In these difficult economic times, “innovation” seems to have become the mot-de-jour for the private sector; actual investment in innovation, not so much. Statistics Canada estimates that industry expenditures on research and development (R&D) in 2012 will increase by less than one per cent over 2011 levels. If economic forecasts for GDP growth are borne out, this means business investment in R&D will continue its inflation-adjusted decline.
In dollar terms, business investment in R&D peaked in 2006 and has declined steadily since. By 2010, it was 15 per cent lower than the 2006 level. That drop occurred despite an increase in R&D funding from federal and provincial governments, as well as federal tax incentives to support private R&D investment. After accounting for government funding and federal tax exemptions, business interest in research and development fell by 23 per cent over five years.
As a percentage of the gross domestic product (GDP), business expenditures on R&D in Canada are falling further and further behind the rest of the Organisation for Economic Cooperation and Development (OECD) member countries. The rest of the OECD (excluding the USA) saw business investment in R&D grow from 1.39 per cent of GDP in 2006 to 1.54 per cent in 2010. Canadian business headed in the other direction: from 1.14 to 0.93 per cent over the same period, and the slide looks set to continue to 0.87 per cent in 2012.
Business and industry certainly benefit from university research and development. So when will they start paying to support it?
Sources: Statistics Canada, Industrial Research and Development: Intentions 2012
Government of Canada, Tax Expenditures and Evaluations 2011
Organisation for Economic Cooperation and Development, OECD StatExtracts
September and October forecasts, Canadian financial institutions, Policy and Economic Analysis Program