Despite pouring billions into programs meant to spur innovation, Canada is lagging behind the developed world when it comes to its innovation performance, according to a Fraser Institute report.
The report, Innovation in Canada: An Assessment of Recent Experience, by Fraser Institute resident scholar Steven Globerman and senior fellow Joel Emes compares two key innovation indices (the World Economic Forum’s Global Competitiveness Report and Cornell University and INSEAD’s Global Innovation Index) to measure Canada’s performance when it comes to innovation.
According to the report, which was released last Tuesday, Canada’s ranking on the global indices is the lowest since 2011 and 2008, indicating that the gap between Canada and the developed world is growing. Canada’s ranking on the Global Competitiveness Index when it came to innovation specifically was No. 23 in 2017-18, a drop from a peak No. 11 in 2010-11. When it came to the Global Innovation Index, Canada ranked No. 18, down from No. 8 in 2011.
Canada’s “relatively weak” innovation performance is not due to a lack of startup activity, the report said, but a lack of success from incumbent companies to be innovative. While the report acknowledges that there is “no prescription” to promote innovation by existing companies, it said there are policy initiatives that the government “might pursue more aggressively that would enhance private-sector incentives to innovate.”
Canada’s drop in worldwide innovation rankings comes despite billions of dollars being funnelled towards initiatives meant to encourage and grow the Canadian innovation economy. The federal government’s Innovation and Skills Plan, introduced in the 2017 budget, includes an “Innovation Superclusters Initiative” that will invest $950 million to support companies “with the greatest potential to energize the economy.” The government allocated $8.2 billion to various innovation programs in the 2017 budget alone, the report says, but that substantial funding isn’t fostering enough growth.
While the government’s focus on helping startups transition to scaled-up companies is “well placed”, it is still playing a major role in allocating resources for development.
“This top-down approach has been successful over a sufficiently long period to justify a substantial rethinking of innovation strategy,” the report said, adding that the government should instead look at changing its incentive and financial programs “so that innovation in Canada becomes more of a ‘bottom-up’ phenomenon.”
For example, the authors of the report say the government could increase competition in domestic industries – such as telecommunication and banking, two notoriously protected sectors – by reducing barriers to foreign investment. They also argue that lower capital gains taxes “are critical to a large and vibrant venture capital market” that could help spur investment.
“Increased competition should strengthen the incentives of private sector firms to improve their competitive position in the marketplace,” the report says.