Canada has a rich history of innovation, but in the next few decades, powerful technological forces will transform the global economy. Large multinational companies have jumped out to a headstart in the race to succeed, and Canada runs the risk of falling behind. At stake is nothing less than our prosperity and economic well-being. The FP set out explore what is needed for businesses to flourish and grow. Over the next three months, we’ll talk to some of the innovators, visionaries and scientists on the cutting edge of the new cutthroat economy about a blueprint for Canadian success. You can find all of our coverage here.
OTTAWA — Oilmen often fancy themselves as self-reliant innovators, never in need of government handouts. But it was a Crown corporation, the Alberta Oil Sands Technology and Research Authority, that rode to its rescue in the 1970s with funding for steam-assisted gravity drainage technology, which eventually unlocked a new wave of growth in the oilpatch.
SAGD revived the sputtering industry, and is now expected to drive growth in the oilsands.
“Without it there wouldn’t have been an oilsands industry in Alberta,” said Dan Breznitz, professor and Munk Chair of Innovation Studies.
AOSTRA was seen as a template for how government-funded innovation ought to work: a temporary program crafted to meet private sector needs, and singularly focused on achieving one goal. But fast forward nearly 50 years, and it seems Canadian policymakers have taken few lessons from the program.
Despite spending piles of money on research and development in recent years, Canada’s innovation space remains a messy tangle of government grant programs, tax credits and the newly-minted “supercluster” initiative, often with sprawling and ill-defined goals. Business investment in R&D, meanwhile, has stagnated. Many Canadian business leaders are calling for a reset.
Business sector spending on research and development has been in steady decline since 2001, falling from 1.2 per cent of GDP down to 0.9 per cent in 2015, well below a 16-country average of 1.7 per cent, according to the Conference Board of Canada. That decline has come despite a steady rise in R&D spending in the public sector, particularly by higher education institutions, which has outpaced spending in other developed nations.
“We spread around incentives like peanut butter — evenly — and that has a very negative set out of outcomes associated with it,” said Anthony Lacavera, founder of Globalive Holdings, a Toronto-based investment firm, and of WIND Mobile. WIND began as a startup telecommunications firm that Lacavera later sold for $1.6 billion to Shaw Communications.
In his book ‘How We Can Win: And What Happens to Us and Our Country If We Don’t’, a study of Canadian innovation policy, Lacavera points to the various pitfalls that have hindered innovative Canadian companies from growing into multinational “anchor” firms.
“Business is about winners, and we need in Canada to start recognizing that we need to pick winners, and we need to help our companies become global success stories,” he said.
Lacavera is advocating a return to an older form of innovation policy that focuses more on companies or specific areas rather than laboratories, and making bigger bets on fewer innovative firms. In short, that would mean taking a far less egalitarian, or perhaps “Canadian,” approach to innovation.
“Structurally, we are trying to excel in too many digital and knowledge economy areas,” Lacavera said. “It’s the Canadian style — spread it around, give everyone a shot. And then no one wins.”
Experts have long called for an overhaul that could simplify Canadian innovation policy, starting with a streamlining of the various programs aimed at supporting promising companies. Ottawa went at least part way toward that goal in its 2018 budget, after promising to whittle down the total number of federal grant programs from 92 to around 35.
Lacavera points to the Scientific Research and Experimental Development (SR&ED) tax credit as an area ripe for improvement. The tax credit dishes out more than $3 billion every year to reimburse research and development spending for thousands of companies, either at 15 per cent or 35 per cent.
But the program has been criticized for being geared too specifically towards smaller companies, effectively incentivizing laggard companies to remain small, even as they enjoy subsidies year after year. The issue has become so prevalent that the program has long been called the “Walking SRED” in some business circles, a nod to the zombie TV series Walking Dead.
“You have companies that really should have already failed, or should have already been consolidated, or are really never going to get to scale, just sort of walking around,” Lacavera said.
Innovation programs can also add an administrative burden for entrepreneurs.