% of overall R&D falling into this category. The report warns that this trend “could signal a long-term strategic loss of control over intellectual property (IP) developed in this country, ultimately undermining the government’s efforts to support high-growth firms as they scale up.

The report notes that Canada ranks 18^th in per capita or 1% of the world’s total of patents – relatively weak performance reflecting the demise of Nortel Networks Corp and the downsizing of BlackBerry, which were the largest private sector producers of patents between 2009 and 2014.

“Canada is in danger of being a branch plant R&D performer but we have time to address it,” says Luke. “How does the Canadian public get value from its investments in R&D? There is a lot to be proud of but there are a number of signals we must pay attention to. Budget 2018 addresses this issue (with $85.3 million over five years to develop an IP Strategy) … Canada is a net exporter of IP and that is worrisome.”

Scale-up initiatives are part of the current government’s response to the preponderance of smaller firms which perform more R&D than the US, counter to a global trend of larger firms increasingly performing more R&D. By leveraging investments in organizations such as Mitacs and the National Research Council, exploring open science and introducing new ways of rewarding academic researchers seeking to tie their work to the needs of the economy and society, it’s hoped that Canada can once again grow and build world-leading companies and retain more IP.

“We need to further develop a clutch to help the gears of the public and private sectors to mesh and make them work well together,” says Luke. “Put people together to manage this process leading to greater social, economic and cultural wealth.”

The report ends with seven conclusions on the state of R&D (see chart) in Canada and offers the following parting observation:

“Declining levels of private and public R&D investment threaten to erode Canada’s research capacity over time. The loss of innovative start-ups to foreign buyers and the inability to grow a sufficient number of start-ups to scale, means that Canadians have not fully captured the economic benefits stemming from Canadian research advances,” it states. “Addressing these dual challenges — declining R&D investment on the one hand and a deficit of domestic tech companies growing to scale on the other — requires concerted effort from all quarters, including governments, post-secondary institutions, and industry. It may also require new policy approaches for addressing what appear to be systemic, entrenched features of Canada’s economic landscape, and for overcoming the inertia inherent in current, anemic patterns of institutional support for R&D.”

R$