Canada needs to take innovation seriously

By David Crane

If you want an example of a country that takes innovation seriously, consider South Korea. Samsung, in a partnership with Korea Electric Power, recently landed a $7 billion initiative in Ontario to build 2500 megawatts of wind and solar power and establish four factories with 1,440 manufacturing jobs. Not long ago, Korean companies stunned their competitors by winning a US$20 billion contract to supply the United Arab Emirates with four nuclear power plants, and are considered to be front-runners in a bid to build two nuclear reactors in Turkey.

Korea has leapt ahead in many areas. It is far ahead of Canada in high-speed broadband and the use of the Internet. Last year it launched one of the world's most ambitious green technology plans, with a budget of US$84 billion over five years. It has made a major commitment to developing green IT and has targeted 17 "growth engines" that include robotics, new materials, content and software and genomics. It is supplying the lithium-ion batteries for US and European carmakers' electric plug-in vehicles.

Its auto companies — Hyundai and Kia — have continued to gain market share worldwide while winning quality awards. Samsung is the world's largest manufacturer of computer chips by volume, the largest manufacturer of TV sets, and the second largest manufacturer of cell phones. LG is one of the world's leading producers of household appliances and is competing with Samsung on LED sales and cell phones.

This is the consequence of an ongoing pursuit of what used to be called industrial policy and is now called innovation strategy. The Koreans some time ago recognized the importance of innovation to avoid being squeezed between a more advanced Japan and a fast-rising China.

The just-published report of the US National Science Board on science and engineering shows Canada needs to become much more innovative if we want good jobs, successful businesses and the wealth for a decent society and to avoid being squeezed from two different directions.

The US, the European Union and Japan, as well as Korea, are investing heavily to develop their own industries of the future while the developing world, led by China, India and Brazil, are also looking to science and technology (S&T) "to build more knowledge-intensive economies in which research, its commercial exploitation and intellectual work would play a growing role," the science board warns.

Canada has been working to improve its own performance, starting with the Chrétien government's major boost in S&T spending and creation of new institutions in 1995-2005. This trend has continued with the Conservatives and their 2007 agenda, Mobilizing Science and Technology to Canada's Advantage.

All of this is moving in the right direction, but there remains inadequate funding along with other gaps in program and priorities. For example, the Industrial Research Assistance Program (IRAP) continues to be seriously underfunded, there is no replacement for Technology Partnerships Canada and the valley-of-death problem has not been addressed adequately.

It is this urgent need to do more and do better that is behind the campaigning of Canada's most successful serial entrepreneur, Ottawa's Terry Matthews. High-flying DragonWave, perhaps a future RIM, is just one of his early-stage investments. Matthews is now working to raise $100-200 million to fund start-ups by ex-Nortel employees before they seek opportunities south of the border.

As a spokesman for the Canadian Advanced Technology Alliance, Matthews warns that Canada has what he calls "a structural deficit in innovation that continues to impede growth in many of our communities." Canada, he argues, is losing the leadership it once enjoyed in the Internet world. "We seem to be standing still," he says.

We live in a world where global spending on R&D has roughly doubled over a 10-year period, from US$525 billion in 1996 to US$1.1 trillion in 2007. The US remains the largest spender, at US$367 billion in 2007, compared to US$338 billion in Asia and US$263 billion in the European Union, according to the science board.

Moreover, a growing number of countries are setting high targets for R&D. The Obama administration wants US spending on R&D to reach at least 3% of GDP, and it's not far below that target now. The European Union has set the 3% goal as its target, while some countries are already well above this level, including Sweden, Korea and Japan. Canada is still below 2% and has no target to attain 3%.

But it is the Chinese number that is truly remarkable. Its R&D intensity has more than doubled, from 0.6% of GDP in 1996 to 1.5% in 2007 — and in a decade when its GDP was growing at an annual average rate of 12%. Chinese premier Wen Jiabo stressed recently that China would rely heavily on S&T for future growth. "It is key to China's economic development," he said, stressing that China will focus on "emerging strategic industries."

India is also pushing innovation, with plans for a major increase in the role of manufacturing. Multinational corporations now have 200 R&D centres in India.

The US, Europe and Japan are all pushing innovation. The Obama administration has launched a highly ambitious innovation strategy to restore the US economy, backed up by billions of dollars in funding.

One example is its plan to help "catalyze breakthroughs" in key sectors. "There are certain sectors of exceptional national importance where the market is unlikely to produce the desired outcomes on its own," the strategy says. "These include developing alternative energy sources, reducing costs and improving lives with health IT, and manufacturing advanced vehicles."

The Europeans are also struggling to restructure their economy. The European Commission is planning a Europe-wide strategy and has created a new cabinet post for innovation. And the new Japanese government says it will strive to achieve annual economic growth of more than 2% for the next decade, largely by focusing on innovation.

So this is the challenge of the next decade of the 21st century, with countries around the world investing heavily in education, in research and in innovation more generally. Canada has to position itself for success in this highly competitive environment. We are doing some of the right things. But we are not doing enough.

David Crane is a writer and adviser on innovation strategy. He can be reached at crane@interlog.com.