New innovation policies urged
Ontario task force says Ottawa, province must do more to encourage business
Globe and Mail
By Bruce Little
The federal and Ontario governments need to rethink policies designed to encourage innovation, so that new ideas can be transformed into commercially successful ventures, according to a report from an Ontario task force.
Although Canada has “one of the most generous tax incentive programs” for research and development (R&D) among leading industrial countries, the report said, “it also has extremely high effective tax rates on business capital investment. The net effect appears to be that tax policy is not helping encourage companies to increase their investment in innovation.”
It also said Canada needs more companies with better-educated managers who can “think more strategically and operate more effectively,” and will be more likely to step up the pressure for innovation.
The study was prepared for Ontario’s task force on competitiveness, productivity and economic progress, headed by Roger Martin, dean of the University of Toronto’s business school. He is scheduled to present a summary of the report today at an Ontario economic summit in Niagara-on-the-Lake.
In an introduction to the report, Mr. Martin said current policies reflect “a belief that the real challenge we have in Ontario and Canada is in having enough technical people, technology spending, R&D tax incentives and the like.
“Our research indicates that these factors are only part of the challenge, and as long as the model in the minds of policy makers continues to be narrow and incomplete, our province will make little progress on innovation and commercialization.”
The report said governments offer companies incentives for more R&D spending because policy makers assume the lack of innovation is a result of Canada having too few scientists and engineers and too little risk capital.
Such a “narrowly defined” view of innovation ignores “the importance of other non-technical kinds of support as well as pressure factors to stimulate innovation and commercialization,” it said.
Commercialization is crucial because governments must ensure that the results of new research can “enter the economy in a way that will increase our productivity and benefit all of us.”
Ontario badly trails comparable large U.S. states in the registration of patents, regarded as a useful measure of R&D success. Focusing on industries that trade their products beyond their local markets, the researchers found that Ontario has generated only 7.92 patents annually for every 10,000 employees, compared with 17.73 patents in the U.S. states.
A key reason for this gap is that Canadian companies are significantly behind their foreign counterparts in using innovation as a strategic device to gain an advantage over their competitors, the report said.
Among the reasons cited: Canadian companies face fewer competitive pressures that force them to innovate, and Canadian managers are not as well educated (a smaller proportion have business degrees) as their U.S. counterparts.
“The toughest public policy challenge is how to intensify competitive pressure—how to encourage the rivalry that will lead firms to take innovative actions to outpace their competitors and how to raise consumer expectations for leading products and services.”
Raising venture capital is not a significant problem, the report said. In the past three years, venture capital finds have raised $1.7-billion more money than was invested in actual projects.
There is, however, a problem with the quality of the capital invested, the report said: Canadian venture capital funds have returns of only 1.8 per cent annually to their investors over the past five years, compared with 22.8 per cent in the United States.
