October 17, 2011
Good afternoon, ladies and gentlemen – thank you for being here. I am very pleased to be joined today by my fellow panel members: Arvind Gupta, Monique Leroux, and Nobina Robinson. I would also like to thank our colleagues Bev Dahlby and David Naylor, who were unable to make it to Ottawa today. They have all made significant contributions to the report and I thank them very much.
As Canadians, we like to think of ourselves as a nation of innovators. After all, Canadians invented insulin, canola, the ski-doo, the pacemaker, Plexiglas, and the BlackBerry.
Going forward, however, more of the world's innovations may well happen elsewhere.
Governments in Canada spend more on supporting business R&D per capita than most countries in the industrialized world, and yet we're increasingly near the bottom of the pack when it comes to investing in business innovation.
So if it's not a lack of government investment, then why has our business R&D momentum been stalled for almost a decade now? The federal Government has been trying to answer this question for the past several years.
Our mandate, however, contained three important provisos:
With that in mind, we met with more than 160 stakeholders across Canada and received 228 written submissions to our website.
We surveyed over 1,000 businesses, and consulted with numerous experts across the country as well as in Europe, Australia, Asia and the United States.
We also did an extensive literature review, and examined the work of past panels.
What we found was a funding system that has grown complicated and challenging to navigate. While many of these programs are highly regarded, paperwork and high administrative costs discourage many companies from even applying. What's more, a surprisingly large number of firms don't even know that these programs exist.
The panel also identified federal programming gaps that limit the ability of our businesses to grow – which is a real concern for us. If Canada is going to be an innovation leader, the government has to find more effective ways to help small and medium-sized businesses grow into globally-competitive enterprises.
With that by way of an introduction, I would like to highlight our six main recommendations.
First, we need better coordination of R&D funding programs, and greater involvement of the business community.
Our panel focussed on 60 programs across 17 different government departments that account for $5 billion that Ottawa spends on business and commercially-oriented R&D. We see an opportunity to achieve better coordination over time, through better governance and client-centric delivery.
Panellists were also struck by the lack of direct input from business when it came to the funding of R&D. Unlike most of the bodies overseeing the federal funding of academic and health research, the people actually doing the work aren't part of the decision-making process.
This is why our number one recommendation is the creation of a new business-focused, arm's-length funding agency. It would be a one-stop shop for federal R&D support and, by including business at the table, it will ensure that government programs deliver meaningful results.
Secondly, we heard from small and medium-sized businesses that Canada's flagship support program – the Scientific Research and Experimental Development tax credit or SR&ED – has to be made simpler.
SR&ED is so complicated that businesses have to hire outside consultants just to fill out the application form. This means that successful SR&ED recipients often use a significant percentage of their overall grant to pay consultant fees.
We believe that SR&ED can be made easier and more effective by basing the tax credit for smaller businesses solely on labour-costs and then increasing the rate. This will make the whole experience much faster and more user-friendly.
In our discussions with other governments, we learned that Canada is one of the few places that doesn't actively use procurement to encourage home-grown innovation. The United States, Japan, Australia, the UK and a host of other nations all actively use their procurements to stimulate business innovation. It's just commonsense that Canada should do the same.
Businesses told us that they want the Government of Canada to be their first customer, and we agree.
I'm going to spend a bit of time discussing our fourth recommendation because it's important that you go beyond the easy headline to understand what we are really proposing here.
For 95 years, the National Research Council has been a real engine for research in Canada. It did important research back before Canadian universities and business were active. It also has spun off many successful stand-alone organizations like the Canadian Space Agency and the Natural Sciences and Engineering Research Council.
We think the time has come for the next evolution of the NRC.
The NRC Institutes should be transformed into independent, not-for-profit research and technology centres – funded by government, business and universities. The industry-facing centres would be driven by business, while the basic research operations would be delivered in partnership with universities. The federal government would continue to provide financial support to both.
The end result of this reorientation would be greater resources for the institutes, better research and stronger commercial outcomes for Canada.
We also believe that the well-established and successful Industrial Research Assistance Program should be doubled in size and moved from the NRC to the new business-focused, arm's-length funding agency that we are recommending.
As I mentioned earlier, one of the gaps that the panel identified was the lack of start-up and late-stage risk capital for small and medium-sized businesses. This has resulted in Canadian ideas leaving the country to look for financing and Canadian companies getting gobbled up by foreign buyers before innovations get to market. As a result, Canada is – deprived of both intellectual property and commercial benefit.
We recommend that the Business Development Bank of Canada work with angel investor groups and venture capital firms to establish new funds for start-up companies, and we recommend that the Government fund BDC to establish a significant new late stage venture capital fund.
Lastly, if business innovation is to become a government priority, leadership must come from the top. This is why we are recommending to the Prime Minister that he designate one member of his cabinet as the lead minister responsible, across government, for innovation.
We believe that the minister should then work cooperatively with the provincial and territorial governments to adopt a collaborative approach to tackling the business innovation problem. While our mandate was federal, stakeholders told us time and again that one of the greater challenges facing business innovation was the lack of coordination between federal and provincial governments.
These are the recommendations that we are presenting to the federal government. They are ambitious, but practical and necessary.
On the cover of our report, we tell the story of Henry Woodward, a medical student in Toronto, and Mathew Evans, a local hotel keeper. In 1874, they patented a nitrogen-filled light bulb that lasted longer than any others during the period. But they couldn't get financing for their work. Five years later, the American Thomas Edison invented his light bulb and bought the patents of Woodward and Evans. That story is still playing out 137 years later.
We firmly believe that this report will change that and help keep the bright ideas right here in Canada, until our entrepreneurs are ready to take on the world.
Thank you and I would be happy to take your questions.