Ron Freedman

Could Canada's innovation cup be half full?

By Ron Freedman

Can things really be this bad? The Science, Technology and Innovation Council's 2011 state of the nation report contains the typical compendium of statistics purportedly showing how badly Canada is doing at research and innovation. All the usual suspects appear — low BERD/GDP ratios, overweighted government and higher education spending on R&D, lagging productivity, under-investment in machinery and equipment, low adoption rates for ICT, HQP shortages, declining international rankings of our business schools, etc., etc., etc.

As befits our national self-image as underachievers, Canada's innovation glass is perpetually half-empty. It seems we can't compete with the best in the world on high tech nor with the cheapest in the world on low tech. And the solution to our chronic under-performance is? Well, it's not STIC's job to say (to the public at least).

Are things really as bad as advertised? It is disappointing that STIC's report plays down such positive indicators as the fact that Canadian companies work far more closely with the higher education sector than their US or European counterparts, and that a number of Canadian industries are more research intensive than their OECD counterparts.

Most importantly, it ignores the fact that the BERD/GDP ratio in two-thirds of the country (Ontario and Quebec, by population) is at or above the OECD average. The fact that corporate profitability is high despite our supposed innovation woes also suggests that our situation might not be as dire as commonly believed. All of which leads one to question whether there really is a crisis that needs to be addressed in the first place.

If you are of the glass-half-empty persuasion you need to ask "How did things get to this stage?" There are two suspects. The first is business. There is a strong inclination to place the blame for Canada's supposed innovation under-performance on the business community. Obviously, if things aren't improving it must be the fault of our business owners and managers, who clearly don't understand what is in their best interests, like spending more on research rather than, say, product development, training or marketing.

According to the Council of Canadian Academies (Innovation and Business Strategy: Why Canada Falls Short, April 2009) it also appears that — despite the tutelage of Canada's brightest business school graduates (or because of it) — companies are not adopting the right innovation-oriented growth strategies. If they did, the logic goes, companies would be eager to spend more of shareholders' money than they are on tax credit-eligible research and to take advantage of direct support programs such as IRAP. (Never mind that companies are clamouring for IRAP support — the cupboard is bare.) In these ways we would increase national BERD performance and we could then hold our heads high at OECD meetings. Of course, that shouldn't be our real objective; the real challenge is to improve firm-level competitiveness, not to inflate derivative national innovation statistics.

The policy establishment has a great deal invested in the underachievement storyline. The uncomfortable truth is that this narrative underpins billions of dollars of spending and thousands of highly paid jobs across hundreds of publicly-funded organizations and programs. In addition, we're consuming many millions of taxpayer dollars annually on a Babel's Tower of organizations whose job it is to transfer publicly-funded science and technology to industry and to connect industry with an alphabet soup of government support programs. This has indisputably made Canada a world leader in creating government-funded technology transfer organizations, but not so much in technologies transferred and real jobs created.

technology push model dominates

This brings us to the second suspect — public sector innovation strategies, policies and programs. If Canada's hodgepodge of strategies, policies and programs have anything in common it is that they are founded on a technology-push model of innovation. For over a decade, the more or less unquestioned paradigm has been that if government spent enough to substantially increase levels of knowledge, talent and infrastructure in the academic sector, and provided tax subsidies for scientific research in the industrial sector, that good things would inevitably flow. If private investment was lagging, then more public money to finance "commercialization" would surely do the trick. (Remember the labour-sponsored venture capital funds?)

Governments continue to spend billions each year to support scientific research in industry but companies don't sell research, they sell goods and services. Companies derive comparatively little from research in public institutions; most of the commercial impetus comes from the company's own efforts, from customers, competitors and suppliers. The research talent from our public institutions is vitally important to firms, but the research itself, less so.

For more than a dozen years the country has intently pursued this innovation paradigm. Can anyone argue that the model is working as expected? Certainly, if you believe STIC's data you have to wonder.

But what if the accepted orthodoxy is wrong? What if large segments of the economy and many firms are doing well in terms of research and innovation and are leading or keeping up with their competitors? What if statistical averages (e.g. BERD/GDP ratios) are distracting us from the fact that many of our leading industries and firms are doing things right? (After all, the 80:20 rule tells us that we really only need to get things right at the 20% of larger firms in order to propel the economy in the right direction.) What if Canada's performance is not as bad as we think ... say it's about average for our peer group? How would this glass-half-full outlook alter our way of thinking about our innovation future?

Come to think of it, when was the last time anybody commissioned a study into what Canada is doing right? Surely, even amidst the doom and gloom there must be some points of light? Some firms and industries that are performing well and whose practices could serve as a model for others? So here's a proposition. Over the next 18 months, why don't we devote some concerted effort to seeking out those corners of the economy where things are going well from an innovation standpoint and see what they can teach us? Who knows, we might find that we're actually better positioned on the innovation front than we fear.

Ron Freedman is.a partner in The Impact Group and co-publisher of RE$EARCH MONEY.