Wednesday, March 20, 2019

Budget 2019 and Full Spectrum Innovation

Federal Budget 2019 has been touted as a “skills budget” for its focus on supporting education across the primary, secondary and tertiary levels, and right through to entrepreneurship and supporting firms with a slight revamp of research tax credits. The implicit focus on education is noteworthy, as education is an important input to the research and innovation continuum. But some inconsistencies are evident in the ways in which various programs support activities related to education, research & development, and innovation & entrepreneurship. Addressing these will be relatively easy and will help Canadians companies better compete in the global innovation economy.

Several components of the Budget support its focus on skills, notably the new Canada Training Benefit, the International Education Strategy, the commitment to work integrated learning, and new funding through the Tri-Agency for graduate scholarships. Significant investments in Indigenous education and entrepreneurship will provide meaningful opportunities for indigenous people to attain higher education and create jobs via entrepreneurship. These are all very good to see.

Worth pointing out is that enriching the undergraduate experience through work integrated learning will be an important conduit for further downstream research: undergraduates become graduate students or enter industry where they can participate more directly in research activities. Research activities are of course one of the many ways in which work integrated learning offers all students opportunities to learn and work within specific contexts. Research activities, as part of work integrated learning, socialize participants to the practice of R&D and, ideally, its relationship to innovation and entrepreneurship.

The Scientific Research and Experimental Development (SR&ED) Program gets a modest tweaking in Budget 2019, notably eliminating barriers to scale-up firms in accessing the tax credit. These changes to SR&ED are welcome, but do not go far enough. In fact, they highlight a disjuncture in Canada’s approach to education and research and their relationship to innovation.

Over in the Canada’s Student Work Placement Program part of the Budget, it appears we are finally embracing what I call a full spectrum innovation: leveraging disciplines from the Sciences, Technology, Engineering, Arts, Math and Design (STEAM+D): “Budget 2019 proposes to expand the Student Work Placement Program to give students in fields outside of STEM—such as the arts, humanities and social sciences—access to work-integrated learning opportunities.” This is positive.

The disjuncture here is when we turn back to SR&ED, we see that “research in the social sciences or the humanities” are specifically excluded from SR&ED eligibility (as is “market research or sales promotion” – more on this below)[1].

The SR&ED adopts its definition from the OECD’s Frascati Manual in outlining the types of research it considers eligible for funding under the tax credit regime. A full comparison of the SR&ED and Frascati definitions of basic research, applied research and experimental development is beyond the scope of this brief review. Suffice to say any astute reader of science policy can see how strikingly similar these definitions are, even though the official history of the SR&ED definition does not once mention Frascati or the OECD.[2] No matter.

What is of consequence is that, unlike the Frascati Manual, the Canadian definition of research in the SR&ED regime omits the humanities and social sciences disciplines. This includes the disciplines of design.

Why is this important to science policy?

According to the Design Value Index published by the Design Management Institute, design-focused companies in 2015 outperformed the S&P 500 by 211%.[3] Design, and more broadly those disciplines in humanities and social sciences, are included in how Canada measures its strength in science and technology.[4] More to the point, lean startup methodology tells us we should embrace the full span of disciplines in order to enact a full spectrum innovation. The design-focused agile development approaches to product and service design and development, including talking to customers, are proven to better shape product-market fit and downstream business success. What we know about successfully supporting and scaling startups means conducting market research and sales promotion, yet these are excluded from SR&ED. And let’s not forget that product development is only one type of innovation. Services are a key feature of the Canadian economy.

The good news is that Canada is updating its definitions of what constitutes research, through the Canadian Research and Development Classification 2019.[5] Taking its cue from the Australian and New Zealand research classification systems (something OCAD University proposed to the Fundamental Science Review), the new CRDC will include the disciplines of design among other disciplines that have emerged in the past 40 years. This new definition will apply to the Tri-Agency; SR&ED would be wise to follow suit and update its own definition.

Budget 2019 expands Canada’s Student Work Placement Program to include humanities and social sciences. This represents a key step forward in ensuring we can create new products and services emerging from our excellent basic and applied research capacity. Modernizing our approach to SR&ED, and thus expanding our definition of what constitutes legitimate activities for creating better products and services for the global economy, will align public education and research activities with private sector research activities, itself a locus of public education via work integrated learning. Enabling Canadian companies to embrace multidisciplinary business methodologies from startup to scale-up will help Canada compete and prosper in the global economy.




[4] See, for example, the Council of Canadian Academies 208 report Competing in a Global Innovation Economy: The Current State of R&D in Canada. Expert Panel on the State of Science and Technology and Industrial Research and Development in Canada.