Innovation

Innovation is the ability to turn knowledge into new and improved goods and services. The Conference Board reports on innovation performance for Canada and 16 peer countries. The indicators used measure each country’s capacity to innovate, based on data that reflect the stages of knowledge production, the transformation of knowledge, and market shares of knowledge-based industries.

Countries with the highest overall scores have successfully developed national strategies around innovation, giving them a substantial lead over their peers in one or more areas. Ireland has seen enormous success as a host for leading innovative companies. The U.S. fosters a combination of top science and engineering faculties, broad and deep capital markets, and an entrepreneurial culture. Japan is committed to efficient manufacturing and new product development. Switzerland, the top-ranked country this year, is a leader in the pharmaceuticals industry.

Canada is well supplied with good universities, engineering schools, teaching hospitals, and technical institutes. It produces science that is well respected around the world. But, with some exceptions, Canada does not take the steps that other countries take to ensure science can be successfully commercialized and used as a source of advantage for innovative companies seeking global market share. Canadian companies are thus rarely at the leading edge of new technology and too often find themselves a generation or more behind the productivity growth achieved by global industry leaders.

Learn more about how a focused nation innovation strategy can improve Canada’s innovation performance:

Leaders’ Panel on Innovation-Based Commerce (LPIC): The Importance of Focus, Ottawa: The Conference Board of Canada, 2008.

We use a total of 12 indicators to measure innovation performance. The indicator choice was guided by the Conference Board’s definition of innovation as “a process through which economic or social value is extracted from knowledge—through the creation, diffusion, and transformation of knowledge to produce new or significantly improved products or processes that are put to use by society.”

Knowledge production is captured by indicators measuring the number of scientific articles, patents (patents by population and share of world patents), and trademarks.

The transformation of knowledge is gauged by indicators examining technology exchange (the technology share of total exports and imports), the share of gross domestic product produced by high- and medium-high-technology manufacturing, and the share of GDP produced by knowledge-intensive services.

Market shares of selected knowledge-based sectors (aerospace, electronics, office machinery and computers, pharmaceuticals, and instruments) examine, for example, the share of Canada’s aerospace exports in total 17-country aerospace exports relative to the share of Canada’s total economy exports in total 17-country exports.

The trademarks per million population is a new indicator this year. This is a useful indicator of innovation because it allows us to benchmark services sector innovations and non-technological innovations not captured by data on patents.

Innovation is essential to a high-performing economy. It is also critical to environmental protection, a high-performing education system, a well-functioning system of health promotion and health care, and an inclusive society. Without innovation, all these systems stagnate and Canada's performance deteriorates relative to that of its peers.

Canada has been slow to adopt leading-edge technologies. This is problematic, since innovative products have increasingly short cycles. Often within a couple of years of introduction, products are upgraded or must be replaced. In these circumstances, slow adopters never catch up; they are always at least one generation behind the advancing frontier of possibilities that new technology represents. That is not a winning formula, and Canada seems to be playing catch-up on too many technologies.

The problem shows itself in Canada’s relatively low productivity level. As other countries develop and adopt more innovation-related business methods, their companies are gaining in productivity more rapidly than Canadian companies. With new key players in the global economy such as China, India, and Brazil, Canadian businesses must move up the value chain and specialize in knowledge-intensive, high-value-added goods and services. Although Canada has some leading companies that compete handily against global peers, its economy is not as innovative as its size would otherwise suggest.

To enlarge this report card in a new window, click on the report card.

Taken together, the innovation indicators rank countries by:

• science and technology research output (scientific articles)
• knowledge diffusion and infusion (technology exchange)
• invention (patents by population, share of world patents, and trademarks)
• knowledge transformation and use (high- and medium-high-technology manufacturing, knowledge-intensive services, export shares of selected high-technology industries: aerospace, electronics, office machinery and computers, pharmaceuticals, and instruments)

Canada performs poorly on most indicators, as do Australia, Italy, and Norway. In the latest report card, Canada scores one “B,” 2 “C”s, and 9 “D”s—an improvement over the last report card on which Canada earned only “C”s and “D”s.

Canada’s lone “B” is on the scientific articles indicator—an indicator on which Canada actually fell in the rankings from sixth to eighth. Although Canada’s proportion of scientific articles published continues to increase, the proportion has grown at a greater rate in Australia and Norway, pushing Canada to eighth place. Canada’s “B” grade on this indicator is due primarily to poorer performance among the top- and bottom-ranked countries. Switzerland, the top-ranked country, had less growth in the number scientific articles per million population, while in Japan, the worst-ranked country, the number of articles continues to fall.

The innovation report card results reinforce the view that how the innovation system is managed is ultimately what matters. The U.S. is a leader on the share of world patents, knowledge-intensive services, and aerospace exports. This is clearly the profile of an inventive country that knows how to translate new knowledge into business value. Finland has “B”s in scientific articles and high-tech manufacturing and an “A” in electronics exports—again, a clear chain of development. Switzerland is an example of a success story: Switzerland’s research and leadership in patents and trademarks translate into expertise in knowledge-intensive service, and further to export leadership in pharmaceuticals and scientific instruments. Sweden and Ireland have similar stories, with Ireland relying on technology exchange rather than research to help create competitive advantage by manufacturing products that can win export leadership.

It takes more than just one or two above-average scores to be a leader—it takes coherence. Coherence distinguishes the leaders from the mediocre. Canada’s peers demonstrate that coherence is a management challenge, not just a technological one.

The radar diagram below is a snapshot of Canada’s innovation performance (and the 17-country average performance) relative to that of the best-performing peer country—the outer ring—for each of the 12 innovation indicators. The chart has 12 axes—one for each indicator—that radiate out from the centre. A score closer to the centre represents worse performance, while a score closer to the outer circle represents better performance.

Canada is above the 17-country average on only two indicators: scientific articles and the export market share of the aerospace industry. Canada ranks above Switzerland—which is the overall leader in the Innovation category—on three export market share indicators: aerospace, electronics and office machinery and computers.

Use the pull-down menu to compare Canada’s performance on each innovation indicator with that of any of its peers.

Canada has historically performed relatively better on scientific articles and high- and medium-high-technology manufacturing. Canada had a “B” in scientific articles in the 1990s. While Canada earns a “C” in the 2000s overall on this indicator, it is once again a “B” performer in the latest report card.

Canada's grade on high- and medium-high-technology manufacturing fell from a "C" in the 1990s to a "D" in the 2000s.

Canada's one improvement was from a “D” in the 1980s to a “C” on aerospace in the 1990s (end of the Cold War). This modest improvement, however, has not been enough to improve Canada’s overall “D” for innovation.

The "D" grades in the report card underline Canada’s relative weakness in developing inventions (patents and trademarks) and in translating publicly supported research into products with high levels of global market penetration. This is in contrast to Canada’s performance in translating geological and engineering knowledge into natural-resource-based outputs, Canada’s current source of prosperity.

Historically, Canada has skilfully adapted others’ innovation to unlock its rich natural resources; this continues to be the basis of Canada’s prosperity. But this natural-resource advantage is not enough. Only by becoming more innovative and by boosting Canada’s profile in the global economy can Canada raise productivity high enough to sustain and improve its living standards.

Countries that regularly outperform others on innovation not only spend more on science and technology (as a proportion of GDP) but they also institute policies that drive innovation demand and supply. To be a leader requires public policy that systematically and coherently promotes national innovation and helps cutting-edge sectors achieve their global potential. Almost all countries leading the OECD innovation scores have government programs that encourage innovation in the national interest. These programs are coherent in that they encourage not only a national supply of relevant science and technology but also firms to exploit it for competitive advantage.

Innovation policies promote “creative destruction” of the old and hasten the transition to the new. Many of Canada’s industry sector policies are designed to preserve existing industrial production—such as forestry’s pulp and paper sector and auto assembly manufacturing—rather than generate new, highly innovative ones. In effect, these policies are short-term job protection policies that consume important resources that could be used to support long-term innovation. As a result, they work at cross-purposes to innovation.

Rather than shoring up fading oldsters, long-term innovation policies would help transform existing industries into new ones—such as turning the forestry industry into a bio-chemical sector—and would create new-to-world industries.

Canada has some strong innovation initiatives, such as federal subsidies for biotechnology research and the national Scientific Research and Experimental Development tax incentive program. But, in the main, these programs create a supply of scientific discovery rather than go the extra step of fostering demand for innovative products. The result is good science faculties and lots of relatively small companies without much prospect of success on a globally efficient scale. The upshot is that Canada moves ahead far more slowly than other countries that enjoy greater innovation policy coherence.

Almost all countries leading the OECD innovation scores have government programs that encourage innovation in the national interest. They are high-priority “push-pull” programs supported by the highest levels of government. These programs encourage not only a national supply of relevant science and technology but also firms to exploit it for competitive advantage. Ultimately, however, the market determines whether those programs succeed or fail in promoting national competitive advantage.

Protectionist tendencies remain in government research funding. Protectionism is being eroded, however, as more and more multinational companies take research and development (R&D) global, adding partnership and collaboration arrangements to cross-licensing as a way of breaking down national barriers to sharing R&D. And some governments seem to be listening. For example, in the 2008 budget, the Canadian government opened government-funded Canadian science projects to foreign participation without reciprocal cost sharing.

Protectionist biases against foreign ownership must also be addressed to boost competition and, consequently, innovation. The federal government appears to be taking steps on this front as well. In December 2009, Industry Canada overturned a Canadian Radio-television and Telecommunications Commission (CRTC) decision by allowing Globalive to enter the Canadian wireless telecommunications market. The CRTC had originally ruled that Toronto-based company Globalive did not meet domestic ownership requirements and could not operate in Canada. Explaining the recent Industry Canada decision, Industry Minister Tony Clement said, “Our goal has always been greater competition in the telecommunications industry, which leads to lower prices, better service and more choice for consumers and business.”¹

Canada continually trails its peers because it has yet to commit to becoming an innovative country and to dealing with the economic and policy challenges that requires. On a small scale, however, Canada has demonstrated it is capable of developing innovation strategies to successfully align business, government, investors, and customers. Successful engineering innovation in the Alberta oil sands, for example, has enabled Alberta to supplant Ontario as the motor of the Canadian economy. Canada’s aerospace sector is another example. According to industry data, it is the only advanced technology sector that produces a steady trade surplus.