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September 11, 2008 |
Canada is not stacking up all that well in global research and development, but there are some bright spots
By Danny Bradbury
John F. Kennedy set a precedent for research and development when he declared in 1960 that America would put a man on the moon by the end of the decade. Prior to that, the U.S. also won the race to develop the atomic bomb, an invention with mixed blessings but which did pave the way for nuclear energy production. It seems, however, that governments rarely undertake these grandiose R&D schemes any more. And when the Organisation for Economic Co-operation and Development (OECD) ranks each country’s R&D performance, Canada comes up short.
The most commonly used measure is investment in R&D as a percentage of GDP, according to Daniel Hubert, a senior policy analyst with the Association of Universities and Colleges of Canada (AUCC). “We were in 15th position in 2005,” he said. The latest figures from the OECD show we have moved to 13th place: a small rise, but far from a stellar performance. Our R&D investment ratio has remained relatively flat: in 2001 it was at 2.1 per cent and since then it sits at 2 per cent. This compares to 2.6 per cent in the U.S., 2.5 per cent in Germany and 3.2 per cent in Japan.
That’s unfortunate, because Canada should be in a good position to lead the field in research, said Hadi Mahabadi, a vice-president and manager at Xerox’s Canadian research centre. “We have a good pool of talented people that is very diverse,” he said, adding that we also have a lot of natural resources that help buoy our prosperity and give us a platform from which to build a vibrant knowledge economy.
Still reeling from 2001
So what went wrong? “The main reason is that the private sector slowed down significantly in its research and development,” Hubert said. According to Ron Freeman, president of research and development at market analyst ImpactG, private-sector research funding in Canada was “going through the roof” until the technology bubble burst in 2001. After that, it stopped in its tracks.
Part of the problem is the investment criteria inherent in private R&D; no one was going to make money in the short term sending people to the moon. It took a concerted space program, driven largely by national security concerns, to plant the seeds for a commercial industry in satellites further down the road. Yet today, aside from long-term (and not necessarily realistic) anomalies such as the vague plan to put people on Mars, the onus on world-changing R&D lies with private companies.
Yet there has been a sustained lack of investment in research and development among Canadian companies this decade, experts said. This is partly because technology adoption in Canada is low relative to the U.S., which means that an already smaller domestic market is disproportionally risk averse when it comes to buying new technologies.
Company size is also a problem. Canada has fewer large companies than the U.S., and Canada’s small businesses are often unwilling or unable to pick up the slack. “SMEs are focused on niche applications and niche markets,” said Veena Rawat, president of Canada’s Communications Research Centre (CRC), a government body designed to develop and promote research and development in communications. “They are focused on marketing products and can’t be worrying about R&D.”
The CRC uses its own in-house scientists to develop ICT-related technologies, and then licenses them to companies for commercialization.
Before the tech bubble burst, the R&D picture seemed a rosy one, as large companies piled cash into research. “The amount of spending was going up, and everyone was happy, but what no one knew was that the number of companies researching was falling almost everywhere,” Freeman said.
Government initiatives
The Canadian government currently disburses more than $3 billion in assistance to more than 19,000 claimants annually through the Scientific Research and Experimental Development (SR&ED) program, and while this initiative is widely viewed as a success, it does not serve all companies equally. The plan provides tax credits and income tax deductions that companies can write off against research. Small companies not yet turning a profit can store the credits, even if they are not paying tax. Large companies that pay tax can also benefit. However medium-sized companies attempting to commercialize research cannot get a straightforward refund, and are unable to reimburse the credits because they are not yet turning a profit. Such credits can be reclaimed up to 20 years after the fact, but this gap can still lower the impetus for research in the short term.
 “If you don’t pay taxes, you just carry them. You can forget about them. It’s frustrating. That’s what I do with my Canadian Tire coupons,” said Alan Katiya, a partner in KPMG’s SR&ED tax services group.
Mahabadi said the value chain needed to take products from initial research to commercialization is also missing some links. In areas such as Silicon Valley, it is difficult to pull your Porsche out of the driveway without running over a venture capitalist, corporate lawyer or any of the other resources needed to make a young technology-focused business fly. “In Canada, they’re not there. These are areas that the Canadian government, and venture capital, could help to create.”
The government is working to make those links stronger. For example, in 2005 it created MaRS, a non-profit centre that concentrates scientific research, entrepreneurs and capital into one Toronto location. Alberta is also introducing commercialization centres.
But the gap between research funding in Canada and the U.S. remains, and the figures point neatly to one reason: a taste for war south of the border. Strip out defence-related research from the percentage of GDP devoted to R&D, and America’s figure falls from 2.6 to 2.1 per cent, just 0.2 per cent more than Canada’s.
Whatever your political persuasion, war is good for business and particularly good for technology research companies that sell large chunks of intellectual property to the military. “Total defence research and development spending in Canada is $200 million,” Freeman said. “In the U.S., that would be one small research program.”
Unfortunately, government funding for research in Canada hasn’t fared much better than that from the private sector. It dropped by 30 per cent in 1995 following a major program review, according to Freeman, and it hasn’t recovered. “Government money for research has been flat for the past 10 years.”
But it would be unfair to knock the government entirely, while ignoring its achievements. For example, it created a research and development plan in the aerospace and defence industries last year. Called the Strategic Aerospace and Defence Initiative (SADI), it is a repayable contribution program that will invest almost $900 million by 2012 on research projects that are expected to repay the money as the commercialized technology becomes profitable. And there are government-funded research projects already in existence: the CANARIE network aims to improve advanced networking research and development across the country, and since 2000, the Canadian government has invested $840 million in Genome Canada, a non-profit organization tasked with administering genomic life sciences projects. (Cynics might point out that Craig Venter’s private firm Celera and a federally funded project by the U.S. government each published working drafts of the fully mapped human genome in the same year that Canada set up its genome project.)
Compared to the private and government sectors, the university research and development landscape has changed significantly for the better over the past decade. University research money has increased by more than 150 per cent in the past 10 years, Freeman said. “Historians will look back on this period as the golden age of university research in Canada.” Again, however, the proportion of that research funded by the private sector is falling.
National effort
How can Canada improve its R&D ranking? We need a concerted national strategy, Mahabadi said. “We can’t take a small piece of all of this and work on it and expect Canada to move forward. We need an orchestrated effort that impacts tax policy, regulations and so forth,” he said.
Ottawa is working to produce a comprehensive plan to help kickstart technological development across the country. Last year, the government published its science and technology strategy document “Mobilizing Science and Technology to Canada’s Advantage,” which sought to address three key struts important to building a knowledge economy: bringing in more brains to fuel research, bolstering the research and development process, and assisting with commercialization of these technologies.
It promised to focus on four key areas in its bid to improve Canadian R&D: environmental science and technologies, natural resources and energy, health and related life sciences and technologies, and information and communications technologies.
To Freeman, these research areas are worryingly narrow. “These priorities are the right starting point, but they were really derived by looking at the rear-view mirror and asking what Canada has been good at historically,” he said. “They don’t relate to future opportunities. And by focusing exclusively on those areas, we’re really shooting ourselves in the foot.”
Instead, he said the government should shift from addressing key research areas to assessing its position in all domains and focusing on commercialization. “The trick in all cases is to be best-in-class in whatever we do. It also means starting by charting value chains in each domain so we can judge our current position,” he said. Why risk ruling out, say, waste processing or agriculture as a potential centre of excellence in R&D if Canada is already good at it?
While the government works to improve Canada’s standing in the research community, one private sector U.S. firm stands out symbolically. Google is in the business of setting goals. Its R&D contributions to areas such as clean tech aren’t huge by many companies’ standards - at tens of millions of dollars they’re relatively modest for a firm with such a gigantic market capitalization. But it sets the kinds of goals few if any other companies do. Its RE<C (renewable energy less than coal) initiative plans to get renewable energy costs down below those of fossil fuels. While looking at environmental problems on the ground, it is also shooting for the moon: the Google Lunar X Prize offers US$30 million to the first team that can send a robot up there, make it travel around taking video and then bring it back again.
Kennedy would have been proud.
Five Canadian R&D projects to watch
Canadian Light Source
www.lightsource.ca
Saskatchewan cheered when its synchroton opened. The system accelerates particles around a large ring at super-fast speeds to create intense beams of light. It has applications for everything from pharmaceuticals to oil and gas recovery.
CANARIE
www.canarie.ca
CANARIE is a research project focused on advanced network connectivity. A non-profit organization, it administers a high- speed 10Gbps wide area network stretching throughout Canada used for high-speed network research.
Neptune Canada
www.neptunecanada.ca
An 800 km ring of fibre optic cable off the Pacific Northwest coast will serve as a huge underwater observatory that will enable scientists to monitor ocean activities from the surface to underneath the sea floor. It will be completed next year.
Centre for Integrated Genomics
www.cigenomics.bc.ca
A joint venture between the BC Cancer Agency and the University of British Columbia, the Centre investigates new genomic technology while also focusing on the application of genomic research to the study of cancer.
CCGS Amundsen Canadian Icebreaker
www.amundsen.quebec-ocean.ulaval.ca/amundsenenglish.htm
Scientists converted the coast guard ship Sir John Franklin into a floating research vessel. One of three similar research vessels built since the seventies, it will help them break through the ice (while it’s still there) to study the oceanographic effects of climate change.
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