When 54 leading Canadians get together to draft an action plan to make Canada an innovation nation with good jobs and prosperity, you would expect that they would come up with some bold new ideas.
But instead, the Coalition for Action on Innovation in Canada — a group that includes business executives, university presidents, venture capitalists and government funding agencies — has produced a modest shopping list of incremental measures which, while useful to a limited extent, will clearly not propel Canada into the front ranks of innovation leaders.
Yet that is where we should want to be.
In fact, the coalition’s report, An Action Plan for Prosperity, even suggests governments should delay measures which would have a significant fiscal impact until deficits have been eliminated and surpluses restored, or unless there are offsetting tax increases or spending cuts elsewhere.
Since the federal government estimates it will not return to surplus until 2015-16 fiscal year, and barely at that, this would mean a long delay absent major spending cuts or tax increases elsewhere — neither of which are likely.
Canada cannot afford to wait that long before embarking on major initiatives to create a new economy for the new normal.
The coalition is co-chaired by John Manley, a former minister of industry and of finance and now president of the Canadian Council of Chief Executives (a lobby for Canada’s largest corporations) and Paul Lucas, president of the Canadian subsidiary of British pharmaceutical giant GlaxoSmithKline.
The coalition puts its voice behind a number of useful ideas that have been circulating for some time, such as the use of flow-through shares to allow money-losing tech companies to sell their unused research and development tax credits, making the R&D tax incentive more useful for companies planning R&D investments, encouraging governments to use their procurement power to create launch markets for innovative Canadian products, seeking new ways to provide risk capital to young companies and finding ways to improve links between business and universities and colleges.
There are also some dubious ideas, such as giving more generous tax treatment to employees cashing in stock options. Since most stock options go to top executives of major corporations this looks like a tax break for the wealthy few.
More glaringly, the coalition report has little to say about some key challenges.
A key consideration in Canada is that, compared to the United States, we have many more small and midsize companies that are less able to engage in ongoing R&D or to pursue higher-risk innovation. In many countries, government direct funding of business R&D is much higher than in Canada.
According to the OECD, U.S. government direct funding of R&D is equivalent to 0.18 per cent of GDP. In France and Korea it is 0.15 per cent, in Sweden 0.11 per cent, and Germany and Britain 0.08 per cent.
In Canada it is just 0.02 per cent.
Canada relies mainly on tax incentives, but this approach is flawed because companies tend to use R&D tax incentives for projects that are near market whereas direct grants are used to finance riskier and longer-term projects.
We have one excellent program in Canada, the Industrial Research Assistance Program, which provides direct grants to help small and midsize companies advance innovation through new technologies. However, the program is seriously underfunded.
But the coalition ignores it. Likewise, Canada had something called Technology Partnerships Canada, which shared the cost of developing high-risk R&D projects with companies of all sizes.
It was scrapped, for reasons of ideology, by the Harper government. The coalition ignores the value of such a program. Yet we are going to need much better risk-sharing measures if we are to develop the technologies of the future.
Nor does the coalition have an answer to another challenge. Canada is good at starting companies but not good at growing them into global enterprises. Too often, the most promising Canadian companies are snapped up by foreign multinationals that prowl the world looking for acquisitions.
This means we grow the seed corn for foreign companies who then scale up production, but in another country.
While the Coalition for Action on Innovation is a worthy initiative, it needs to dig much deeper into the challenges we face than thinking its existing ideas will take us very far. It needs to think big.
David Crane is a syndicated Toronto Star columnist. He can be reached at crane@interlog.com.