Shovel Ready — How About Innovation Ready

Summary

For Canada to improve its performance as an Innovation Nation, we will need strong policy and programs to drive our industries. In this document I outline 4 federal programs that could quickly be implemented to help strengthen our ICT and other emerging industry sectors.

Submission

Shovel Ready… how about Innovation Ready

What would you tell your children if they asked what kind of jobs they can expect when they graduate from college or university? What is Canada good at now and what are we doing to shape our economic future? Like many people I am concerned that we are not doing enough to invent our own future and our governments are very willing to just let it happen.

Many business leaders like Sir Terrance Matthews and others are urging the Government to take action now and implement a new national innovation plan that will make our companies more competitive in emerging international markets. We need more of our business and community leaders speaking up on the urgent need for the Federal Government to take action. Our time is now and Prime Minister Harper's Government has the opportunity to chart a new innovation based, economic growth strategy in the upcoming Speech from the Throne. Maybe the opportunity to set this new course is the benefit that can come from the prorogation of parliament. We've done "Shovel Ready  and now we need to launch our "Innovation Ready" action plan for Canada's economy.

The current global financial crisis has Canada emerging as a strong resilient economy. With the rest of the world economies looking inward to protect themselves, Canada needs to look outward and help our innovation leaders take advantage of this situation and create new customers for Canadian products and services around the world. We need a coordinated national and provincial public policy and programs to support innovation and global leadership in specific sectors where we can succeed.

Our industrial policy history is not a model for the rest of the world to follow. We have had global leadership positions in aerospace, telecommunications and recently medical isotopes where our policies or lack thereof have led to Canada losing its global competitive advantage. Remember the Avro Aero, Litton Industries and now Nortel.

A few months ago our Prime Minister announced that Canada will be getting out of the medical isotope business in the future. Canada has over 30% of the world's market share for medical isotopes and is the global leader in this growing medical field, yet our government is ready to exit the business. I know that we would have to make significant public investments to stay in the business specifically to provide nuclear reactors to supply the isotopes, but why wouldn't we want to maintain our global leadership position? Medical Isotopes is a growing business and we have some of the best scientist and companies in the world. Our nuclear industry used to be one of the best in the world. Now we are trying to sell off the scrapes that are left. This is just one recent example of how our lack of public policy and programs around innovation and industrial development is going to result in us losing our global leadership and with it future jobs and wealth creation.

Over the past couple of decades we have tried and failed at setting a national industrial policy and establish programs that focus on Canada's innovation strengths. Our Scientific Research and Explorative Development (SR&ED) Tax Credit system, used to be a model that other countries emulated. That was 15 years ago and today the system is outdated and is not providing the benefit that it was set up to do. Nortel is an example of how our SR&ED system which helped to make Canada one of the leaders in industrial R&D is now going to lose its #1 R&D investor for the past 15 years. For all the Nortel bashing we have seen in the media over the past few years, Nortel was the largest single contributor to our industrial R&D investments with no other company coming close. Losing Nortel we will lose a significant amount of R&D investment in Canada. Here is an example of the problem, Nortel cannot use any of its SR&ED tax credits, because the credit is only refundable against taxes paid. Nortel was doing its R&D for its global business operations, its business in Canada represented a very small amount of its global sales. Therefore the SR&ED tax credit does not provide Nortel and many other publically traded companies with an incentive to do more global Research and Development (R&D) in Canada. Why R&D is important is because successful companies will have 10–15 other employees for every employee engaged in R&D. R&D investments build long term successful companies.

Technology Partnerships Canada (TPC) was another public program that supported innovation development by Canadian companies where the government loaned businesses the money to offset some of the business risks of starting a new invention or business. Many companies owe their existence to this program and many paid back the government loans. Research In Motion was granted a $34M loan in 2000 to help it launch its Blackberry product and has since paid the government back. I'd call that a good investment of your tax dollars. Unfortunately this program was cancelled because of minor abuses and the long payback periods.

Many Provinces and Municipalities have developed programs that support innovation and they have created a patch work of programs that are trying to deal with the crisis situation. The challenge is that without the support and coordination of federal programs the provincial and municipal programs will not have critical mass to have a large effect on addressing the objective of making Canada a nation known as global innovation leaders.

The current status of our home grown innovation Technology companies is that they are "in crisis". Over half of our Bio Tech start–ups will collapse in the next 12 months, our clean tech industry is just trying to get started and our ICT sector is suffering from an extreme lack of capital to grow which is stifling its growth.

Firstly we must agree on what sectors our governments will focus their limited resources for research, education, skills development and investment. Many of the Provinces have already focused their innovation based programs on three key emerging sectors: Information and Communication Technology (ICT)/Digital Media, Clean Tech and Bio Tech. These focus areas map to our current public investments in research and education, however for Canada to become an "innovation nation" we much learn how to complete the investment cycle and get a return on these investments. Steve West, CEO MDS Inc. has spoken often that "Canada has a great reputation at turning money in to research. Our competitive future will require us to be better at turning research back into money". Being innovative will require us to be better at translating our new knowledge into creating new globally competitive products and services.

A national Innovation policy will take time and some very smart minds to develop. Our challenge is that in the short term we need some quick solutions to start and turn the situation around. In my time at OCRI, I was fortunate to be able to speak with hundreds of business, community and government leaders. From my discussions I have developed some simple short term actions that the Federal government could take in the next 12 months.

1. Create new agencies to fund innovation demonstration projects:
   
   Create 2 new federal agencies for BIO Tech and ICT/Digital Media that finances and supports the development and demonstration of technologies which provide solutions that address domestic and international market needs and deliver economic benefits to Canadians. These new agencies are needed to act as the primary catalyst in creating new innovation projects and companies. Sustainable Development Technologies Canada is a model that can be quickly replicated for each of the BIO and ICT/Digital Media sectors. These agencies can be established as not for profit models with a quick start and a goal of getting new projects launched within 12 months. $1.5B over three years should be budgeted federally with a 50% match requested by the provinces on a project by project basis.
2. New Risk Capital funds that match private sector investments:
   
   A new Risk Capital matching program would have the government invest in start ups and match the investment that the private sector is making.
   
   Canada is a large country but we are still a relatively small global economy. Our capital markets both public and private don't have the necessary capital to launch and sustain our new innovation based companies. These companies have a high risk of failure and therefore are having a difficult time raising money. This is a normal market condition. However, recently the access to private high risk capital in Canada has dramatically declined. Why the decline? There are a lot of reasons not the least of which is we have not provided investors with great returns on their past investments. The risk capital — venture capital market is still relatively young in Canada and has only been around for 15 years. Our investors and entrepreneurs are learning from their past mistakes and now that we have the scientific advancements and the experience to start successful innovation companies the money to start them is not available.
   
   British Columbia and Ontario have recently launched matching fund programs for the innovation sector. The Provincial governments have recognized the urgent need for these investment programs. The provincial amounts are small and need the support of a national program to drive real success and returns. Scotland has had a matching program for "angel" investors for the past 5 years. The Scottish fund invests under the same terms and conditions as the private sector and they match up to 100% of the private sectors investment. After 5 years the investments are now starting to pay back the Scottish government and they are reinvesting in even more companies. If the federal government invested $250M per year in a matching program and provincial governments matched this could provide up to $500M in new risk capital per year for Canadian Innovation companies with a strong probability of having these investments pay back the public's investment.
3. "Buy Canadian Innovation" Program for all levels of Government (Federal, Provincial and Municipal):
   
   We invest billions on research and when this research results in new products or services we stop any level of government support. These new companies lack access to government procurements to provide them with the much needed customer reference that they need to succeed in the global market. We need a SIMPLE program that allows small innovation based companies to provide these solutions to governments that will allow them to demonstrate their products and services.
   
   NAFTA, GAAT and other trade treaties are always used for a reason why we cannot provide any special advantage to Canadian companies for public procurements. As Canadians we abide by the absolute letter of our trade treaties… but do we think all of our trading partners abide by the same rules? Do we believe that France and Germany don't provide an advantage to domestic companies. The U.S. is passing "buy American" legislation.
   
   It is time for Canada governments to support Canadian Innovation and buy the products and services that we have created through academic, institutional and industrial research. The process needs to be developed that will allow for companies to provide a proposed solution that will fit an established requirement. A modified version of the "Unsolicited Proposal" program has been put forward by ITAC and others as an existing method that could be slightly modified to meet the requirements of innovation based companies.
   
   The "Buy Canadian Innovation" Program's success will depend on how we incent government departments to use the program. A small fund incremental to a departments budget could be set up and have departments compete to use new Canadian innovation in their operations and access the additional funding source to implement the project. New money is a strong motivator for bureaucracies in times of fiscal restraint.
4. "Buy Canadian Innovation" PART II — International Marketing and Export Financing programs:
   
   The "Buy Canadian Innovation" program requires an international marketing program. We need our political leaders to promote our businesses and our innovation throughout the world. If we are going to be known as an "Innovation Nation" we need to have our leaders actively promote our companies and their technologies in new global markets.
   
   We need our political leaders to restart our "team Canada" missions focused on taking our innovation based companies into new markets and actively promoting an international "Buy Canadian Innovation" marketing campaign.
   
   We also need Export Development to expand its offerings and provide financial support and guarantees for both the Canadian companies selling and the international companies or governments buying our Canada based innovation.
   
   Canada has the potential to become known as a country that brings innovation into new economies and providing our expertise and knowledge to help these countries develop their own economies and create new jobs. Our international political power and influence will increase as we build our reputation as an innovation based economy that will help new economies grow and prosper.

These are just a few action items that could provide a stimulus to our economy and provide hope and opportunity for our children for decades to come. The innovation sectors of clean tech, bio tech and ICT/Digital Media are all areas that we have the knowledge, skills and experience to become global leaders. Our Canada culture gives us the desire to "do good" in the world and use our advantages to help others less fortunate. An innovation based economy is one more way Canada can demonstrate its international leadership.

All of these programs can be implemented quickly. What takes time and patience is waiting for the positive results, which can take many years. This has caused some leaders to always leave it to the next group to implement.

Prime Minister Harper and Minister Clements now is the time we need to act and have Canada become an Innovation leader in the 21^st Century.

Jeffrey Dale is the former President of OCRI in Ottawa. He is currently using his experience to assist public and private organizations to create strategies, develop programs and assessing the economic impact of innovation strategies in Canada and Internationally.