Scientific research and development is not a luxury for modern, industrialized countries such as Canada. It's a necessity that we ignore at our peril. Without it, innovation and new discoveries suffer – and we risk being left behind in an increasingly competitive global economy.
Canada is criticized routinely on this measure, and for good reason. According to the most recent data from the OECD (from 2011), Canada falls well behind most other wealthy nations on total spending on research and development. At 1.74 per cent of GDP, we lag behind countries including the U.S. (2.77 per cent), Sweden (3.37 per cent) and Finland (3.78 per cent). Israel, a powerhouse in innovation and creative design, tops the list at 4.38 per cent.
But new data from Statistics Canada reveal some interesting trends about scientific R&D at institutions of higher learning. What's particularly revealing is the source of funding and how it has changed over time. (The higher education sector, as defined by Statistics Canada in its report, is composed of universities and affiliated research hospitals, experimental stations and clinics.)
The source of funding for scientific research is dominated by government. Nationally, about a quarter of funding came directly from the federal government. Another 11.1 per cent came from provincial governments. The very largest source of funding is the higher learning institutes themselves, which contributed 44.8 per cent. But since much of the overall funding for universities, polytechnics and hospitals comes from government to begin with, the overall tax dollar-funded contribution for scientific research is about 81.4 per cent.
Canadian business enterprises make up a relatively small source of funds for research, accounting for only 8.1 per cent of funding. That should be a surprising statistic for two reasons. First, Canadian companies are generally flush with cash, a point that has been made by the Bank of Canada as a reason the national economy is still shaky. Business investment has yet to really kick in. The second reason business could be expected to make a larger contribution to scientific R&D at universities is because of its enormous economic potential. New products, medical breakthroughs, innovative systems – all are possible, but only with well-funded research.
Even more troubling than the low level of business contributions is that it's been falling over time. As a percentage of total R&D funding in the higher learning sector, it has slipped from 9.6 per cent in 2000-01 to 8.1 per cent in 2012-13. At the same time, tax funding and non-profit funding have increased their shares.
This drop in business funding has been particularly acute in British Columbia. Business contributions in that province have collapsed from 10.4 per cent at the start of the millennium to a mere 4.8 per cent last year. Ontario's business contribution has also slumped (10.8 per cent to 8.5 per cent) as has Quebec's (8.9 per cent to 8.0).
In fact, of the four largest provinces, Alberta stands out as the only one in which contributions from business enterprises to R&D at institutions of higher learning have increased in percentage terms. Funding from business has risen from 9.1 per cent to 9.5 per cent – not an enormous increase, but enough to place Alberta in the top spot among the four large provinces.
Given the concentration of large corporate enterprises in Alberta, perhaps this stands to reason. But even with the larger-than-average contributions from the business sector, total expenditures in Alberta's scientific R&D lags the national average. In per capita terms, spending on scientific R&D in Alberta was roughly $309 per person, whereas the national average was $343.
All of these statistics leave two logical recommendations if Canada is to improve its record for R&D. The first is that business enterprises in Ontario, Quebec and B.C. have plenty of room to increase their contributions within their provinces. The second is that the federal and provincial governments have scope to increase funding in Alberta. The contribution of federal spending is the lowest in Alberta, and the provincial government's share has slipped since 2000.
Without solid participation from both governments and businesses, Canadian innovation from scientific research will continue to lag. And that, no doubt, will leave Canada in the dust.
Todd Hirsch is the Calgary-based Chief Economist of ATB Financial, and author of "The Boiling Frog Dilemma: Saving Canada from Economic Decline"