Public R&D

Key Messages

Why is public R&D important to innovation?

Public research and development (R&D) is essential to a science and innovation ecosystem. Composed of higher-education R&D and government R&D, public R&D serves a number of functions.

First, much (though not all) research in the higher-education sector, and some in the government sector, focuses on knowledge discovery and addressing questions of basic science. These provide a foundation for innovation, but businesses tend not to conduct this kind of research themselves because links to innovation and commercialization are less direct and the results more uncertain. Although higher-education and government researchers are now doing more applied and problem-driven research, and while a few businesses allocate time and resources to basic science, in general, public R&D fills the basic science gap that businesses lack the resources and incentives to fill.

Second, higher-education R&D plays a central role in educating and preparing future researchers who will take on roles in academia, government, and industry. Undergraduate, graduate, and post-graduate students benefit from time spent on research projects at Canada’s universities, colleges, and polytechnics. In turn, employers in academia, government, and industry have opportunities to recruit well-educated, advanced researchers who can contribute to social and economic innovation.

Finally, public R&D plays an important role in exploring and developing the social and policy innovation a society needs, but that few businesses have incentives or the necessary independence to address. Much higher-education and government research produces insights that contribute to innovation and improvements in a range of social, political, and economic concerns—including health, the environment, housing, newcomer integration, infrastructure, and community well-being. Some public research focuses on the background economic, social, and policy conditions that form the innovation ecosystem in which business innovation succeeds or fails—including education and skills policies, innovation clusters, and tax, regulation, and R&D policies.

How is public R&D measured?

The public R&D report card indicator is measured as the sum of spending on R&D performed by the government and higher-education sectors as a percentage of GDP. Although other analyses often distinguish between the two, we combine them in recognition of the fact that different jurisdictions structure their public R&D activities in different ways. That is, while some countries have robust systems of government laboratories but weaker higher-education research, others reverse the emphasis. By combining the two measures into a single public R&D indicator, we avoid penalizing jurisdictions for the structure of their public research and innovation ecosystems. 

Note that these are not measures of R&D funding, but of R&D spending by performing sectors. The sources of funding can include business, government, non-profit foundations, and higher-education institutions.

How do the provinces rank relative to international peers?

Provincial performance relative to international peers varies substantially. With public R&D of 1.2 per cent of GDP, Nova Scotia earns an A+ and ranks first overall. Quebec (0.99 per cent) and Ontario (0.96 per cent) earn A grades and rank third and fifth, respectively. P.E.I. (0.87 per cent) falls from ninth to 12th place and drops one letter grade, from A to B. Denmark (1.06 per cent), Sweden (0.99 per cent), and Finland (0.94 per cent) are the top-ranked peer countries.

Manitoba (0.78 per cent) and Newfoundland and Labrador (0.76 per cent) earn a B and rank 15th and 16th, respectively. Canada also earns a B overall and ranks 10th of 16 peer countries—one place lower than the previous report card—with public R&D of 0.79 per cent as a share of GDP.

Four provinces rank in the bottom seven overall. New Brunswick (0.67 per cent) and B.C. (0.65 per cent) earn C grades and rank 20th and 22nd, respectively, overall—outperforming the U.K. (0.55 per cent), Ireland (0.36 per cent), and, in the case of New Brunswick, Japan (0.66 per cent). Saskatchewan (0.47 per cent) and Alberta (0.43 per cent) receive D grades and rank 24th and 25th among the 26 jurisdictions. Only Ireland does worse than Alberta and Saskatchewan.

How do the provinces rank relative to each other?

The provincial variation on public R&D is significant. Nova Scotia is the top-performing province, followed by Quebec and Ontario, which have swapped positions since the previous report card. All three have public R&D near or slightly above 1 per cent as a share of GDP. Quebec and Ontario earn As, while Nova Scotia earns an A+.

P.E.I. earns a B, as its public R&D has fallen to 0.87 per cent from a previous level of 0.91 per cent as a share of GDP. By contrast, two provinces—Saskatchewan and Alberta—conduct substantially less public R&D as a share of GDP and get Ds.

How has provincial performance changed over time?

Nova Scotia is the only province with consistent performance since 1991, earning an A+ every year relative to international peers. Yet the province has experienced some volatility in its actual public R&D as a share of GDP, ranging from a low of 0.95 per cent in 1997 to a high of 1.21 in 2006. The province’s public R&D as a share of GDP was on a downward trend between 2007 and 2011 but has seen small increases in each of the past few years.

Nearly all provinces had substantial growth in public R&D between 1997 and 2004, largely because of significant new investments in higher-education research. This included the creation of the Canada Foundation for Innovation and the Canada Research Chairs, as well as a host of other smaller research funding programs for universities and colleges. In 1997, the provinces collectively held one A+, one A, three Bs, two Cs, and three Ds. By 2004, that report card had improved to two A+s, two As, three Bs, two Cs, and only one D. Overall, Canada’s public R&D climbed from 0.66 per cent in 1997 to 0.89 per cent in 2004, its grade moved from a B to an A, and its rank from 10th to fourth.

Since 2004, however, public R&D as a share of GDP has declined in seven provinces and generally stagnated in the other three. Meanwhile, 12 of the 16 international peers have increased public R&D as a share of GDP, and many have overtaken some provinces in the overall rankings. With public R&D slipping from 0.89 per cent to 0.79 per cent, Canada has fallen from an A to a B grade and dropped back to 10th place among the 16 international peers. In short, the advantage created for the provinces and Canada in the late 1990s and early 2000s has disappeared. Public R&D as a share of GDP has stagnated in Canada, while it has increased in most peer countries.

What is the balance between business, government, and higher-education R&D?

The mix of business, higher-education, and government R&D differs across provinces. Business R&D as a percentage of all R&D is highest in Quebec (59 per cent) and lowest in Nova Scotia (23 per cent). Higher-education R&D as a percentage of all R&D is highest in Nova Scotia (67 per cent) and lowest in Ontario (34 per cent). And government R&D as a percentage of all R&D is highest in P.E.I. (21 per cent) and lowest in Quebec and B.C. (4 per cent).

Despite having high shares of higher-education R&D in their overall R&D mix, the provinces’ performance relative to international peers is mixed. Although Nova Scotia leads all jurisdictions and Quebec ranks relatively well, many provinces are at the back of the class. Canada’s performance overall is middling and slipping.

The provinces’ performance on government R&D is worse. Although two provinces—P.E.I. and Ontario—rank in the top half of all international peers, six provinces get D grades, while Canada ranks 10th of 16 peer countries.

Why are provinces stagnating on public R&D?

Although public R&D in the provinces received a significant boost from major investments in higher-education R&D by the federal government in the late 1990s and early 2000s, funding then stagnated until after 2016, when the federal and some provincial governments began to invest in certain areas of research—including clean tech and artificial intelligence—and on new research chair programs.

Until R&D data for 2017 and beyond are collected and released, it will not be clear whether these new investments will be enough to reverse the long-term gradual declines in government R&D and stagnating higher-education R&D investments that, combined with rising investment among international peers, have eroded the advantage that Canada and the provinces once enjoyed.

Public investment in R&D is increasingly competing with other public priorities—such as rising health care costs and infrastructure costs—and some are beginning to question whether past investments have produced expected gains in knowledge and innovation. Together, these forces make it difficult for governments to commit more money to R&D. Failure to sustain or increase funding will make it harder for Canada to improve its innovation performance and address the social and economic challenges putting pressure on public resources.

How can the provinces improve on public R&D?

In the past, Canada and the provinces have done a good job of making strategic investments in higher-education research—including both discovery- and innovation-focused research. Also, many recent investments have been tailored to encourage partnerships between higher-education researchers and businesses, with a view to narrowing the gap between insight and commercial application.

But while efforts to link some research more directly to commercial application are encouraging and should continue, doing so at the expense of resources for research not tied to commercial application could weaken the scientific foundation Canada needs for long-term innovation success. Canada should also be mindful of the possibility that tying public research funding to partnerships with business could hasten the decline in business R&D spending. To the extent that businesses find they can get part of their research needs fulfilled by higher-education institutions, they may decide to allocate their existing research dollars elsewhere.

The key challenge is that Canada and the provinces may be placing a lower priority on public R&D in the face of competing priorities, such as health care and infrastructure. The irony, however, is that reducing funding for research could hamper Canada’s ability to address health, environmental, and other challenges through innovation rather than simply through higher, and ultimately unsustainable, spending. The reality is that improvement in public R&D, and in innovation more generally, will require bold new thinking and substantial new investment.