By Robert D. Atkinson

Robert D. Atkinson is founder and president of the Information Technology & Innovation Foundation, based in Washington, D.C.

Canada faces a productivity and technology competitiveness challenge. It risks sliding into a relatively low-productivity farming and natural resources economy.

The incredible rise of China as the global technology leader, coupled with President Donald Trump’s protectionism, makes Canada becoming stronger in innovation even more urgent.

It’s not clear if the new government will have the political will to shake things up and make the significant changes needed to turn the ship of state towards the beacon of a technology-driven economy.

But there is one fairly simple and low-cost step it can and should take: give Canadian industry more say in what research is done at Canadian universities.

Canada rightly prides itself on the strength of its research universities. In fact, as a share of GDP, Canadian higher education research and development spending (HERD) is about 50 percent higher than the OECD average.

While industry provides some funding for university research in Canada, the share is higher in a number of other nations, including the U.K,, Germany, Korea, and China.

More university research must align with Canadian industry needs, while universities need to do a better job of commercializing their research within Canada.

Experts and pundits have long highlighted these challenges but have generally defaulted to gesturing for universities to vaguely do better. But with a few notable exceptions, they have not done better. 

The reason is simple: Universities incentivize principal investigators to secure grants and publish peer-reviewed papers, not to support domestic commercialization. Occasionally, that ends up helping Canadian companies. But usually it does not. 

It wouldn’t be as much of a problem if Canadian industry performed better in R&D. But in 2021, Canada’s business expenditures on R&D as a percentage of GDP were just 55 percent of the global average.

Some of the decline stems from the collapse of major R&D funders like Nortel and Blackberry. Some of it is because too many companies go “R&D light.”

The result is that according to the Information Technology and Innovation Foundation, in 2021, large and mid-sized U.S. firms spent almost 103 times more than Canadian firms on R&D – $529 billion compared with Canadian firms’ $5.2 billion – despite U.S. GDP being just 11.7 times greater than Canada’s.

As such, Canada needs to find a way to make university research more relevant to companies in Canada without fundamentally changing the universities’ role.  Canada must re-engineer incentives so that academic excellence and national competitiveness are mutually reinforcing, not separate pursuits. 

Both American and Canadian science policies have been guided by Vannevar Bush’s 1945 report, The Endless Frontier. Its core principles: 1) government should not pick between disciplines; 2) government should let scientists decide what to pursue; and 3) science is global –  no longer work.

These 80-year-old principles no longer serve Canada’s needs. It is time to replace them with a modern approach. If Canada is to regain its status as a technology economy, it must better align university research with critical technologies and ensure that this research more directly supports the needs of Canadian companies.

Prioritize funding for researchers who have financial commitments from industry

To do that, federal and provincial research funding agencies should prioritize university grants for researchers who have obtained hard financial commitments from industry.

If a researcher (or research centre) can demonstrate that industry is willing to contribute to their overall research costs, this should “move them to the top of the list” when it comes to awarding research grants. The greater the share industry is willing to fund, the higher they should go on the priority list.

The funding wouldn’t cover all of a researcher’s expenses, but rather serve as a seal of approval, signaling that the research aligns with Canadian industry interests. By committing real funds, industry can show it has skin in the game.

For those who would ask, “If this is important to industry, why doesn’t it pay for all of it?” the answer is externalities – industry benefits from research in ways that aren't fully captured by private investment alone.

To encourage industry participation, the federal government should take two key steps. To start, Innovation, Science and Economic Development Canada should provide an exemption from antitrust scrutiny for the formation of research funding alliances in which individual companies contribute to a common industry-based pool – likely administered by industry associations – and university principal investigators and research centers can apply for that money.

But either way, individual companies in Canada or industry associations could signal to university researchers the commercial importance of their work by contributing real money.

Second, Parliament should add a provision to the Scientific Research and Experimental Development (SR&ED) tax credit that would provide a 40-percent credit for company funding of university research and this credit should be something companies can take when they fill out their federal tax forms, not when they fill in burdensome paperwork to get a SR&ED credit for regular R&D.

Quebec already has a credit like that. So Ottawa and the provinces should follow suit.

The university research community will likely oppose such a system because it impinges on their autonomy. Their ideal world is more money with no strings. But we are clearly in a world where the status quo in science policy no longer cuts it.

If Canadian universities were wise, they would be open to such bold experiments. Otherwise, they risk funding stagnation or even cuts, as failing to prioritize innovation could easily sideline research funding in favour of other areas like health, housing or other infrastructure, where the returns are seen as more immediate.

Industry will likely have mixed responses – ranging from enthusiasm to indifference. Some industry associations are primarily interested in lower taxes and fewer regulations. But others, even in “traditional” industries like natural resources, could very well see this as an important tool to help their companies better compete internationally.

By supporting university research tied to their competitiveness, Canada can encourage both startups and established companies to adopt a longer-term view of their interests, where innovation and collaboration become key drivers of success.

In some ways Canada would be better off if it had been struggling and poor for the last half century as many rapidly growing innovation-based countries were. Because that would provide the motivation and political will for risk-taking, challenge-the-status-quo policy experiments.

But the combination of complacency and entrenched interests makes real innovation hard. If the new Carney government is serious about economic renewal, it should start by anchoring university research firmly to Canada's industrial future.

R$