State of the Nation 2008

4. Digest of Key Indicators

4.1 Canada's Business Innovation Indicators

Canadians' living standards depend on ensuring that Canadian businesses are globally competitive, by turning new knowledge into new goods, services, processes and business models that can be sold profitably around the world.

Productivity, Economic Growth and Innovation

Analyses by the Council of the Canadian Academies,28 Statistics Canada,29 and the Centre for the Study of Living Standards30 have shown the critical link between Canadian productivity, economic growth and innovation. Innovation drives productivity growth in three main ways: the innovation embedded in technically advanced capital equipment; the development of new sources of value; and improvements in the organization of work. The gap in productivity and productivity growth between Canada and our main trading partner, the U.S., has been well documented. Labour productivity growth in Canada has been slower than in the U.S. for more than two decades and has become much worse in this decade. Canada's productivity growth has also been slower than most OECD countries — we rank 15th out of 18 comparable countries. Labour productivity growth increases when workers have more or better capital machinery and equipment (capital intensity) and when labour, capital and other inputs to the production of goods and services are combined more effectively (often referred to as multifactor productivity or MFP). MFP is probably the best measure that we have on the impact that growth in innovation has on the economy. MFP measures broadly, over long periods of time, the impact of "better organization of work, improved business models, the efficient incorporation of new technology, the payoff from R&D and from collaboration with innovation partners."31 MFP is able to capture forms of innovation that indicators such as R&D intensity do not.

Figure 5 shows the sources of business sector productivity growth in Canada and the U.S. Slower MFP productivity growth has been by far the most important source of the growing gap between Canadian and U.S. labour productivity levels. As the Council of the Canadian Academies notes, "Since Canada's weak productivity performance over the past two decades is due primarily to low MFP growth, it follows that Canada's productivity problem is rooted in weak business innovation performance."32 It has also been well documented33 that low productivity growth directly affects our standard of living.

Business Expenditure on Research and Development

While BERD captures a narrower range of activities than is captured by innovation surveys, it is a good indicator of capturing how important innovation is for business strategy. Expressing BERD as a percentage of GDP indicates the intensity in which businesses invest in R&D and allows us to compare economies of different sizes. In 2006, the last year for which internationally comparable data are available, Canada ranked 15th in the OECD (see Figure 6), and business R&D intensity in Canada has been decreasing since 2002.34 Compared to our major competitor in the North-American economic space, the U.S., Canadian companies invest much less on R&D as a percentage of GDP. In 2006, U.S. firms invested 1.8 percent of GDP on R&D, compared to only 1.06 percent in Canada. We are in the middle of the OECD pack of 30 countries, but only sixth in the G-7.

In 2006, total BERD in Canada reached $16.1 billion, with the manufacturing ($8.6 billion) and services ($6.5 billion) sectors accounting for 93 percent of this total. The six leading industries35 performing R&D during this period represented almost half (46 percent) of all BERD in Canada.36

Previous studies37 have shown only a few industrial sectors account for the low aggregate business R&D intensity in Canada relative to the U.S. In these studies, almost the total gap is accounted for by low business R&D intensity in the services sector and the motor vehicle industry.38 However, sectoral differences in business R&D intensity and the reasons for differences between comparable Canadian and U.S. industry sectors are not particularly well understood.

Canada's low ranking in BERD intensity is not the result of our industrial structure. A recent study by the Australian government's Productivity Commission removed the influence of industrial structure from BERD intensity rankings, by constructing an "average OECD industry structure," and adjusting BERD intensity data in each OECD country to reflect the average OECD industry structure. The results of this are shown in Figure 7.

This illustrates that after the influence of industrial structure is removed, Canada's overall BERD intensity increases a little, but we actually drop in the adjusted OECD BERD intensity rankings. In 2002, using a country specific industry structure (i.e. how the OECD normally reports these data) Canada's BERD intensity was 1.6 percent — good enough to rank 12th in the OECD that year. Weighing Canada's BERD expenditures using an "average OECD industry structure," our BERD intensity, according to the Australian government's Productivity Commission, was 1.9 percent, but we dropped to 13th in the adjusted OECD BERD intensity rankings.

The trend in BERD intensity is downward since 2002. While total BERD dipped slightly in 2002 and 2003 from 2001 levels, by 2004 they had recovered to be greater than 2001 levels, and have increased slowly since then. However, the rise in total BERD in Canada has not kept pace with GDP growth, which is why BERD intensity is down since 2002.

Percentage of Total Research and Development Performed by Business

It is evident that compared to other OECD countries, business R&D in Canada is a comparatively smaller portion of total R&D performed by all sources (i.e. the gross expenditure on R&D GERD). In 2006, Canada's business sector performed 55 percent of all R&D, compared to: 77 percent in Japan; 70 percent in the U.S. and Germany; 63 percent in France; and 62 percent in the U.K.39

R&D is therefore performed to a much greater degree by the business sector in other countries. Since the R&D performed by business is more likely to be closer to the market (i.e. more development than research) this may have an impact on Canada's ability to turn research into new products, services, processes and business models that are sold globally. Compared to our major competitors, more of our R&D is performed by universities and colleges. Most of this is more basic research, farther away from being turned into profitable market opportunities and results.

Government Support of Business Research and Development

Governments at different levels in Canada encourage business R&D. Federal and provincial governments provide assistance through government programs and arm's-length foundations. The May 2007 Government of Canada S&T Strategy, Mobilizing Science and Technology to Canada's Advantage, suggested that aligning federal programs and activities could result in more effective support. The OECD has begun to compare total direct versus indirect support by government of business R&D for some countries. This work in Figure 8 shows that when direct support is added to the value of indirect support of business R&D, for the 13 OECD countries for which data are available, Canada has the richest government support of business R&D, as a percentage of GDP, just edging out the U.S.

Canada's government support of business R&D in 2005 was equal to 0.23 percent of GDP, just ahead of the U.S. where government support of business R&D was equal to 0.22 percent of GDP. While the total (i.e. indirect plus direct) government support of business R&D is similar, 90 percent of Canadian support was for indirect measures (the business R&D tax credit), while 80 percent of government support in the U.S. was for direct government funding of BERD, and only 20 percent of U.S. government support of business R&D went for indirect measures.

Canada's Scientific Research and Experimental Development (SR&ED) tax credit is the single largest financial support given to businesses in Canada to conduct R&D. In 2007, nearly $3.7 billion in assistance was given to Canadian firms.40 Compared to other countries, Canada's tax credits for R&D are one of the highest in the world for small and medium-sized enterprises, but other countries, notably economies such as Mexico, France, China, India and Singapore, offer much higher tax credits for R&D performed by large firms.41

Business Investment in Machinery and Equipment

There is considerable research that shows that a firm's ability to create new products, services, processes and business models is strongly related to its capacity to absorb and use new ideas. Much of that capacity is related to the skill level of a firm's workforce, a subject we examine in Section 4.3 Talent Indicators. In addition, much of that absorptive capacity is built through the purchase and use of new machinery and equipment (M&E), which incorporates the latest knowledge and technologies. In turn, the use of the latest M&E improves a country's productivity.

Business investment in machinery and equipment is particularly important in Canada, since Canada's business investment gap with the U.S. has been due to lagging M&E investment, which goes beyond ICT assets. Research suggests that, "when industry structure is taken into account for the M&E asset class, most industries of Canada's business sector are less capital intensive than that of the U.S. In the case of non-ICT M&E, there is a small deficit of about 12 percent. The deficit is more pronounced for ICT investments — some 33 percent."42 Manufacturing plants that introduce advanced technologies to the market in Canada are most likely to be technology purchasers, with more than 55 percent of plants choosing this method. There is considerable user-driven innovation taking place, however, as 42 percent of firms either modified the technology they purchased or developed it themselves in-house.43

Canada again places in the middle of the OECD pack for business investment in machinery and equipment as a share of GDP. As shown in Figure 9, in 2004, we ranked 13th in the OECD, the last year for which internationally comparable data are available. Analysis by the Council of Canadian Academies, using data from the Centre for the Study of Living Standards ICT database, shows that even as the Canada-U.S. exchange rate (i.e. US$ per C$) was increasing rapidly beginning in 2002, annual M&E investment as a percent of GDP did not increase.44

Even though imported machinery and equipment became appreciably cheaper due to the approximate 37 percent rise in the value of the Canadian dollar from February 2002 to January 2008 (important since about two-thirds of the total value of Canadian purchases of M&E are imported), overall purchases of M&E have only kept pace with the growth in Canada's GDP. Given the importance of new machinery and equipment, which embodies the latest innovation and contributes greatly to increased productivity, federal budget initiatives in 2007 and 2008 increased the capital cost allowance (CCA) for most machinery and equipment used in manufacturing and processing from a 30 percent declining balance CCA rate to a 50 percent straight-line CCA rate. This has significantly reduced the after-tax cost of most machinery and equipment in Canada.

Venture Capital Investment

Less than two percent of total small and medium-sized business financing in Canada comes from venture capital (VC). Other sources of capital investment are far bigger. In 2007, the most recent year for these data, 53 percent of business financing came from domestic banks, 16 percent from other banks, 10 percent from credit unions and Caisses Populaires, 11 percent from finance companies, and 8 percent from insurance companies.45

However, for some industries, particularly information technology, telecommunications, biotechnology and environmental technologies, VC is essential to firm growth, so tracking our VC performance is very important. There are differences in results depending on which source of VC data is used, but the International Consortium on Entrepreneurship (ICE) provides internationally comparable data. According to these data, shown in Figure 10, Canada ranks seventh among the countries compared in VC investment as a percentage of GDP.

Canadian firms attract a large number of VC investments, but the average size of each deal is much smaller than our major competitors, particularly those in the U.S. In 2006, according to the ICE data, the average VC deal size in the U.S. (the world leader) was three times the average VC deal size in Canada, which ranks 10th in the world. One possible reason for this difference is that VC funds in Canada on average are much smaller than those in the U.S. In addition, much more of our VC investments are in seed or start-up companies (as opposed to expansion or late-stage investments). The ICE 2006 data showed that about 35 percent of total VC investments in Canada were in seed or start-up companies, compared to less than 10 percent for the U.S. Canada's VC investments are also highly concentrated by sector. Eighty percent of Canada's VC investments in 2005 went to only three sectors: communications, information technology and health/biotechnology (almost evenly distributed between these three sectors). The OECD average for these three sectors was only 40 percent of total VC investment.46 It is important to note that in 2005, the U.S. was even more concentrated in these three sectors, accounting for 88 percent of total VC investment.

Venture Capital's Crucial Role: SiGe Semiconductor

SiGe Semiconductor

For many high-tech companies, venture capital is the lifeblood of growth. Without readily available expansion capital, even highly inventive companies may miss the chance to capitalize on growing markets and new opportunities for commercialization.

SiGe Semiconductor has been able to tap local, national and global venture capital markets to bring new products to market. SiGe, like many Canadian semiconductor companies, is 'fabless' — meaning they undertake only the research and design aspects of producing semiconductors, and contract out the manufacturing. From its inception as a spinoff from the National Research Council Canada in 1996, SiGe Semiconductor has grown into the world's leading provider of radio-frequency semiconductor solutions in their niche. The company provides wireless networking solutions for some of the world's largest information and communication technology firms, including Apple, Dell and Nintendo. Successive rounds of venture capital funding have been crucial to this growth, and SiGe's network of venture capital partners continues to expand. Most recently, South Korean electronics giant Samsung joined established partners such as TD Capital Technology Venture and 3i Venture Capital in financing SiGe's latest expansion plans.

There is also a large comparative difference in the percentage of VC funds raised by type of investor. In Canada, 58 percent of capital raised by VC funds was invested by individuals in so-called retail VC companies. In contrast, most VC funds in the U.S. in 2003 were raised from pension funds (42 percent) and banks and insurance companies (25 percent). In Canada, in 2006, only 10 percent of capital raised by VC funds came from pension funds and only 2 percent from banks and insurance companies. This difference occurs in part because, unlike the U.S., Canada has tax credit government programs, such as the Government of Canada's Labour-Sponsored Venture Capital Tax Credit, that encourages individuals to make investments in retail VC companies.

Net returns to VC investors in Canada have been anemic, particularly when compared to the net return to VC investors in the U.S. Analysis by the Council of Canadian Academies — using data from the Canadian Venture Capital Association and the National Venture Capital Association in the U.S. — shows, for example, that in the U.S. the net return on the previous 10 years, after averaging around 26 percent from 2001-03, declined to 18.3 percent in 2007. In contrast, the net 10-year return to VC investors in Canada, was 13.1 percent in 2001, declined to 6.1 percent in 2002, and declined further to 1.7 percent in 2007.47

Percentage of Total Sales from Innovative Products

Another useful indicator of how innovative Canadian companies are, and the extent to which they use new technology and innovation as an important part of their business strategy, can be found by looking at the share of sales from product innovations (i.e. new products introduced within the last three years) as a percentage of the firm's total sales. Continuing work by the OECD looks to connect firm micro data on sales to their responses to innovation surveys. Preliminary work on 14 countries48 shows that only 9 percent of Canadian manufacturing firms' total sales come from sales of new innovative products. This compares to almost 15 percent in Finland (the leader in this grouping of countries), and almost 13 percent in the U.K., but is considerably greater than Japan (about 5 percent) and Australia (about 4 percent). The U.S. does not yet have an innovation survey, and therefore is not among the group of countries compared.49

Turning Local Advantage to Global Competitiveness

In the early 1990s, John Risley, President and CEO of Nova Scotia based Clearwater Fine Foods Incorporated, a leading company in the global seafood industry, was interested in Omega-3s because of their potential treatment for heart disease in humans. He purchased a small company in Cape Breton, Nova Scotia that distributed Omega-3 fatty acid products to veterinary hospitals throughout Canada. In 1997, Risley launched Ocean Nutrition Canada Limited (ONC) with headquarters in Bedford, Nova Scotia, research facilities at Dalhousie University in Halifax, and a plant in Mulgrave, Nova Scotia to refurbish and produce purified Omega-3 EPA/DHA oil.

ONC discovered a breakthrough technology that transformed fish oil into a powder finer than flour. This technology, now known as Powder-loc™, was unique in the industry because it could withstand almost any baking industry process and had no taste or smell properties. It could successfully be added to products such as baked goods, milk, yogurt, juice and nutrition bars, among others.

Since ONC opened in 1997, its growth has been tremendous. In 1997, there were only 4 employees, and now ONC is over 300 strong. ONC's reputation as a global leading supplier of Omega-3 EPA/DHA ingredients to the dietary supplement and healthy food markets has increased. They now have clients in North America, Asia, Europe and Australia.

The Payoff: Firms that Perform More Research and Development and Innovation Have Greater Sales and are More Productive

New joint academic/Industry Canada research50 has provided strong evidence of the payoff from increased innovation expenditures by firms. This work, which compares 17 OECD countries and Brazil, shows that firms that have higher innovation expenditures (including for example, R&D and M&E for innovation) have greater sales of innovative products, and are also more productive (greater overall sales per employee). The results were found to be true even when they controlled for the share of university degree holders in the workforce and the size of the firm.

Innovative Spirit Soars at CAE

In February 2009, Canada marked the 100th anniversary of its first airplane flight. Our aerospace industry has made great strides since that cold February day in 1909 when J.A.D. McCurdy took to the sky in a small plane called the Silver Dart. Thanks to investment partnerships with government and innovative technologies, Canada is recognized as a world leader in aerospace.

CAE Inc. is a cornerstone of this success. From its humble beginnings in 1947 with 18 employees in Saint-Hubert, Quebec, CAE has flourished into a world-leading provider of simulation and modelling technologies and training services for the civil aviation industry and defence forces around the globe. Throughout its history, CAE has continuously set industry standards and contributed to the safety of aviation. The company has simulated almost every modern airliner for both major and regional carriers, as well as many of today's business jets, and has developed more prototype simulators than any other company. CAE is also one of the world's leading suppliers of military full-mission simulators. In addition, through its global network of 27 civil aviation and military training centres, CAE trains more than 75 000 crewmembers yearly. With annual revenues exceeding C$1.4 billion, CAE employs approximately 7000 people at more than 75 sites and training locations in 20 countries.

How Companies Innovate is Changing Rapidly: The Rise of Open Innovation

As global competition intensifies, and the cost and risk of developing new technologies and services to meet that competitive challenge increases, companies around the world are finding that a go it alone strategy for technology development and innovation is no longer effective. More and more, they are turning to open innovation, that is sources outside their companies for new product and service ideas that can be further developed and sold profitably in global markets. Firm collaboration and sources of information are important indicators for open innovation, and are discussed in the next two sections of this report.

Firm Collaboration

The straight line from a private firm's lab to new products and services has been replaced by a much more iterative, holistic process. Ideas are put out in the marketplace (beta), refined, put out again, and the whole process has many more feedback loops, each of which happens more quickly than before. For some companies and sectors, time to market is measured in days and weeks, not years, and first to market represents a significant competitive advantage.

Contributions come from many more sources (new countries and new sources of knowledge). Ideas for new products, services, processes and business models come from users, suppliers, and other industries, anywhere in the world. In addition, new Internet applications (Web 2.0, Web 3.0) have allowed firms to perform corporate functions (e.g. marketing, finance, design, R&D) anywhere in the world. This has led to a huge rise in firms that specialize in these corporate functions. Functions and services that used to take place within integrated manufacturing firms now increasingly take place outside those firms.

Finally, challenges and opportunities at the company level increasingly demand investments and skills beyond the capacity of individual companies and organizations. All of these events have led to a rise in the importance of collaboration between firms engaging in innovative activities. The measure we have chosen — firms collaborating in innovative activities, by size — measures the joint development of new products, services, and processes, as well as horizontal work with other firms or public research institutions. It excludes the pure contracting-out of work.

As Figure 11 shows, over the period 2001-04, Canada ranked only 24th in the OECD in the percentage of firms collaborating in innovative activities, our worst performance in the Business Innovation basket of indicators. This indicates that Canadian firms in the manufacturing sector are relatively insular islands of entrepreneurial activity. In a world where collaboration on innovative activities is increasingly essential to performance and meeting market needs, our performance on this indicator is indeed troubling.

User-Initiated Innovation Leads to Medical R&D Company

In 1999, Lee Valley Tools CEO, Leonard Lee, received a thank you letter from Dr. Michael Bell, a renowned Ottawa professor and plastic surgeon, for inadvertently helping to create the world's best scalpel. A pioneer in microvascular surgery, Dr. Bell had used a Lee Valley wood carving knife he had purchased from Lee Valley Tools as a scalpel. The handle was rounder and easier to grip than a standard flat handled scalpel, and also boasted an easy release mechanism for the blade. When Lee visited Dr. Bell, Lee found that he used no less than 17 different Lee Valley Tools in his clinic. Before long, Lee launched Canica Design Inc., which has grown from a surgical instrument company to one that develops a complete range of wound stabilization and closure devices. These devices significantly reduce disfigurement, scarring, pain and the need for skin grafts and mesh repair.

Clusters

While there is debate on the precise scope of the definition, a cluster is generally considered to consist of a geographical region in which there is a high concentration of firms in a given sector. These firms may be in the same industry and may have similar characteristics and products to each other, or may occupy complementary positions in a value chain and be each other's suppliers and customers. Industrial clusters are not necessarily in high-tech fields, and are not necessarily innovation driven. However, the dynamics of clusters are particularly important to high-tech industries and highly innovative sectors.

Geographical co-location provides a variety of competitive advantages to firms. Physical proximity facilitates linkages between firms, and can reduce the costs of innovation through shared resources and information.51 The availability of resources or endowments not available elsewhere can also contribute to co-location.52 For knowledge-based industries, the availability of a large labour pool of highly qualified or specialized people is a benefit, as employment turnover in firms can provide the talent required for growth by other firms. Clusters also become centres of specialized investment capital. Local investment firms can become adept at evaluating and supporting entrepreneurs in specific sectors or industries; and a concentration of firms of a certain industry can attract investment firms that specialize in that industry. The availability of specialized capital and the concentration of talented individuals provide the environment for the formation of new businesses, and many clusters are characterized by high rates of start-ups and high levels of entrepreneurship.

Clusters emerge as a result of market forces, but their growth can be assisted by policy. Foundational policies may be the most important — for example, the high rate of employee mobility in Silicon Valley, which contributed to the emergence of the tech cluster, has been attributed partly to the characteristics of California's labour laws governing non-compete agreements in contracts.53 Specific policies to encourage the formation of clusters may also help cluster growth. For example, policies that encourage collaboration between various institutions in key sectors may prove beneficial, as can cooperation between different levels of government to focus public R&D into areas of existing local economic strength.54 The provision of knowledge 'infrastructure,' such as research institutions, incubators and agents to broker collaboration between firms can also play a helpful role.55

A Centre of Canadian Research Excellence: Montréal's Biotech/Pharmaceutical Cluster

Montréal is home to hundreds of research-based pharmaceutical companies, anchored by the research labs and head offices of a number of large multinational pharmaceutical companies such as Pfizer. The cluster is also supported by the presence of two research universities with strong health sciences faculties: the University of Montréal, and McGill University, which was rated one of the world's top 10 life sciences universities by the Times Higher Education Supplement university rankings. These universities generate numerous spinoff companies, and supply graduates to local businesses. Montréal is also home to the National Research Council's Biotechnology Research Institute, a government lab that undertakes strategic research in the area of health sciences, and actively engages with local university and business partners on R&D projects, helping to foster and strengthen networks of key players. Montréal's high profile, strong intellectual property protection, good research infrastructure and a favourable R&D tax regime make it an attractive location for pharmaceutical venture capital companies. The presence of multinationals (many of which have investment branches) further enhances the availability of start-up and expansion capital for entrepreneurs.

Sources of Information for Innovative Manufacturing Firms

A study examining the sources of information for innovative Canadian manufacturing firms from publicly funded research organizations found that universities and federal and provincial labs were significantly less likely to be identified as an important source of information by innovative firms. Rather, the top three sources identified were clients or customers; suppliers; and conferences, trade fairs and exhibitions.56

Moreover, the study found that innovative firms were significantly more likely to collaborate with other firms than with publicly funded research organizations. This can be largely explained by the frequency of interactions between an innovator and its suppliers and clients. In general, innovators are in constant contact with these two groups in the production and marketing of their activities and products.

Other countries make far more use of their public institutions (higher education and government) than Canada does. As Figures 12 and 13 show, Canada is almost at the very bottom of the pack when it comes to companies interacting with public research organizations. The U.S. is not included as it has not conducted comparable innovation surveys.


28 Innovation and Business Strategy: Why Canada Falls Short. A report by the Expert Panel on Business Innovation in Canada, Council of Canadian Academies, 2009.

29 John R. Baldwin and Wulong Gu, Long-Term Productivity Growth in Canada and the United States — 1961 to 2006, The Canadian Productivity Review, Statistics Canada, Cat. no. 15-206-XIE, No 13, August 2007.

30 Centre for the Study of Living Standards ICT database.

31 Innovation and Business Strategy: Why Canada Falls Short. A report by the Expert Panel on Business Innovation in Canada,
Council of Canadian Academies, 2009.

32 Innovation and Business Strategy: Why Canada Falls Short. A report by the Expert Panel on Business Innovation in Canada, Council of Canadian Academies, 2009.

33 See work by the Centre for the Study of Living Standards.

34 In Canada, BERD as a percentage of GDP (i.e. BERD intensity) was 1.29 percent in 2001 and 1.06 percent in 2006. In comparison, the average BERD intensity in the OECD was 1.57 percent in 2001 and 1.56 percent in 2006. Canada's drop in BERD intensity was similar to that in the United States (BERD intensity in the U.S. was 2.0 percent in 2001 versus 1.84 percent in 2006) but Canada's drop in BERD intensity from 2001 to 2006 was the biggest in the G-7.

35 Industries included information and cultural industries ($1.7B), communications equipment ($1.5B), computer system design and related services ($1.2B), scientific R&D services ($1.2B), pharmaceutical and medicine manufacturing ($1.1B), and aerospace products and parts manufacturing ($857M — 2005 data).

36 Statistics Canada, Industrial Research and Development, 2004 to 2008, Catalogue no. 88-001-X, vol. 32, no. 5, September 2008; CANSIM tables 358-0001, 358-0024.

37 Aled ab Iorwerth, Canada's Low Business R&D Intensity: the Role of Industry Composition, Government of Canada, Department of Finance, Working Paper 2005-03, March 2005; Surendra Gera, Francois Rimbaud, Kellie Fong, "An Overview of the Performance of the Canadian Innovation System," Government of Canada, Department of Industry, mimeo (March 19, 2007).

38 Canada's low R&D investments in the auto sector reflect the integrated nature of the North-American auto sector. While the service sector in Canada conducts little R&D, its record in the broader context of innovation is better. Innovation in services includes process and product innovation and has more of an emphasis on changes in organization design, business models, and market development.

39 OECD, Main Science and Technology Indicators, 2008/1.

40 Government of Canada, Department of Finance, Tax Expenditures and Evaluations, 2008, Table 2, "Corporate Income Tax Expenditures," page 26.

41 OECD, Science, Technology and Industry Outlook 2008, based on Jacek Warda, Generosity of Tax Incentives, presentation at the TIP Workshop on R&D Tax Treatment in OECD Countries: Comparisons and Evaluations, Paris, 2007, 10 December 2007.

42 John Baldwin, Anthony Fisher, Wulong Gu, Frank C. Lee and Benoit Robidoux, Capital Intensity in Canada and the United States, 1987 to 2003, The Canadian Productivity Review, 2008, Statistics Canada Catalogue no. 15-206-X, no. 018, July 2008. p. 41.

43 Statistics Canada, Follow-up to the Survey of Advanced Technology 2007.

44 Innovation and Business Strategy: Why Canada Falls Short. A report by the Expert Panel on Business Innovation in Canada, Council of Canadian Academies, 2009, using data from the Centre for the Study of Living Standards ICT database.

45 Statistics Canada. Survey of Suppliers of Business Financing, The Daily, December 5, 2008.

46 OECD, Science, Technology and Industry Outlook 2008, Figure 1.26.

47 Innovation and Business Strategy: Why Canada Falls Short. A report by the Expert Panel on Business Innovation in Canada, Council of Canadian Academies, 2009.

48 Canada, Finland, Sweden, United Kingdom; Belgium, Luxembourg, Denmark, Austria, Germany, Netherlands, France, Japan, Norway and Australia. (OECD: DSTI/EAS/STP/NESTI (2008) 14).

49 The United States is currently conducting its first-ever innovation survey, which will allow it to measure innovation by geography, industry and size of firm.

50 P. Therrien and P. Hanel, Innovation and Establishments' Productivity in Canada: Results from the 2005 Survey of Innovation (2009, forthcoming).

51 OECD, "Boosting Innovation: The Cluster Approach," OECD, 1999, p. 7.

52 OECD, "Boosting Innovation: The Cluster Approach," OECD, 1999, p. 179.

53 B. Fallick, C. Fleischman, and J. Rebitzer, Job Hopping in Silicon Valley, The Review of Economics and Statistics, Vol. 88, No. 3, August 2006, pp. 472—481.

54 OECD, Innovative Clusters: Drivers of National Innovation Systems, 2001, p. 38.

55 OECD, Boosting Innovation: The Cluster Approach, OECD, 1999, p. 179.

56 Anderson, Frances. The Transmission of Technology and Knowledge to Innovative Canadian Manufacturing Firms by Publicly Funded Research Organizations, Policy Research Initiative Working Paper Series 036, May 2008.