Innovation Canada: A Call to Action

Innovation Canada: A Call to ActionAt the same time, the ageing of the baby-boomgeneration means that the share of Canada’spopulation that is of working age will decline,thus increasing the competition for workers andskills and requiring more output per worker —that is, greater productivity — to support agrowing proportion of dependants.Taken together, these realities imply thatCanada’s prosperity will depend, more thanever, on an innovative economy. Innovationdrives our ability to create more economic valuefrom an hour of work. The resulting productivitygrowth increases economic output per worker,creating the potential for rising wages andincomes, and thus for a higher standard ofliving. It is for this reason that businessinnovation delivers great benefit, not only forindividual firms, but also for society as a whole.Countries around the world have recognized theimportance of business innovation as theultimate source of competitive advantage andincreasing prosperity. Many governments aretherefore increasing support for innovation evenas they struggle to balance overall budgets.Significant efforts are being devoted to thedevelopment of new and more effective ways toencourage and support business innovation. Infact, just as businesses are challenged tobecome more innovative, so too are publicpolicy-makers.The federal and provincial governments play animportant role in fostering an economic climatethat encourages business innovation — forexample, by supporting basic and appliedresearch and related training of highly qualified,skilled people, and by providing substantialfunding through tax incentives and programsupport to directly enhance business R&D.For decades, Canadian business spending onR&D — a key input to many kinds of innovation— maintained a steady up-trend, evidence ofthe country’s economic and technologicalprogress. Other highly industrialized countrieswere doing the same, so R&D spending byCanadian businesses remained near the middleof the pack of our peer group of membercountries of the Organisation for EconomicCo-operation and Development (OECD), andwell behind leaders like the United States,Japan, Germany, Sweden and Finland (OECD2011). But until the collapse of the “techbubble” in 2001, our R&D gap, relative to theOECD average, had begun to narrow, driven byexceptionally strong R&D spending in thetelecommunications equipment sector asInternet and wireless infrastructure was rapidlybuilt out. Then, suddenly, the decades-long uptrendof business R&D in Canada stalled. In fact,business R&D spending (adjusted for inflation)has been falling since 2006 and is now below itslevel in 2001 (Figure 1.1).Research and development is a key ingredient ina great deal of business innovation and is alsoan essential contributor to Canada’sinternational competitiveness and productivitygrowth. The fact that Canada’s business R&Dmomentum stalled a decade ago and has notresumed is both alarming and unacceptable. It isurgent that business R&D in Canada startgrowing strongly again.Recognizing this, Budget 2010, Leading theWay on Jobs and Growth, announced acomprehensive review of federal support to R&Din order to optimize federal contributions toinnovation and to economic opportunities forbusiness (Department of Finance 2010a). Thedecision to undertake this review came in thewake of a series of reports — including State ofthe Nation 2008 (since updated for 2010) bythe Science, Technology and Innovation Council(STIC 2011), and Innovation and BusinessStrategy: Why Canada Falls Short, by theCouncil of Canadian Academies (CCA 2009) —which provided in-depth analyses of Canada’sweak performance in the interrelated areas ofbusiness R&D, business innovation andproductivity growth.1-2