In what follows, Part II of the paper briefly reviews the perilous state of business innovation inCanada. Part III suggests that both federal and provincial governments end their wastefulsubsidies of the LSVCCs. In Parts IV and V, I critically review the Jenkins Committee’srecommendations regarding the SR&ED credit and the relative merits of direct and indirectassistance programs. I suggest that the Jenkins Committee’s lack of faith in the efficacy of indirect funding via the SR&ED program is misguided. While agreeing with the JenkinsCommittee’s focus on co-funding arrangements for the delivery of direct assistance, I alsosuggest that co-funding arrangements have little or no role to play in funding basic and appliedresearch and early-stage commercialization efforts. Finally, in Part VI, I suggest a change tothe federal taxation legislation that is designed to enhance the profitability of a sale of atechnology business to a foreign strategic acquirer, boosting the prospective profitability of investment in early-stage businesses.
PART II: THE PERILOUS STATE OF BUSINESS INNOVATION IN CANADA
As indicated in the Jenkins Report, Canadian support for R&D is high compared to most othercountries in the world.
Nonetheless, the thrust of the report is that Canada does not do wellwhen it comes to commercializing research — a conclusion that echoes the findings of manyother reports on innovation in Canada.
The best evidence that this is the case resides in theanaemic growth in Canadian labour productivity over the past several decades. As stated in areport of the Canadian Council of Academies in 2009:
Canada has a serious productivity growth problem. Since 1984, relativelabour productivity in Canada’s business sector has fallen from more than90 percent of the U.S. level to about 76 percent in 2007. Over the 1985-2006 period, Canada’s average labour productivity growth ranked 15th outof 18 comparator countries in the OECD.The Jenkins Committee thus concludes that “Canada has a business innovation problem,”
andthat “Canada’s sub-par productivity growth is largely attributable to relatively weak businessinnovation.”
Jenkins Report, Figure 6.1, p. 6-2.
See e.g., Canadian Council of Academies,
Innovation and Business Strategy: Why Canada Falls Shor
t (2009),available athttp://www.scienceadvice.ca/uploads/eng/assessments%20and%20publications%20and%20news%20releases/inno/(2009-06-11)%20innovation%20report.pdf; Expert Panel on Commercialization,
People and Excellence: The Heart of Successful Commercialization
Volume I: Final Report of the Expert Panel on Commercialization
(Ottawa: PublicWorks and Government Services Canada: 2006); Expert Panel on Commercialization, People and Excellence:
The Heart of Successful Commercialization. Volume II: Supporting Material
, (Ottawa: Public Works and GovernmentServices Canada: 2006); Council of Canadian Academies,
The State of Science & Technology in Canada
See Canadian Council of Academies,
, note 5. The Jenkins Committee concurred. See Jenkins Report, ch.1.
Jenkins Report, pp.2-3. See also p.2-4.