Closing the innovation gap
TheStar.com – opinion/editorialopinion
Published On Thu Oct 20 2011. By Carol Goar, Editorial Board
For roughly 30 years, Ottawa has been pouring taxpayers’ dollars into Canada’s “innovation gap” — and achieving precious little.
The government spends roughly $5 billion a year to induce business to invest in research and product development. Cabinet ministers regularly exhort corporate leaders for their unwillingness to use their earnings to leap ahead of their global competitors. Conferences are held, reports written.
Yet according to the latest statistics from the Organization for Economic Growth and Development, Canada remains at the back of pack in terms of private spending on research and development (16th out of 27 industrial countries).
This record of failure calls for a “fundamental reordering of how innovation, research and development are funded in Canada,” says the Mowat Centre in a provocative new study.
Its author, Tijs Creutzberg, an Ottawa consultant who specializes in fostering industries of the future, says there are three basic problems.
• The first is that Canada relies far too heavily on tax incentives. “Canada is an extreme outlier in weighting its investment in innovation so heavily toward tax incentives and away from direct support to sectors,” Creutzberg points out. The United States, for example, devotes just 22 per cent of its research funding to tax incentives. Neither Germany nor Sweden uses tax incentives at all. Canada delivers 80 per cent of its public support for research in tax credits and writeoffs. This may shield federal politicians from accusations of “picking winners and losers” and doling out “corporate welfare.” But it’s not very effective. Countries that provide direct grants to companies or sectors have been much more successful at creating a culture of innovation.
• The second difficulty is Canada’s rigid federalist system. Under the current distribution of powers, Ottawa, which has the biggest purse, underwrites most the nation’s scientific and technical research. The provinces play a subordinate role directing funding to firms developing new products and services or poised to break into the front ranks.
• The third impediment is a buildup of bureaucratic structures. Canada has so many different programs, initiatives, partnerships and tax credits, delivered by so many federal and provincial departments, that entrepreneurs can’t find their way through the maze. In Ontario’s agriculture sector alone, Creutzberg notes, there are 45 programs run by seven federal and provincial departments. “This has resulted in considerable duplication and overlap,” he says, “giving rise to important questions about the cost-effectiveness of Canada’s collective effort.”
The Mowat Centre’s remedy — a radical redesign — is likely to be too bold for the Conservative government.
Indeed its own expert panel this week recommended that Ottawa simplify its confusingScientific Research and Experimental Development program (its largest tax incentive), hand off 20 federally run research institutes to non-profit agencies and put a single cabinet minister in charge of innovation — the status quo with a bit of tinkering and streamlining.
Creutzberg, by contrast, proposes a drastic cut in federal tax incentives for research and development. The savings would be transferred to the provinces, allowing them to make strategic investments in emerging industries and in communities that have a critical mass of talent, a concentration of leading-edge firms in one field, and a strong research hub such as a university or teaching hospital.
Under this redistribution of responsibilities, the role of the federal government would be to create a hospitable national environment for innovation (an educated workforce, fiscal stability, an attractive investment climate, a favourable tax regime and a strong reputation for basic science). The role of the provinces would be to target subsidies at emerging industries (Premier Dalton McGuinty’s green energy program is an example) and regional clusters (biotechnology and life sciences in Toronto, high-tech development in Waterloo, mining technology in Sudbury).
This runs counter to Prime Minister Stephen Harper’s long-standing belief that the private sector should determine its own research priorities. It runs counter to the business community’s desire for lower taxes. And it runs counter to Canadians’ traditional preference for a strong, central government.
But Creutzberg makes a compelling case: when a strategy hasn’t worked for three decades, it’s time to try something new.
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