04/02/2012 08:28 EDT | Updated 06/02/2012 05:12 EDT

A Budget Can't Solve Canada's Innovation Woes

The word "innovation" appears 122 times in the federal government's 2012-2013 budget. The government is clearly frustrated by the limited success of its programs to spur innovation in Canadian businesses. Is innovation is really an issue that large-scale government programs can solve?


The word "innovation" appears 122 times in the Canadian Federal Government's Budget for 2012-2013, which in case anyone missed it, is entitled "Jobs, Growth and Long-Term Prosperity - Economic Action Plan 2012". According to, innovation is "The process by which an idea or invention is translated into a good or service for which people will pay, or something that results from this process." In a budget that some have called "transformative" because of its overall trend towards a smaller role for the federal government in Canadian society, one area where governmental activism will actually grow over at least the next three years is through attempts to increase innovation in the Canadian business community.

The government is clearly frustrated by the limited success of its programs to spur innovation in Canadian businesses, which have been focused largely on tax credits and other incentives since 2006. Chapter 3.1 of Budget 2012 doles out a tongue-lashing, including this:

"Despite strong policy fundamentals to support innovation in Canada, Canadian businesses do not take full advantage. Canada continues to lag behind peer countries in terms of overall innovation performance, including private sector investment in research and development (R&D), and the commercialization of research into products and processes that create high-value jobs and economic growth."

The government's solution is to spend even more money on the problem, but this time focusing on directed grants ($1.1 billion over five years) and venture capital ($500 million) that it hopes "will promote business innovation through improved support for high-growth companies, research collaborations, procurement opportunities, applied research and risk financing." This includes funds to continue to refocus the National Research Council of Canada, the largest research organization in the country, on industry-driven research projects.

Two questions for all Canadians are whether business innovation is really an issue that large-scale government programs can solve, and whether the proposed solutions will have unintended, long-lasting negative impacts on basic research in the country, which is seen widely as a great success?

The prestigious scientific magazines Science and Nature have both raised concerns about the increasing shift of funding in Canada from programs for basic research to those for business-driven, industry-relevant research, all in pursuit of the goal of promoting business innovation. The legitimate argument is that without continuing discoveries in basic science, engineering, medicine and other disciplines, there will be fewer new ideas and inventions to commercialize, and this will ultimately make Canadian companies less competitive. Basic research and business innovation are linked inextricably in this way.

Perhaps a truly innovative Budget 2012 would have recognized that most innovation in business likely would come from company employees with a good idea rather than from government-directed, industry-focussed research programs or institutions. A much cheaper and effective program, that would allow basic research to continue to thrive in the country, might focus simply on providing individuals or groups in companies with what they need to bring their ideas to fruition.

Maybe this would mean a leave of absence to develop their ideas in a government or university research lab. Maybe it would mean some funding to buy materials to test the idea on company premises. The point is that, in the case of business innovation, small government solutions might be better than big government ones.

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