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Innovation Canada: A Call to Action

Review of Federal Support to Research and Development – Expert Panel Report

Table of Contents

• Executive Summary
  • Guiding Principles
  • Approach to Our Mandate
  • Recommendations
  • In Conclusion

1. Motivation and Mandate
   • The Panel's Mandate
   • The Panel's Approach
2. The Context of the Review
   • Innovation and Productivity Growth
   • Innovation and R&D
   • Innovation and Business Strategy
   • Business Innovation: Beyond R&D
   • Innovation Input: Ideas and Knowledge
   • Innovation Input: Talented, Educated and Entrepreneurial People
   • Innovation Input: Networks, Collaborations and Linkages
   • Innovation Input: Capital and Financing
3. Overview of Programs to Support Business R&D
   • Rationale for Government Support of Business Innovation
   • Profile of Federal Government Support for Business R&D
   • In Summary
4. Vision and Principles
   • Guiding Principles
   • Approach to the Recommendations
5. Program Effectiveness
   • Existing Assessment Procedures for Federal Programs
   • Assessment of Program "Effectiveness"
   • International Practices in Comparative Program Assessment
   • Consultations with Stakeholders
   • Recommendation 1
6. Program Mix and Design
   • Changing the Mix: More Direct Support
   • Overview of the SR&ED Program
   • Net Public Benefit
   • Recommendation 2
7. Filling the Gaps
   • The Procurement Gap
   • Recommendation 3
   • The Large-Scale Research Collaboration Gap
   • Recommendation 4
   • The Risk Capital Gap
   • Recommendation 5
8. Leadership for Innovation
   • Recommendation 6
9. Conclusion
   • The End Game
   • The Way Forward

• Annexes
  1. Programs in the Review
  2. The Advice of Other Panels
  3. Biographies of Panel Members
• References

About the Cover

While the great American inventor Thomas Edison is given credit for "inventing" the light bulb, the story is really one of incremental innovation. In 1810, British chemist Humphry Davy invented the "electric arc," a precursor to the light bulb. A series of innovations followed and, by the 1860s, the race was on to develop a commercially viable light bulb. Joining this race were two Canadians, Henry Woodward, a medical student in Toronto, and Mathew Evans, a hotel keeper. In 1874, they patented a nitrogen-filled light bulb that lasted longer than others of the era. But they could not get financing for their work, and in 1878 were eclipsed by British inventor Joseph Swan and then in 1879 by Thomas Edison. Realizing the commercial viability of the light bulb, Edison was successful in obtaining major financial backers. He used these funds to continue his experiments, but also to buy out many patents, including those of Swan and of Woodward and Evans.

As we reflected on our consultations held across Canada, during which we heard first-hand of the struggles and successes of Canadian entrepreneurs, we wondered: What if Woodward and Evans had been able to interest investors? What if they had been able to obtain financing to carry on their work and beat out Swan and Edison to be the first to commercialize the light bulb?

This report lays the foundation for a more innovative economy that supports and welcomes research, development and commercialization. It sets out goals and recommendations to take our country forward and help unleash the potential of entrepreneurs from all over Canada. Our hope is that the next Woodwards and Evanses will have all that they need to bring their ideas to the world and leave a lasting impact for future generations.

For more information, see: Library and Archives Canada, "Patent no. 3738. Filing year 1874".

Acknowledgements

Secretariat

The Panel was capably supported in its work by a secretariat comprised of officials from the Government of Canada departments with responsibilities for many of the programs within the scope of the review. These officials had expertise in aspects of R&D and innovation, and were seconded to the secretariat for the duration of the review. The secretariat was responsible for a range of activities in support of the Panel, such as providing strategic advice and analysis in support of Panel deliberations, organizing the Panel's consultations, managing its online written submissions process, liaising with the 17 Government of Canada departments and other entities implicated in the review, coordinating the travel of Panel members, coordinating the Panel's program of research with external experts, and managing the review's logistics, schedule and finances.

Iain Stewart was the secretary to the Panel and head of the secretariat, and was supported by Samuel Millar, the secretariat's executive director. John Lester, Mary Preville and Mélanie Robert served as the secretariat's directors of research, program assessment, and consultations and communications, respectively. Sarah Charette, David Côté, Thomas Ferguson, Alexandre Hamel and Brandon La Carte served as policy advisers. Ana Fierro, Gail Gaudreau and Katherine O'Rourke supported the Panel's administration and logistics. Gladys Fisher provided support in financial administration and contracting.

Special Advisers

The Panel wishes to give its thanks to the following special advisers:

• Peter Nicholson, who wrote the report with David Côté of the secretariat, under the direction of the Panel
• Andrei Sulzenko, for his work supporting us on procurement advice
• Paul Berg Dick, for his work supporting our understanding of the Scientific Research and Experimental Development tax credit.

Other Important Acknowledgements

The Panel also wishes to thank and acknowledge the many other individuals and organizations that contributed to the review.

The regional offices of Industry Canada and all of the regional development agencies were instrumental in assisting in the domestic consultations. Similarly, the Canadian missions to Canberra, Sydney, Singapore, Berlin, Munich, London, the Organisation for Economic Co-operation and Development (OECD), New York and Washington provided essential support to the Panel's international fact-finding missions.

The governments of Australia, Finland, Germany, Singapore, the United Kingdom and the United States contributed important information throughout the international consultation process.

The Panel would also like to recognize various international organizations for sharing their research and resources over the course of the review, including the Information Technology & Innovation Foundation, Germany's Fraunhofer-Gesellschaft, the US National Academy of Sciences, the OECD, Partnership for New York City, Universities Australia, and the Urban Institute and Brookings Institution's Tax Policy Center.

In addition, the Panel wishes to acknowledge a range of experts who conducted research on its behalf: Malcolm Bernard, Dan Ciuriak, Ian Currie, John Curtis, Gilles Durué, EKOS Research Associates Inc., Ron Freedman of The Impact Group, Fred Gault, Pat Goodman, Hickling Arthurs Low Corporation, Donald McFetridge, Marshall Moffat, Jacek Warda, Karen Wensley and Science-Metrix.

Lastly, the Panel would like to thank Industry Canada and the Department of Finance Canada in particular for the data, information, research, analyses and other resources made freely available to the Panel, and the 17 federal departments and agencies for providing time and information in support of our learning about their important programs and initiatives.

For a full list of all interlocutors who contributed views and expertise to the review, please visit the Panel's website at www.rd-review.ca.

List of Figures

List of Boxes

List of Acronyms

List of Recommendations

Recommendation 1
Create an Industrial Research and Innovation Council (IRIC), with a clear business innovation mandate (including delivery of business-facing innovation programs, development of a business innovation talent strategy, and other duties over time), and enhance the impact of programs through consolidation and improved whole-of-government evaluation.

Recommendation 2
Simplify the Scientific Research and Experimental Development (SR&ED) program by basing the tax credit for small and medium-sized enterprises (SMEs) on labour-related costs. Redeploy funds from the tax credit to a more complete set of direct support initiatives to help SMEs grow into larger, competitive firms.

Recommendation 3
Make business innovation one of the core objectives of procurement, with the supporting initiatives to achieve this objective.

Recommendation 4
Transform the institutes of the National Research Council (NRC) into a constellation of large-scale, sectoral collaborative R&D centres involving business, the university sector and the provinces, while transferring NRC public policy-related research activity to the appropriate federal agencies.

Recommendation 5
Help high-growth innovative firms access the risk capital they need through the establishment of new funds where gaps exist.

Recommendation 6
Establish a clear federal voice for innovation, and engage in a dialogue with the provinces to improve coordination and impact.

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