Page 20 – Ottawa Jewish Bulletin – April 26, 2010
Canada should follow Israel’s lead on innovation, research and development The latest report card from the Conference Board of Canada ranks Canada 14th in innovation among 17 peer countries for 2009-10. Canada continues to be a D performer for innovation despite the fact we earned an A for education and skills, Bs in economy, society and health, and a C for the environment. So, why are we not more innovative? Canada’s poor performance is due to our lack of a cohesive national innovation strategy involving small- and medium-sized businesses. In funding innovation, our strategy has focused on large multinationals and academia. We spend billions of taxpayers’ dollars to fund innovation, mostly in the form of grants and contributions to universities, or in collaboration with larger firms. The outcome is that academia holds a large number of patents and intellectual property rights that are too expensive for Canadian startups or medium-sized businesses to license and which just sit on shelves gathering dust. Not only are they not producing tangible products or financial returns, but entrepreneurs are impeded from using them to develop products for the Canadians who originally funded the research and development (R&D). The backbone of any economy is small business. Proportionally, a greater number of jobs are created by small- and medium-sized businesses that hire and pay taxes (and vote) locally. Small business creates jobs through innovation. In July
2008, Industry Canada reported, “Statistics on Scientific Research and Experimental Development tax credits reveal two telling facts about innovation by small businesses – in absolute amounts, they spend far less than large firms; however, as a percentage of revenue (R&D intensity), spending on innovation by small businesses far outstrips that of larger firms.” Small business, then, works hard at being innovative even though it gets less government encouragement than larger firms. The Kauffman Foundation is devoted to entrepreneurship and the promotion of innovation in America. According to its 2010 State of Entrepreneurship address, the foundation concludes that, based on statistics, “New and young companies and the entrepreneurs that create them are the engines of job creation and eventual economic recovery.” According to Robert E. Litan, Kauffman’s vice-president for research and policy, “Between 1980 and 2005, virtually all net new jobs created in the U.S. were created by firms that were five years old or less. That is about 40 million jobs. That means the established firms created no new net jobs during that period.” Large firms know this. According to a 2009 Kauffmann study, one of the ways multinationals create jobs is by acquiring younger, smaller firms to bring innovation into their companies. Based on such reasoning, some observers attribute the demise of Nortel, in part, to a dearth of small innovative feeder firms. I had the good fortune to be invited, with a handful of other business leaders, to meet Israeli Finance Minister Yuval Steinitz during his February visit to promote trade with Israel. Israel is unique in the innovation world. In 2007, it invested 4.7 to 4.8 per cent of its GDP on R&D, the highest
World Affairs Oliver Javanpour
ratio in the world. Canada was at 1.88 to 1.94 per cent that year. Israel also leads in the number of startup firms, the number of small firms, and the number of annual patents filed. After the U.S. and Canada, Israel is the third major country whose firms are listed on the NASDAQ. The World Economic Forum has designated Israel one of the leading countries in the world for technological innovation and ranked Israel first in R&D investments, second for venture capital availability, fourth for higher education achievements, and sixth for overall innovation. Canada ranked 11th. Israel ranked fourth in co-operation between academia and industry, while Canada ranked eighth. The notable nuance in this ranking is the size of industries involved – in Israel the co-operation is normally with small startup firms while in Canada it is with large multinationals. Job creation should be the number one priority for federal and provincial governments. To do this the way Israel has done it, we need to develop a national strategy around innovation. We can learn much from how this small nation treats its most valuable commodity: the bright people who populate its small businesses. Our two nations have a lot in common, including a large, educated population, high quality academic institutions, and highly motivated entrepreneurs. Clearly, job creation depends on the entrepreneurial spirit found in small firms in Canada. With this in mind, we can design a unique made-in-Canada solution to get our entrepreneurs innovating and employing our way out of recession. We bailed out Canadian banks to the tune of about $75 billion in government purchases of bank securities through the Canada Mortgage and Housing Corporation and spent $3.3 billion in federal and provincial loans for the auto industry. If we’d earmarked a fraction of the bail-out money to help the small, innovative firms in our country, we could have shifted our focus from bailing out to building up.
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