Mr. Chairman, ladies and gentlemen, allow me to begin by thanking you for inviting me to take part in the work of this committee.
I will begin by introducing myself. I have a combined background in engineering and economics. I have been teaching economics at the University of Sherbrooke since 1971. I am currently retired, but I am still active in the area of research, which I supervise and which is carried out by my students.
I am a regular member of the Interuniversity Research Centre on Science and Technology, which goes by the acronym CIRST. I was a member of the Advisory Committee on Science and Technology Statistics at Statistics Canada from 1992 to 1999, that is, for a period of seven years. Since 2006, I sit on a similar committee at the Institut de la statisque du Québec.
As a professional, my main area of interest in research is the economy of technological change, focused more specifically on two interconnected subjects: the evaluation of the economic repercussions of research and development, innovation and the dissemination of new technologies, and the evaluation of public support for research and development and innovation. I imagine this is why I have been invited to appear before the committee today. Again, thank you very much for having invited me and for the confidence you have expressed in me.
Before answering your questions, I cannot resist the temptation to yield to my instinct as a professor, and to say a few words which, I hope, will help put the Canadian Innovation Commercialization Program into the context of a policy supporting the creation and dissemination of new technologies.
From an economic point of view, the main justification for public support for the creation and dissemination of technological change is based on the fact that if left to market forces alone, individuals and businesses would not invest as much as would be desirable for the good of society. Why?
First, these are very risky activities. It is impossible to find insurers who would insure the risk inherent in innovation. It is therefore difficult, if not impossible, for small enterprises to find financing on the financial market.
Second, even if small businesses manage to market their new product or process, innovators do not get the full benefit of their innovation for at least two reasons. In fact, there are several reasons, but the two main ones are that, first, they are often pre-empted by competitors, which drives down price and allows the imitators to grab a share of the innovator's profits; and, second, consumers, who may be other businesses or households, benefit from the situation by paying less than the real economic value of the invention. The other reason is that society as a whole benefits from the dissemination of new technologies, which increases everyone's productivity, well-being and general standard of living.
Therefore, public support for innovators closes the gap which exists between the benefits to innovators and the greater benefits for society.
Depending on their objectives, there are two types of programs to help support innovation.
The first one seeks to stimulate the offer of innovations by subsidizing part of the innovation. In this case, there are two categories: subsidies or other means of paying for direct costs, and indirect support in the form of tax incentives, such as the Scientific Research Experimental Development Tax incentive Program.
The second one seeks to stimulate demand, which leads us to the subject at hand.
One of the objectives of this type of program is to encourage the government to buy, which has at least two main advantages. The first objective is to reduce the risk for eventual buyers, who could be from the private sector or from the public sector. The second objective, perhaps more important, is to show that the new technology has lived up to the promise of its creators.
Since the 1980s, Canada has gradually reduced its subsidies and instead implemented tax credits, perceived as being more neutral and less subject to often misinformed bureaucratic decision-making. The actual result of this policy choice is that Canada leads all industrial nations in having the most generous tax credits. Indeed, tax credits reduce the after-tax cost of each dollar spent on research and development to about 50¢, and this figure can be even lower for small companies.
However, this policy, which aims to stimulate the offer of new technologies, has not met its objectives. Our business sector has fallen to the 20th place in world rankings for spending on research and development. The common diagnosis is that there is not enough demand for new technologies and innovations in Canada. The Canadian Innovation Commercialization Program seeks to stimulate demand for innovations through government buying. Similar programs with far greater resources have proved their mettle long ago in the United States under the Small Business Administration, as well as in Japan, Germany and other countries.
The Jenkins report, entitled “Review of Federal Support to Research and Development”, which came out on Monday of this week, on October 17, recommends a fundamental reorganization in the way Canada supports research and development, and innovation. As you probably already know, one of the recommendations says:
Make business innovation one of the core objectives of procurement, with the supporting initiatives to achieve this objective.
More specifically, the report recommends making the CICP permanent, and increasing its resources to stimulate demand, thus making the government the first entity to use new technologies and products.
I completely support this recommendation.
Thank you for your attention.