Fixing Canada’s underperformance on innovation

| September 30, 2017 | 0 Comments
Canada's ratio of patents to academic publications is about half that of the U.S. (Photo: © Skypixel | Dreamstime)

Canada’s ratio of patents to academic publications is about half that of the U.S. (Photo: © Skypixel | Dreamstime)

Recent scientific research has confirmed that to remember something, we need to keep experiencing it, and then “forgetting” about it and re-remembering in between these experiences. Researchers have also concluded that to solve difficult problems, we need to push recent experiences out of the way in order to generate new ideas.
It’s part of the paradox of the human condition: Remembering what matters by alternating between forgetting it and relearning it, and solving new problems by looking beyond recent experiences.
After decades of diligent efforts to build an innovation-based economy have resulted in persistently lacklustre results, Canada should remember this paradox as it reconsiders innovation in economy.
Macro-economists have a handful of vital statistics they monitor to assess what is driving GDP growth. Among these are the relative impact on GDP growth of capital, labour and multifactor productivity (MFP.) The latter is often used as a proxy for innovative business practices, including the adoption of newly commercialized technologies. When these three factors are out of balance, strains result.
Throughout the ‘80s and ‘90s, the three factors were mostly in balance in the Canadian economy. But in the 2000s, and up until 2014, that began to change. Multifactor productivity — the GDP indicator of innovation — became a drag on the Canadian economy, though labour and capital compensated for its slowing impact. However, in 2014 and 2015, the combined positive contributions to GDP of capital and labour on growth were outstripped by the negative impact of MFP.
These results reflect slowing Canadian investment in innovation. With the exception of dips during recessions in 1994, 2001 and 2008, the average OECD country’s private- and public-sector investment in R&D has grown every year, whereas Canada’s has diverged from its OECD peers, declining since 2005. At the company level, patents registered by Canadian entities have declined in absolute terms and as a share of global patents registered. Whereas Canada’s share of global trade is 2.6 per cent, in 2015, its share of global patents held by Canadian firms was half that, with Canada’s share of global patent applications having declined by nearly one fifth from 2011 to 2015.
What has been called Canada’s low innovation equilibrium can also be seen in the relationship between academic papers published and patents filed. Canada’s ratio of patents to academic publications is about half that of the U.S., pointing to thin Canadian markets for scaling up and commercializing industrial innovation. China and Germany’s focus on industrial patents suggests greater emphasis on commercialization of innovation. In my own experience, it is challenging to find Canadian commercialization partners for world-leading Canadian academic disclosures in the field of green chemistry, as an example. For emerging firms in clean technology more broadly, federal and provincial programs to pilot new innovations at scale do exist, but markets that enable the scale-up of the firms commercializing the innovations are rare. The result of this low take-up of clean technology innovation can also be seen in Canada’s low OECD ranking on productivity measures for use of water and energy as well as carbon emissions per capita.
Global forces will increase the focus on greater conversion of Canadian invention to innovation commercialized by Canadian firms. As volatility increases in global commodity markets, investments will shift. The global carbon budget, which will limit how much of the world’s fossil fuel reserves can be extracted, will add to the pressure for Canada to increase the success of how we convert investments in R&D into innovations commercialized by Canadian firms.
Faced with the need for innovation to regain its place as a greater economic force in Canada, the question for policy makers is how to best accomplish that. Do industries need to be more open to international competition and investment? Does the competition policy need to play a greater role? How does Canadian environmental regulation compare against its global peers? Does the banking industry need to be subject to more competition to spur more lending to emerging Canadian sectors? What role does the public sector have in procuring innovative products and services that improve the health and well-being of Canadians?
Canada will need to reconsider all parts of its innovation system from the perspective of how they contribute to commercial outputs that support commercialization of Canadian inventions by Canadian firms here and abroad.
In Canada, we often say that natural resources provide the foundation of our prosperity. We may now need to push recent experiences out of the way to generate the novel policies and ideas to make greater gains from innovation.

Céline Bak is president of Analytica Advisors, a senior fellow at the Centre for International Governance Innovation and an expert adviser to the Treasury Board of Canada’s Horizontal Innovation and Clean Technology Review.

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Céline Bak is president of Analytica Advisors, a senior fellow at the Centre for International Governance Innovation and an expert adviser to the Treasury Board of Canada’s Horizontal Innovation and Clean Technology Review.

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