Canada’s Lack of Innovation an Emerging Crisis

The political world may have been focused last week on crises at the Senate and the Toronto mayor’s office, but a new report from the government’s Science, Technology and Innovation Council quietly pointed to a serious, emerging economic crisis. The STIC reported that Canada’s research and development performance is lagging behind the world’s leading economies, continuing a disturbing decade-long decline.

My weekly technology law column (Toronto Star version, homepage version) notes the STIC report is the third produced since 2008, but the first to sound an unmistakable alarm on worrying trends that could have dire long-term consequences for the Canadian economy. Simply put, based on the latest data, Canada cannot be regarded as a serious player when it comes to innovation.

The most glaring shortcoming comes from the lack of business investment in research and development activities. Canada ranks 25th out of 41 economies with Canadian businesses failing to keep pace with competitors around the world. Investment in information and communication technologies, which are viewed as an engine of innovation, fared particularly poorly.

Not only is Canada’s business research and development record weak, but the Canadian venture capital performance, which plays a key role in launching new businesses, is similarly grim. The report finds that Canadian venture capital investment (measured as a percentage of gross domestic product) ranked 15th out of 27 countries.   

The lone bright spot comes from higher education, where expenditures on research and development have increased significantly over the past 15 years, resulting in an impressive publication record. Canada may only account for 0.5 per cent of the global population, yet its scientists and researchers were responsible for 4.4 per cent of the world’s natural sciences and engineering publications in 2010.  Despite punching above its weight in publications, Canadian commercialization of academic research remains a concern, with most universities generating minimal licensing revenues.

So what can be done about Canada’s middling innovation record?

The government has expressed disappointment with the reluctance of business to invest in research and development, but its policies have thus far failed to generate much change. Ottawa has invested heavily in supporting business research and development, but the bulk of that support has come through indirect mechanisms such as tax credits.

Many other countries invest more heavily in direct funding, including loans and guarantees, competitive grants, consulting services, and innovation vouchers. Canada ranks among the lowest of all economies examined by STIC for these direct funding models.  The Canadian government has been reluctant to adopt direct funding measures, but the data suggests that its current strategy is not working and should be revisited.

The Canadian venture capital shortcoming is a long-standing frustration as emerging businesses have often been forced to look to foreign investors for support. The data in the STIC report is striking with private investors accounting for 81 per cent of venture capital funding in the U.S., but domestic private investors are responsible for only 25 per cent in Canada.  

Canadian businesses rely more heavily on government venture capital as it comprises 12 per cent of total funding. With the government is already putting its own money (or taxpayer dollars) into venture capital, the solution likely does not lie in cutting a larger taxpayer cheque but rather in identifying any remaining investment barriers and potential tools to encourage greater entrepreneurial risk-taking.

The educational piece of the puzzle may require a more dramatic shift. Rather than focusing on locking down publicly funded research through licensing programs, the government should consider embracing open models of innovation. The STIC report acknowledges that open models foster collaboration, reduce costs, and increase the speed of knowledge development, all areas in desperate need of improvement.


  1. Outsourcing
    Even if some great technological innovation is discovered, it will be mass produced in Asia, the corporation will be located in a offshore tax-haven and will not contribute to the Canadian economy.

  2. Manhattan Project
    What I propose is a top secret project (government funded) that employs the best and brightest Canadians to develop tomorrows new technology in an effort to boost China’s Gross Domestic Product.

  3. Remove the roadblock
    All you need to do is remove the roadblock: the patent system. Get rid of the patent system and watch innovation grow like never before. It’s hard to innovate when you have to spend more on lawyers than you do on R&D.

  4. Aldous smith says:

    I have been saying this to people for years now – watching Harper destroy the R & D budget for this country. Most people dislike the idea of even thinking about it. This baffles me.

  5. A new Canadian Open, Online education Platform launching early June
    This platform will contribute a great deal to open models of innovation. Looking forward to the journey.

  6. Russell McOrmond says:

    public licensing for public funding
    “with most universities generating minimal licensing revenues.”

    Unfortunate that this is seen as a negative thing. I for one believe that public funding of universities, as well as all the institutional exceptions to things such as copyright, should be contingent on public licensing of all the outputs of the universities. If an entity wishes to receive royalties then they can privately fund themselves and pay full royalties to all other monopoly-rights holders.

    I believe this should be the case for direct funding and other such things: public funding requiring public licensing, or the results to be put directly into the public domain.

    I wouldn’t be surprised if I read the methodology of the report that I would question whether what it was measuring was “Innovation” at all. I’ve had the same critique of things such
    as the Technology Achievement Index used by the UNDP (United Nations Development Programme) which includes royalties and energy inefficiency as positive indicators of technology achievement.

  7. Steve Holmes says:

    Race to the bottom
    Manufacturing and technology go hand-in-hand. Its no surprise to me to see innovation suffer when we have shipped much of our manufacturing jobs overseas. Who wants to spend money innovating when the Chinese will rip-off your designs and sell it for less. Look at what happened to Nortel – cheap Chinese knock-offs appeared in the market that were built on stolen technology. I’ve heard stories from technicians that looked at the Chinese made routers and saw that the circuit boards were exact copies of the Nortel boards! Wake up sheeple, we are being robbed!

  8. Lynn Sutherland says:

    Addressing Canada’s Innocation Gap
    I’ve cross-posted this article on the LinkedIn group, Addressing Canada’s Innovation Gap, where there are lots of threads of discussion around this issue.

    It’s true, Canada has always been very low on BERD and recently been doing very well in funding University-based research. We have lots of smart people, a very high quality of life and a healthy business environment. How can we make just a little bit more of the Innovation “stick” in Canada in the creation of new companies, growth of companies and use within existing companies?

  9. I can just imagine the words…
    The Harper govt. to the industry: “Tech? HA! You will dig rocks and pour steel for your American masters! No talking, back in line!”

  10. Canadian legal resources says:

    Canadian legal resources
    For you to say to Canadian legal resources Centre Inc. the data reveal you can do consequently via their own newest handle associated with

  11. Julie Cammisa says:

    This is a wonderful time for each of us as citizens to take stock of our personal and societal situations and adjust to a reality that is based on real needs, not the irrational pursuit of materialism.