A widening gap between research and commercialization is hampering Canada’s competitiveness on the international stage, according to several prominent industry groups.
The problem is not necessarily the amount of research that is being conducted — Canada ranks highly on the scale — but
how much of that research is converted into marketable products.
A report published earlier this month by the Toronto-based Institute for Competitiveness and Prosperity says that Ontario companies in all industries trail their U.S. counterparts in patent creation per employee by 55 per cent. As such, the ICP calls on government find a way to stimulate innovation beyond existing research tax credits.
“”It doesn’t mean spending money. It may mean . . . looking at ways that we can increase competition,”” said James Milway, executive director of the ICP.
Relaxation of foreign ownership restrictions may stimulate some Canadian companies to become more competitive, he said. “”The kinds of stuff we’re recommending that governments start looking at is the kind of thing that money doesn’t buy — it’s more policy framework and some of the bully pulpit stuff that the Canadian government might do around urging Canadian firms to compete.””
The problem may be the way the SR&ED tax credit is structured. The Canadian Advanced Technology Alliance has long maintained the position that tax cuts should be applied across the board rather than targeting them at specific industries.
The high-tech industry in Canada, for example, would benefit from broader tax incentives, said CATA vice-president Barry Gander, since technology is used in industries across the board.
“”There’s no way to pick a layer, in that sense,”” said Gander. “”For example, in the push for the health-care agenda in Canada, we see (it) as being an advanced technology agenda. Show me a doctor who’s not using a PC and advanced technology tools at his front lines and I’ll show you an alchemist.””
Dr. Arthur Carty, the Prime Minister’s science and technology adviser, is aware of the problem. He said recently at a speaking engagement at IBM Canada’s headquarters in Markham, Ont., that Canada ranks highest in the G8 on R&D expenditure, but doesn’t meet that same measure on effective commercialization.
He said at the time that Canada needs to establish a more robust research network within the nation’s borders but also reach out and form international ties.
The world has changed in the last four years, noted Eli Fathi, president of OrbitIQ, an IT business accelerator based in Ottawa. Not only are countries like Brazil, Russia, India and China becoming more competitive, they are also churning out scientists. For every scientist that North America produces, those countries produce 10, he said. That number could even be on the order of 20 or 30.
The government can’t cut back on research credits in order to fund innovation projects, said Fathi, who also serves as CATA’s commercialization champion, but must find a way of bridging the gap between the two.
“”It’s very important we don’t say either/or,”” he said. “”The government’s business is not to sell products around the world and create viable companies. The government has to create policies that will encourage companies to do that.””
Part of the problem is that Canadian companies may not even know how to take advantage of the SR&ED tax credit, said Greg Lane, a past president of the Canadian Information Processing Society (CIPS).
“”We have legal aid — maybe there should be tax aid,”” he said. “”Some of these firms are not even sure anymore if they qualify (for the SR&ED tax credit) or if there’s any sense to try to figure out if they qualify.””
He added that the ED part of the tax credit — experimental development — could be better used to create more interesting work for Canadian technologists. That might help to stem the flow of workers that move down to the U.S. for employment opportunities.
It’s possible that the companies currently benefiting from research tax breaks may be getting what amounts to a free ride, said Milway.
“”What may be happening is, these are people that were going to be doing R&D anyway, so they got a free tax break. We don’t know (if the money) is being wasted or what,”” he said. “”Freer money won’t be spent as wisely as dearer money.””
Most agree that cutting research is not the answer, though. The problem lies in finding a way to join the dots between the invention of technology and its eventual adoption as marketable products.