INST Committee Report

            Innovation is more simply defined as the process of developing and introducing new and improved products, services and production techniques into the marketplace, whereby these new production techniques may amount to a novel processing, assembly, inventory, distribution, managerial and/or organizational method — whatever the case may be. At the same time, this process of innovation is largely carried out by firms that interact with other parties to a country’s "innovation system," which comprises institutions such as universities, research centres, government laboratories, education and training facilities, intellectual property rights and protection regimes, financial intermediaries, and networks for sharing of S&T information and results.

            Unfortunately, the task of exploring the inner workings of an innovation system is not as simple as defining the system itself. Modern notions of innovation — how it occurs, what forces are at play and how they interact — typically emphasize the cumulative and interactive nature of the process. Experts in the field have thus discarded the traditional linear model of innovation, whereby the source of advancement and novelty begins with basic research (experimental or theoretical work that adds to fundamental knowledge) which leads to other basic research or to applied research before moving on to product development and commercialization. The circular feedback model of innovation, which appears to be the dominant view today, suggests that the innovation process is in fact much more complex than was earlier thought to be and as captured by the linear model. Accordingly, innovation has many sources and can occur at any of the stages from basic research to applied research, to product development, to production and to marketing.

            This view of innovation complicates public policy-making immeasurably, because the principal economic spillover activities and the institutions from which they emerge are not immediately identifiable. In other words, focusing government funding on institutions engaged in basic research (universities, non-profit institutions, government agencies, etc.) is not sufficient. Effective S&T policy necessarily entails involvement in proprietary research in some industries, while forsaking generic research in others. Moreover, the correction of systemic failures stemming from institutional rigidities and insufficient collaboration and interaction within the system of innovation becomes equally as important as correcting market failures, such as an inventor’s inability to appropriate all the benefits associated with his invention, if not more so. Again, and in other words, the establishment of a strong intellectual property rights and protection regime in and of itself will not "cut it." Effective incentive mechanisms involve not only general policy responses such as the creation of property rights as a means of privately appropriating the benefits associated with innovation activities or the doling out of research and development (R&D) tax incentives to the private sector. They imply targeted policy responses such as government investments in innovation infrastructure and in the formation of cooperative public- and private-sector joint ventures, in all its various forms, for the riskier projects where a critical mass of expertise has been, or is likely to be, established in Canada.

            In the final analysis, a knowledge-based economy demands that Canada’s innovation system must not only get larger than it is at present, it must operate better and more effectively. Being flush with new money is not sufficient; the system needs careful attention as to where the citizen/taxpayer "gets the biggest bang for his buck." This is the task of this report. The Committee seeks to influence the federal government’s innovation policy agenda with a view towards making Canada’s innovation system more effective and efficient, while ensuring a fair and equitable allocation of citizen/taxpayer dollars consistent with our national priorities.

            This report addresses these concerns and it does so in two parts. Part I, comprising four chapters, deals with the Canadian innovation system and policies for a knowledge-based society. Chapter 1 highlights the distinguishing features of a knowledge-based economy, in particular noting its focus on innovation, while ascertaining its S&T contributions. Chapter 2 reviews the world’s innovation record, but mostly Organisation for Economic Co-operation and Development (OECD) member countries, and establishes Canada’s relative ranking. Chapter 3 provides a detailed overview of Canada’s innovation system, including most of its components and linkages related to the natural sciences and engineering disciplines. Finally, Chapter 4 provides salient facts on Canada’s innovation policy framework.