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Wanted: Innovation with payback

Several studies and reports rank Canada’s innovation indicators and the general diagnosis is that we are good at some things but doing only middling or very poorly in many other important areas,


November 4, 2011
by Joe Terrett, Editor

By all accounts Canada is pretty well off economically and there’s lots of wealth floating around yet we are one of the least productive among peer nations in the Organisation for Economic Co-operation and Development (OECD). In fact, for the past 10 years we’ve occupied a spot in the bottom quarter.

A recent Deloitte report on our productivity gap and what to do about it notes we produce just 86% of the output our US peers generate, and when baby boomers start exiting the workforce, only strong growth in productivity will allow us to maintain the standard of living we presently enjoy.

Innovation is key to productivity, yet we are sliding on that measure too. Defining innovation as the ability to turn knowledge into new goods and services, the Conference Board of Canada in its annual global analysis lists Canada as a solid D performer out of 17 peer nations.

Several studies and reports rank Canada’s innovation indicators and the general diagnosis is that we are good at some things but doing only middling or very poorly in many other important areas, particularly taking an idea to commercialization.

For example, we have a solid knowledge base and there’s cool R&D going on in Canadian universities; however, as Deloitte’s report notes, while Canada may be good at generating basic research, it’s “dismal” at producing new patents.

We’re also suck at producing trademarks per million of population, one of the indicators dragging down our Conference Board grade. Canada is second to Japan…for last place.

Trademarks indicate innovations that have made it to commercialization. Commercialization depends on adequately funded private sector R&D. Canada offers enticing R&D incentives based on 0.24% of GDP, which Deloitte says are among the most generous in the world, yet private sector R&D was but 1% of GDP (2008), the lowest business to government support per dollar in the OECD.

So what’s the problem? The analysts are scratching their heads on this one, but several factors stand out. In manufacturing, most companies fall into the small and medium category, and those who would like to spend money on innovation are having trouble getting capital.

But Canadian entrepreneurs are also more risk adverse than their peers in the US. Deloitte looked at risk tolerance on both sides of the border and discovered – based on actual decisions made – Canadians were 18% less tolerant of risk than Americans and they were more dependent on government R&D support.

Unfortunately, there’s also a lot of Canadian innovation leaving the country, according to a new report by the Canadian International Council (CIC). Rights and Rents, Why Canada Must Harness its Intellectual Property reports that from 2006 to 2010, 137 venture-backed start-ups changed hands and almost 60% of them went to foreigners.

And it appears Canadian companies spent $4.5 billion more buying intellectual property (IP) on world markets than they earned selling or leasing it, according to a World Bank report. The US has an IP surplus of $65 billion.

The Conference Board says that countries with highest overall scores develop national strategies around innovation. This needs to be a priority for the Harper government.

Canadians would like to shake off the long-held perception that this is a country where we make our livings hewing wood and digging stuff out of the ground for others who add the value to create more wealth and higher wage jobs. If we want the prestige of being “high value”, we have to do more to create the value, rather than relying on others to handle the thinking and doing for us.