More bang, more bucks needed for innovation

With a sense of urgency, a panel of experts has a critical warning for us: We face a seriously troubled economic future unless we become a much more ambitious innovation nation.

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With a sense of urgency, a panel of experts has a critical warning for us: We face a seriously troubled economic future unless we become a much more ambitious innovation nation.

Government, the panel led by Open Text chairman Tom Jenkins says, can and must play a strong supportive role, not only in nurturing startup businesses but in helping them “grow from startups to world-competitive large firms.”

This matters because “the countries that are likely to succeed are those that understand that business innovation holds the key to rising living standards and a more creative economy and society.”

But business itself must embrace the challenge and, in collaboration with government and academia, advance innovation as its core business objective. Canada, the panel insists, can become “one of the world’s innovation leaders,” though it acknowledges this will take much effort.

Today, for example, Canada ranks 18th among advanced nations in business research and development as a proportion of GDP. In inflation adjusted dollars, business spending on research and development today is significantly less than in 2001. This “is both alarming and unacceptable,” the panel warns.

The expert panel was asked to review the effectiveness of federal programs that support business innovation, the appropriateness of the mix and design of these programs and to identify program gaps and what might be done to fill them.

However, it was constrained in its recommendations because its mandate from the federal government said it could not increase federal support ($3.5 billion a year in tax benefits and $1.5 billion in direct support).

This meant it did not determine whether the current level of public support was adequate at a time when the U.S., Britain and various European countries, as well as China, India, Korea and Brazil, have been increasing their support. It’s challenge was to get the biggest bang out of existing funding.

The panel examined Canada’s scientific research and experimental development tax credit, which it recognized as a key source of research and development funding for business.

But while it proposed simplification of the application process for small Canadian corporations, it failed to address key concerns expressed by many businesses. For example, monetizing unused tax credits by publicly-traded small and medium enterprises with losses is an urgent need.

The panel also called for consolidation of about 60 federal support programs for business, including the seriously underfunded Industrial Research and Assistance Program, into a single Industrial Research and Innovation Council, which would be a business-led, independent agency much like Britain’s Technology Strategy Board.

To start, it could manage a better-funded IRAP and initiate a voucher program that would provide “cheques” to small and medium enterprises that they could spend in universities, colleges or other research bodies to solve technology problems or commercialize a new idea.

At the same time it advocated the use of strategic procurement by the federal government, as well as enlisting provincial and municipal governments, to serve as a first customer for promising Canadian innovations that meet public needs.

The panel, in its most radical proposal, calls for the dismantling of the National Research Council by converting its 17 research institutes, such as the Industrial Materials Institute and the Biotechnology Research Institute, into stand-alone entities with strong business and academic collaboration that would develop strategies for key sectors.

The panel also recognized that funding of small and medium enterprises is a big challenge.

We have a venture capital crisis and foreign venture funds are the only players in large-scale later-stage funding so that new technologies developed here may be produced elsewhere.

But its only suggestion is a larger role for the Business Development Bank of Canada.

It is unlikely, though, that this would achieve the panel’s goal of “growing innovative firms into larger enterprises, rooted in Canada but focusing outward in the world and equipped to competing with the best.” While the panel does talk of growing Canadian firms to “maturity,” it defines this only as large enough for a stock market listing or sale to another company.

A critical problem not addressed is that many of Canada’s most promising firms — DALSA, Tundra Semiconductor, Zarlink being recent examples — end up being acquired by foreign corporations. So they no longer pursue their own growth strategies but become part of a foreign parent company’s strategy. The panel’s recommendations may simply create more takeover targets for foreign multinationals.

While the panel’s proposals would help more Canadian small and medium enterprises move along the growth path, more thinking is needed to achieve the larger goal of helping more small and medium enterprises become large-scale global innovation leaders.

Economist David Crane is a syndicated Toronto Star columnist. He can be reached at crane@interlog.com.