An article published this month in Science and Public Policy makes the startling claim that “between 74 and 90 per cent of total spending on support for business research and development (R&D) each year since 2000” has been distributed not as one would expect by the Ministry of Innovation, Science and Economic Development (ISED), but by the Canada Revenue Agency (CRA).
The CRA’s Scientific Research and Experimental Development (SR&ED) program is one of the most generous tax incentives in the world, providing “more than $3 Billion” annually, according to its website. Viewed under this lens, programs like the Strategic Innovation Fund (SIF), funded at $7.2 billion over 7 years, scarcely make a ripple.
This isn’t to say that SR&ED is bad, or that the companies who have received it were undeserving, or even that it is incompetently managed. The point is that a successful innovation policy requires more than cash: it requires a nimble, brilliant vision and leadership. It should be self-evident that it is a poor show to place Canada’s techno-economy in the grip of the nation’s bean-counting house, but if it is not, the 2022 Global Innovation Index ranked Canada 23rd in the world in terms of innovation output – slightly beneath the island nation of Cyprus and its population of 1.2 million. Canada has languished steadily in the bottom quartile of the international innovation rankings for a decade.
How Canada manages to extract so little from billions in investment, and why the performance of our innovation economy appears to be impervious to new programs and incentives, may be traced to some important strategic lapses.
One such lapse is excessive deference to the trope that governments can’t pick winners.
One may not be able to sniff out the next Google or Amazon, but ISED should have sufficient capacity within its ranks to pick out and prioritize scaleable Canadian enterprises with proven leadership and traction.
Except it doesn’t. ISED’s number one pick of 2023 was none other than Volkswagen, a $70B company which hit all of the key metrics except for the crucial one: it isn’t Canadian. Volkswagen received funding to the tune of up to $13B earlier this year to invest into its new battery gigafactory in Ontario. Volkswagen would be perfectly within its rights to pour ISED money into R&D for new factory automation technologies, secure a patent monopoly, and to export the product all over the world, without a dime flowing back to Canada.
As for the CRA, it too declines to pick winners. Indeed, it declines to pick at all; the SR&ED program elevates neutrality to an art form. The program doesn’t care if you are generating valuable intellectual property, profitable, or primed for growth. What matters is that your expenditures are deemed to comply with the eligibility criteria. Sprinkling funding on everyone is a viable way to fertilize fields of startups. As a result there is no shortage of Canadian startups, which are of high potential and low economic value, but there is a famine of Canadian scale-ups, which are the opposite.
Our collective reaction to this sort of discouraging talk is a national ripple of genteel despair. We can all agree that something ought to be done to water the innovation desert, so some organ of government creates a new program that will invariably fix everything. It does not; but it would be unkind to kill it and sack everyone, so the program lingers until it is renamed or absorbed into something else.
But we must judge innovation policies as we judge chefs and elders of state – by their success. How are individual innovation initiatives performing, really? Who knows? If independent critical analyses exist, they are invisible to the public and then obscured by anecdotes of dazzling triumphs.
The irony of it is that there is no need for the fanfaronade: Innovation is one ministry where some failure ought to be gamely tolerated. Every country requires an innovation policy uniquely suited to its people, its geography and its resources; because there is no global blueprint, it is necessary and inevitable that success will be an iterative process, laced with incremental missteps.
If we are serious about wringing some bang from our innovation bucks, we can start by implementing a truly independent performance review of new innovation initiatives, without fear of political repercussions. Step two will be to decouple some of the nation’s innovation funding dollars from the CRA. The hat trick will be to quell any vestige of the classically Canadian refrain “more funding will fix this”. It won’t. The problem isn’t a lack of investment, it’s a lack of returns. Change the portfolio.
I’ll end with a story. In 2018, the $5B Supercluster initiative promised to deliver “a made-in-Canada Silicon Valley” at five strategic technology hubs across the country. It is now 2023 and if a quintuplet of Silicon Valleys are manifest incarnate on Canadian soil, they are remarkably quiet about it. Was the program cancelled? Of course it wasn’t. It was renamed in 2022 to “Global Innovation Cluster” and renewed for more funding. The “final report” on the program website paints the Superclusters with glowing success, which strains credibility; but he who pays the piper calls the tune. This is Canadian innovation policy in a nutshell. It functions; it merely doesn’t work.
Showey Yazdanian is a Canadian writer and technology executive, and can be reached at showey@jurilogik.com.