Wednesday, July 1, 2009

Canada's Innovation Gap (#innovation #Canada @globeandmail)

An excellent article by Konrad Yakabuski in the July 1 issue of the Globe and Mail describes why Canada is lagging in its innovation imperative. The key vital sign for Canada is a 20% drop in Canadian R&D spending as a percentage of GDP since 2001.

Other numbers mentioned in the article:
- 3.5% of Finland's GDP is spent on R&D, compared with less than 2 per cent in Canada
- 100, number of engineers employed in R&D by General Motors of Canada
General Motors of Canada Ltd. currently employs about 100 engineers engaged in R&D activities, according to spokesperson Stew Low. It has promised to spend "almost $1-billion" on R&D in Canada over the next seven years as part of its $10.6-billion bailout by the federal and Ontario governments. But even that amounts to barely 1 per cent of annual sales, based on GM Canada's pre-crash revenues.

Also cited is the report "Business Innovation in Canada" recently published by the Council of Canadian Academies. The report addresses the key questions:

  • How should the innovation performance of Canadian firms be assessed?
  • How innovative are Canadian firms, and what do we know about their innovation performance at a national, regional and sector level?
  • Why is business demand for innovation inputs (for example, research and development, machinery and equipment, and skilled workers) weaker in Canada than in many other OECD countries?
  • What are the contributing factors, and what is the relative importance of these contributing factors?
A few highlights from the report's 14 point summary include:
  • Canada has a serious productivity growth problem. Since 1984, relative
    labour productivity in Canada’s business sector has fallen from more than
    90% of the U.S. level, to about 76% in 2007. Over the 1985-2006 period,
    Canada’s average labour productivity growth ranked 15th out of 18
    comparator countries in the OECD group.
  • Canada’s relatively poor productivity growth is due mainly to weak growth
    of multifactor productivity (MFP), which measures broadly the effectiveness
    with which labour and capital are used in the economy. The problem is not
    caused by shortcomings in Canada’s workforce or inadequate capital
    investment (with the exception of significantly lagging investment in
    information and communications technology (ICT)).
  • Investment at the leading edge of technology (which represents the indirect
    acquisition of innovation) has also lagged. Empirical evidence suggests a
    correlation between investment in machinery and equipment and MFP
    growth. The most significant and puzzling area of lagging investment has
    been in ICT where average investment per worker in Canada was only about
    60% of the U.S. level in 2007. Investment in ICT is an important driver of
    productivity growth, particularly in many service-producing industries that
    are the main source of job growth in advanced economies. The ICT
    investment picture is consistent with the view that Canadian businesses on
    the whole — but always with notable exceptions — are technology
    followers, not leaders.
It's an important article at an important time, as the world struggles to emerge from recession. One can only hope that this article is a wake up call for Canada on Canada Day!