Mobilizing Science and Technology to Canada's Advantage—2007

Chapter 1: Improving Canadians' Lives and Opportunities through Science and Technology

In November 2006, Canada's federal government released Advantage Canada, an economic plan to make Canada a world leader for current and future generations. Advantage Canada is based on the premise that Canada already has tremendous strengths — including the drive and ingenuity of our people, the relative strength of our fiscal position, and our strong research base. It also recognizes that Canada can and must do more to turn our ideas into innovations that provide solutions to environment, health, and other important challenges, and to improve our economic competitiveness.

This Strategy — Mobilizing Science and Technology to Canada's Advantage — is the government's plan to achieve these goals.¹ It sets out a comprehensive, multi-year science and technology agenda. The S&T initiatives announced in the Budget Plan 2007 demonstrate the government's commitment to take early action to implement this agenda.

We will build a sustainable national competitive advantage based on science and technology and the skilled workers whose aspirations, ambitions, and talents bring innovations to life.

This S&T Strategy recognizes that the most important role of the Government of Canada is to ensure a free and competitive marketplace, and foster an investment climate that encourages the private sector to compete against the world on the basis of their innovative products, services, and technologies. The government also has a role in supporting research and development (R&D), which is the basis for new discoveries that lead to improved lives, better jobs, and new business opportunities.²

To achieve world excellence in science and technology, Canadians must promote and defend two complementary and indivisible freedoms: the freedom of scientists to investigate and the freedom of entrepreneurs to innovate and market their products to the world.

This strategic framework for S&T will guide the Government of Canada in how it approaches investments in S&T intended to increase our competitiveness, improve the quality of our environment, reduce greenhouse gas emissions, improve the health of Canadians, promote the sustainable growth of our energy sector, and ensure national security.

This S&T Strategy complements and builds on recent federal initiatives that support science and technology advances, including environmental innovation, to make the lives of Canadians better.

Canada's federal government is encouraging environmental innovation by:

Creating clear and effective policy frameworks for the environment, including the Regulatory Framework for Air Emissions to reduce air pollution and greenhouse gas emissions, and the Comprehensive Chemicals Management Plan to manage potentially dangerous substances and reduce mercury and toxic substances.

Creating the EcoENERGY Technology Initiative to reduce air pollutants and gas emissions from conventional energy sources and increase Canada's supply of clean energy, including through the development of alternative, sustainable energy technologies.

Supporting collaborative research initiatives to improve the recovery of energy from traditional sources and develop alternative forms of energy. Budget 2007 provides $15 million to the Canada School of Sustainable Energy to advance collaborative academic research in these areas.

Creating the Canada EcoTrust for Clean Air and Climate Change to support projects in the provinces and territories that reduce greenhouse gas emissions and air pollution. The Government of the Province of Quebec has identified potential projects for the trust, including new technology development for the trucking sector; renewable energy sources in rural regions; cellulosic ethanol; geothermal heat pumps; technological research and innovation for the reduction and sequestration of greenhouse gases; biogas from landfill sites; and waste treatment and energy recovery from biomass. The government will invest over $1.5 billion in the trust.

Science and technology is not an end unto itself. It is a means by which we can pursue sustainable development. Our ability to do so depends on Canadians pushing the frontiers of knowledge and applying their skills to turn knowledge into new and important innovations. To succeed, we must be excellent, focused, connected, and accountable. These are the principles upon which this Strategy stands.

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1.1 The Benefits of Science and Technology for Society

Canada has a long and proud history of research excellence and scientific success. From the discovery of insulin, to the design of Research in Motion's BlackBerry, Canadian innovations are making important differences in people's lives and changing the world for the better.

Scientific discoveries and new technologies are providing solutions to many of the issues most important to Canadians. They are giving us the knowledge and the means to improve the quality of our environment, protect endangered species, improve our health, enhance public safety and security, and manage our natural resources. S&T comes into play in virtually all aspects of our lives, helping us to solve problems and create opportunities.

Science and technology plays a key role in protecting Canada's environment, and environmental S&T is an important source of long-term economic strength for Canada. A healthier and cleaner environment enriches the quality of life in Canada, which attracts and retains the highly skilled and mobile people we need to succeed in the global economy. Responsible development of our natural resources ensures future jobs and wealth creation across the country. Energy efficiency and environmentally sustainable business practices are increasingly important competitive advantages for our businesses. Canada has the potential to be a leader in the rapidly emerging business of environmental technology.

Through a series of strategic new initiatives, the Government of Canada is encouraging a cleaner, renewable energy supply, encouraging greater energy efficiency in Canadian homes, buildings, businesses, and transportation, and increasing Canada's capacity to respond to the challenge of a changing climate.

Canada's Food Guide is based on extensive research and analysis of research from around the world on the nutritional value of foods, the needs of the human body, and the eating habits of Canadians.

Science and technology is also a driving force behind successful health outcomes for Canadians. Health research is tackling big issues for all Canadians — finding cures or treatments for cancer, heart disease, HIV/AIDS, and a vast range of other acute and chronic diseases; developing vaccines; and understanding how to limit the spread of diseases and potential pandemics. New drugs, medical devices, nutraceuticals, and functional foods are the result of research that improves the health of Canadians and generates wealth to support our economy. Government research in these fields allows regulators to keep pace with these developments, ensuring that products are safe and that they are made available to those in need as soon as possible.

Science and technology also enables the government to address public safety, security, and defence challenges, and mitigate risks to Canadians. S&T leads to the development of new technologies that properly equip first-responders in emergencies with the necessary tools and knowledge to do their jobs effectively. As new threats and risks emerge, whether from terrorists, natural disasters, or human-caused accidents, first-responders must be equipped to respond quickly and effectively, while ensuring their own safety and the safety of those they are trying to help. S&T is also instrumental in modeling and predicting natural disasters, such as earthquakes, tsunamis, floods, landslides, and forest fires, and helping us prepare for and respond to these events.

Enabling technologies, including information and communications technologies (ICTs), nanotechnologies, and biotechnologies underpin many of the most transformative advances in science and technology. ICTs have brought about fundamental reforms in such areas as commerce, education, and health care. They have put large new computing resources in the hands of people and are enabling and accelerating advances in other areas. Biotechnology is having profound impacts in health, agriculture, and the environment with the emergence of new drug therapies, higher and more nutritious crop yields, and new approaches to pollution prevention and remediation. Nanotechnologies, involving scientific discovery at the nanoscale, are expected to revolutionize how we work and live, with the potential to resolve a number of energy and environmental challenges.

Improvements in our quality of life and standard of living will depend on our increasing success in bringing scientific and technological innovations to life. Some of the key benefits that Canada can achieve through a more comprehensive, strategic approach to science and technology include the following:

Encouraging a better overall quality of life. Making Canada an incubator for research and development and scientific discovery improves our quality of life by helping to attract and retain highly skilled people who add value to our communities in many ways — from volunteering individual time and skills to investing in major philanthropic initiatives.
Encouraging high-quality, well-paying knowledge economy jobs. Organizations at the forefront of scientific development and technological achievement are more competitive. They create high-quality, knowledge-intensive jobs with high wages. They also create a demand for sophisticated professional and other support services from local businesses. Science and technology helps firms participate in the high-value segments of global value chains. This is where we need Canadian firms to succeed in order to sustain a high standard of living for Canadians.
Helping to improve our world through scientific discovery. S&T allows Canadians to bring to the world new ideas, technologies, products, designs, and services that address global issues and challenges such as poverty, urbanization, international security, and global warming. It also provides social innovation in management, marketing, and global awareness.
Having a stronger voice on the world stage. Canadian leadership in science and technology allows us to have a stronger, more respected voice on the world stage on many issues of global concern, and of concern to Canadians.

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1.2 Science and Technology as a Source of National Competitive Advantage

Science and technology — and the innovations that it creates — is especially important for Canada at this point of our history. That's because we need to do more to increase our productivity.

Canada is not as productive as our most important trading partner and the world's benchmark economy, the United States, and the productivity gap is widening.

Scientific and technological innovations enable modern economies to improve their competitiveness and productivity, giving us the means to achieve an even higher standard of living and better quality of life.

"Canada's productivity growth between 1947 and 1973 exceeded that of the United States, and Canada's level of productivity relative to the United States peaked at 91.4 per cent in 1984. Since then Canada has steadily fallen further behind the United States, especially in the post-2000 period. In 2004 Canada's level of labour productivity relative to that of the United States was 73.7 per cent, a level not observed since the 1950s."

"Lessons for Canada from the International Productivity Experience," Andrew Sharpe (Centre for the Study of Living Standards, Research Report 2006-02, 2006, p. 5.)

Recently, the Chief Economist of the OECD, Jean-Philippe Cotis, stated:

"Canada often stands out as one of the best in the class." With fiscal discipline, price stability, open product markets, and flexible labour markets, "Canada has put itself in the privileged situation where it has mainly to look forward to new challenges. And it is certainly well placed to meet them. However, this should not lead to complacency."³

At a time when Canada's overall productivity gains are below those of other trading nations with whom we compete, the need to encourage greater private-sector S&T investment is a national priority.

Canada's private sector leads the way, turning knowledge into wealth and fostering meaningful opportunities for Canadians to make important contributions to our economy and society. To succeed, businesses need people who can push the frontiers of knowledge and apply their skills and talent to turn their good ideas into practical applications that improve our lives.

Critical success factors for building economic competitiveness through S&T include:

Private-sector S&T leadership.
Canadians pushing the frontiers of knowledge.
A skilled and talented workforce.

Private-Sector S&T Leadership

The economic evidence linking private-sector research and innovation to economic growth is compelling: the OECD has estimated that every percentage point increase in business R&D as a proportion of GDP leads to a 12-per-cent increase in income per person in the long run.⁴ This correlation was described by Dr. Tom Brzustowski, former President of the Natural Sciences and Engineering Research Council (NSERC) and now RBC Professor of Commercialization of Innovations at the University of Ottawa's School of Management, when he said:

"Prosperity requires wealth creation, and wealth creation is the business of business. Wealth is created where value is added; the more value is added, the more wealth is created. In the knowledge-based economy, value is added when knowledge is embedded in new or improved products (goods or services), and that is done through R&D."⁵

Businesses in Canada need to do more to improve their productivity. Canada's private-sector R&D investment as a proportion of GDP is below levels in Japan, the United States, Germany, and France. Similarly, the number of patents produced in Canada is low compared with many other OECD countries. Canadian firms also invest less in new machinery and equipment, which embody the latest innovations, than do many of their competitors. Since these investments are a key productivity driver, it is crucial that the private sector increase its investments in S&T and advanced technologies.

Commercialization Performance Indicators

Fifty-four per cent of R&D in Canada is performed by business, well below the OECD average of 68 per cent.

Canada ranks 14^th in the OECD: business expenditures on R&D as a percentage of GDP.

Canada ranks 16^th in the OECD: high-quality patents per million population.

Canada ranks 19^th in the OECD: investment in machinery and equipment as a percentage of GDP.

Source: OECD 2005, 2006

There is considerable consensus among economists, governments, think tanks, and industry that Canada can do more to turn S&T advances into sources of competitive advantage.⁶

Canadian business investment in R&D lags behind international competitors

More than $27 billion in R&D was performed in Canada in 2005, 54 per cent of which was performed by the private sector.⁷ The scale of R&D effort by the Canadian private sector is far less than its international private-sector competitors in many advanced economies. Firms performed 68 per cent of the total R&D undertaken in OECD countries and have clearly established themselves as frontrunners in the United States, where they account for 70 per cent of all R&D performed there. Canada is also a middle-of-the-pack performer when it comes to business expenditures in R&D relative to GDP, ranking 14th in the OECD and 6th in the G-7 in 2004.⁸ R&D is highly concentrated in Canada. Fewer than 300 Canadian firms can be termed R&D leaders—investing more than $3 million each year in R&D.⁹ Ten of these firms account for 24 per cent of all R&D performed by the private sector.¹⁰ Only one Canadian firm was in the top 100 corporate R&D performers in the world, putting Canada at the bottom of the G-7.¹¹

Canada's Lagging R&D Intensity Is Concentrated in the Business Sector: R&D Expenditures as a Percentage of GDP (2003)

Note: Public expenditures includes R&D performed by government and higher education.

Source: Advantage Canada: Building a Strong Economy for Canadians, Finance Canada, November 2006.

Canadian business investment in machinery and equipment lags behind international competitors

Canadian firms also invest less than their counterparts in other countries in advanced machinery and equipment, ranking last among G-7 countries. New machinery and equipment investment embodies the latest ideas and technologies and is an important way to acquire domestic and foreign technology. Since 2002, the ratio of capital depletion in the Canadian manufacturing sector has been persistently under 0.5—the rate of new investment that is considered sufficient to replace the value of capital used up.¹² Low levels of investment by Canadian firms in information and communications technologies (ICT) compared with the United States are of particular concern, given that two thirds of Canadian productivity gains from 1990 to 2000 were from industries that use ICTs intensively.¹³ As reported by the Telecommunications Policy Review Panel, the ratio of ICT investment to GDP for Canada's business sector was only 66 per cent of U.S. levels in 2004, down from 75 per cent in 1987. Canada's shortfall relative to the U.S. in total machinery and equipment investment as a share of GDP is largely explained by the ICT investment shortfall.¹⁴

There are structural and historic reasons for Canada's relative weakness in private-sector investment in R&D and advanced technologies. Some of the more commonly cited factors include:

Industrial composition. Canada has research-intensive industries, but they account for a smaller share of Canada's economy than in the United States.
Smaller businesses. Canada has a greater number of smaller firms relative to our competitors such as the United States. Smaller firms often have more difficulty financing and managing R&D and adopting new technology.
Regulatory and marketplace framework policies. Canada's competitive intensity and marketplace framework policies (such as business taxation, intellectual property, and regulatory regimes) could be more conducive to private-sector investment in R&D and commercialization.
Access to funding and venture capital. Canadian venture capital tends to be invested in a large number of smaller firms at early stages of development, rather than focused on building global leaders. Also, returns on venture capital investment in Canada have been relatively low, making it more difficult to attract the kind of long-term investment provided by pension funds and other institutional investors.

The federal government has asked the Council of Canadian Academies to work with the private sector and academic experts to deepen our understanding of the S&T investment constraints and opportunities facing Canadian firms. This will help the government better support an increased commitment to S&T by Canada's private sector.

Council of Canadian Academies

The Council of Canadian Academies provides expert assessments of the state of science on important domestic and international issues. It brings together, under one umbrella, the RSC: The Academies of Arts, Humanities and Sciences of Canada; the Canadian Academy of Engineering; and the Canadian Academy of Health Sciences. These assessments contribute to informed public discussion and decision-making.

Canada Pushing the Frontiers of Knowledge

Generating innovations that improve our wealth, wellness, and well-being does not depend solely on the private sector. It requires a national capacity to generate knowledge and a talented workforce to put it to use — two areas where Canadians have built up considerable strengths.

Canadian researchers are at the forefront of important scientific developments as measured by publications and citations. We can all take pride in the success of Canada's scientists and researchers, who are contributing 4.8 per cent of the OECD's research publications even though Canada has only 2.8 per cent of the OECD's population.

Recent work by the Council of Canadian Academies has determined that most Canadian S&T is operating at or near international levels of excellence, and that Canadians are leaders in a broad range of fields important to our long-term success.¹⁵ A review of S&T projects supported by the Canada Foundation for Innovation has identified Canadian strengths in areas such as information and communications technologies, genomics, proteomics, bioinformatics, advanced materials, energy, and the environment.

Government-led science has also delivered for Canada, authoring one third to one half of all Canadian publications in domains such as agriculture and food science, oceanography, meteorology, and the environment. Government science has developed world-class technologies, such as the Canadarm, and scientific expertise in areas such as new vaccines and hydrogen fuel cells that benefit Canadians and the world.

Research Performance Indicators

Canada ranks 2^nd in the OECD: higher-education R&D/GDP.

Canada ranks 6^th in the OECD: publications per capita.

Canada ranks 5^th in the OECD: quality of publications.

Source: OECD 2006, Observatoire des sciences et technologies 2007

Canada's strong position in pushing the frontiers of science was not a given. A decade ago, we were worried about our capacity to gain competitive advantage from knowledge. Many talented Canadians were deciding to apply their skills in countries that offered more research support and world-class research facilities. These countries were attracting our top researchers with irresistible opportunities to be the ones to make important new discoveries in their fields.

Canada now has a strong research base, and the government is committed to maintaining Canada's current G-7 leadership in public research. Today's research environment at Canadian universities is attracting leading researchers from around the world, and welcoming Canadians who had been studying or working abroad back home.¹⁶ We have many more researchers and stronger research institutions. We have built a strong foundation for future success.

Clearly, challenges remain and we need to sustain our efforts while focusing on excellence. Other countries are increasing their commitment to succeed through investments in knowledge. Canada must build on its strong research foundation and turn it into a source of competitive advantage.

World-class research excellence is Canada's standard.

Canadian researchers and institutions must strive to be among the world's top performers, build clusters of world-leading research excellence and strength, and translate more research into commercial outcomes.¹⁷

A Skilled and Talented Workforce

Talented, skilled, creative people are critical to building and sustaining a successful national economy over the long term.

Canada has a highly skilled workforce by international standards. Among G-7 countries, we have the highest proportion of post-secondary graduates in our workforce. The number of degrees awarded in Canadian universities is up considerably, particularly in fields that support S&T and its commercialization — including architecture, engineering, mathematics, computer and information sciences, and business and management.

Talent Performance Indicators

Canada ranks 1^st in the OECD: share of population with tertiary education.

Canada ranks 20^th in the OECD: natural science and engineering degrees as a share of total degrees.

Canada ranks 18^th in the OECD: share of young Canadians with PhDs.

Canada ranks 17^th in the OECD: number of people in S&T occupations as a share of total employment.

Source: OECD 2004, 2005, 2006

Canada's New Government understands the importance of education and skills to our personal and national well-being. Federal and provincial governments have increased their support for learning institutions, helped make post-secondary education more affordable for young Canadians, provided Canadians already in the workforce with more and better training opportunities, and have attracted more immigrants to live and work in Canada. We have built an inclusive and skilled workforce.

Canadian students have the proven capacity to pursue higher-level S&T studies. The Programme for International Student Assessment tests 15-year-olds in reading, science, and mathematics. Canadian students, on average, have performed well, often ranking near the top of the OECD in all three categories.

Too few of our students, however, choose to pursue advanced S&T degrees. Compared to the OECD average, we have fewer natural science and engineering degree students within our total student population and fewer PhD-holders among young Canadians.

To increasingly draw knowledge from within research institutions and create innovations for the marketplace, Canada also needs more people with both science and business skills.

"What used to be done purely within the company, exclusively in an R&D department, in secret and kept confidential, is now being done in interdisciplinary project teams across different departments, in an 'open innovation' model that involves universities, start-up firms and customers. There is a trend towards higher specialty products with shorter life times and towards higher technology-intensive products. These changes are creating a need for more people with S&T background, but also different types of people. Multidisciplinary teams require solid content and good collaboration skill."

Ellen de Brabander, Deputy Chief Technology Officer, DSM, Netherlands, OECD Global Science Forum Conference, 2005.

Canada's private sector does not provide strong enough incentives for students to strive for advanced S&T and business management skills. Canadian firms across most industries hire fewer university graduates as a percentage of their total workforce than do their counterparts in the United States, particularly fewer PhD graduates. Canadian firms also tend to pay graduates less compared to firms in the United States. These factors may explain why there are fewer people working in S&T occupations in our labour market than in the United States and most OECD countries.

Some attribute this weak demand for advanced degrees to the management skills of Canadian corporate leaders. Canadian managers are less likely to have a university education than U.S. managers, and are about half as likely to have a university business degree. American financial professionals are twice as likely to have an advanced university degree as their Canadian counterparts. Others attribute the weak demand to an over-reliance on cost reduction, rather than innovation, as the main competitiveness strategy among Canadian firms.

Canadian businesses and other organizations need to recognize, reward, and make better use of the skills, talent, and knowledge of our current graduates. This, in turn, will help foster greater interest among Canada's young people to pursue S&T and related studies and careers, fostering a virtuous circle of talent generation and mobilization.

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1.3 The Changing Context

The business environment is different from that of even 20 years ago. Production processes are becoming increasingly segmented internationally. Until recently, R&D was one of the least-internationalized segments of value chains. Today, firms are increasingly establishing R&D facilities in many locations around the world.¹⁸ To sustain high-paying jobs, Canadian firms will need to move into higher-value segments of international production chains. This will require greater private-sector investment in the latest scientific and technological developments and in skilled personnel.

Talent is also far more mobile than it used to be. Our aging population, combined with opportunities for Canadians to work anywhere in the world, challenge us to put in place the right conditions to attract, retain, and develop the talent and ingenuity Canada needs.

S&T capacity is more widely distributed around the world today, with countries such as China and India moving increasingly into this segment of the value chain based on their cost advantages and considerable number of highly qualified personnel. To succeed in an ever-more competitive global arena, Canada must have researchers, research facilities, research equipment, talent, and firms that are nothing short of excellent by world standards. Canada has built a strong research and talent foundation. Now we must take it to a new level by making strategic choices and focusing our resources where we can achieve the most benefit.

S&T developments are increasingly costly and complex, taking place at the interface of disciplines and coming on-stream more rapidly than ever before. To be at the leading edge, and stay there, domestic and international S&T collaborations have become essential. And as we increasingly focus our efforts domestically, we need to tap resources beyond our borders to benefit from the many discoveries that originate outside Canada.

The Evolving Nature of National Competitiveness Strategies

Countries around the world are recognizing and responding to the changing environment for S&T as part of a new generation of competitiveness strategies. Canada's new approach takes into account this changing context.

Many OECD countries have adopted competitiveness strategies that seek to mobilize S&T for national advantage. These strategies are focused on:¹⁹

Increasing the application and commercialization of research. Countries are strengthening their business environments to encourage greater investment and innovation. In addition to strengthening marketplace framework policies, governments continue to reorient their support to foster business innovation through direct means (grants, loans) or indirectly (tax incentives for R&D and early-stage capital funds). Austria, Finland, Germany, and the Netherlands have gone further, streamlining and consolidating their innovation support programs to make them simpler for industry to use. Others are focused on improving knowledge transfer from universities to firms, including by standardizing intellectual property arrangements so that companies can better access and commercialize publicly funded research.
Establishing strategic research priorities. Many nations, including the United States, Australia, Finland, New Zealand, Korea, Italy, Iceland, and the United Kingdom, identify research priorities in areas where they can compete on the basis of world-class excellence. These strategic research priorities are grounded in the particular opportunities and challenges facing each country and often also emphasize key technology areas. Priority-setting processes typically involve defining societal goals and delivering them through competitive processes to ensure the best ideas get rewarded. Priority setting, at this level, avoids a return to past practices of "picking winners" at a project or company level, and also avoids exposing governments to market risks that are better borne by the private sector.
Supporting S&T collaborations and partnerships. Countries are increasingly fostering collaboration among firms, and between firms and public research bodies. Countries are also putting more emphasis on international collaborations by, for example, sharing major research infrastructure and research projects to address global challenges.
Securing a talented workforce. Countries around the world are recognizing the importance of having a workforce with S&T skills and experience. Many have taken action to improve science literacy in their society and the quality of science teaching at all levels of education. Many countries are attracting more women and minorities into S&T fields. Increasingly, countries are also supporting the international mobility of students and young researchers, seeking to attract top talent from around the world and connect domestic talent to global networks.
Improving accountability for achieving results. Many countries have implemented governance reforms for public research organizations to increase their impact, efficiency, and responsiveness to societal needs. These include giving universities and other public research organizations more autonomy, alongside stronger evaluation and performance measurement requirements.

Many countries around the world understand the importance of S&T to their future prosperity and quality of life. They are creating the conditions to attract investment and talented workers, investing strategically in research, and reaching out to form strategic alliances that provide competitive advantage. Canada can do no less.

Canada's Strategy will mobilize science and technology to make this country one of the world's innovation leaders. It builds on past efforts, including the 1996 policy on Science and Technology for the New Century, which put in place a sound macro-economic environment and built a solid research platform. It also respects the role and contribution of each of the key S&T players in Canada.