Thank you, Chair.
I'm Daniel Schwanen. I'm the vice-president of research at the C.D. Howe Institute. I thank you for the invitation to appear before this committee.
Commercialization can be seen as the point where innovative ideas come to fruition to create or sustain economic activity and jobs. In that sense, commercialization certainly builds on prior research and innovation, but it's the part where research and innovation visibly benefit Canadians more broadly.
Research and innovation are very important foundations to the success of commercialization, but they are not the only ingredient. Successful commercialization requires capital, access to markets, and a strategy to manage and protect intellectual property. As you have no doubt heard, Canada has made progress on all of these scores.
Successful commercialization also requires management skills, design and marketing skills, branding acumen, a strategic vision for growth and knowledge about opportunities and the competition. It requires that the people who possess these skills and capabilities want to use them from a Canadian base. We also need a system that rewards commercialization.
Canada is in fact a net exporter of ideas. We have a significant surplus in our balance of payments for research and development. Consider the many multinational companies that hire Canadians to do research here in Canada that is then used to create new or improved products for those companies. In other words, these are exports of ideas that create jobs in Canada, most of which are well paid, but which help build intellectual property held elsewhere.
Canada is, in contrast, well known as a net payer for the services of intellectual property that such research or other creative or innovative activities in Canada or elsewhere help generate: for example, royalties or copyright payments. That is because the IP for what we use in this country and what our trade partners use commercially is, on the net, owned outside of Canada.
This combination of trade surplus in research services—the ideas—but net services in paying for the use of intellectual property that research helps create puts Canada in the same category as Turkey, Argentina and India, but even among these countries we're kind of an outlier—doing big research while being a big importer of the services of the IP. In contrast, the United States or the United Kingdom enjoy trade surpluses in both research services and payments for the use of intellectual property that they own.
Countries like Denmark, Finland or Sweden actually import research services from abroad on the net, but they own the IP and they generate surpluses that way. Countries like Israel—often held as an innovation model—have an off-the-charts surplus on research services but a balance of both receipts and payments for the services of IP.
The story here is a familiar one: Compared to peers, Canada is better at research than at securing the fruits of this research. To quote from a famous movie, “If you build it, he will come.” In the context of this discussion, we may think of this phrase as meaning that more research will generate more innovation, the IP rights for which can then be secured. Then, on that foundation, commercialization will—or should, maybe with a little help—follow. However, I think the dynamic runs mostly in the opposite direction. If we are better at commercializing ideas from this country, the research and innovation and the IP that embodies them will grow and stay, or come into Canada—even regardless of where it originates—because it will be good to grow an IP-based business in this country.
The reason some IP has been flowing out of Canada and into other countries is that it has been easier for others to commercialize our ideas as well as theirs. We should seek to reverse that trend. Of course, we should enhance our ability and sharpen the incentives to commercialize in Canada the products of our own research and innovation. This can be done through the use of patent boxes that incentivize but do not restrict the use that researchers and innovators in hospitals and universities, for example, can make of their IP.
Other ingredients include making it easier for innovators to find markets in Canada, for example, through a more agile and outcomes-oriented public procurement process and by rewarding small firms that grow in preference to those that stay small.
I'm at time. I'd be happy to elaborate on the above, as you see fit.
Thanks for your attention.