Canadian businesses need to invest more in research and development so the economy can cash in on the ideas stemming from an impressive talent pool, a new report argues.

The State of the Nation 2010 report from the Science, Technology and Innovation Council found Canada invests less than key global competitors. The report calls for more collaboration between the private sector, universities and governments so Canada can catch up.

The council acts as an advisory body to the federal government on science and technology and its 18 members are drawn from academia, government and business sectors.

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The council's report points to Ryerson University's Digital Media Zone as an example of a multidisciplinary facility designed for entrepreneurship. ((Science, Technology and Innovation Council))

"No one entity alone is going to be responsible for the outcome of Canada's science, technology and innovation status," said Heather Munroe-Blum, principal of McGill University and a member of the panel, at a Tuesday press conference in Ottawa where the report was released.

"We see a very strong need for collaboration across levels of government and between governments, industry large and small, and organizations and institutions, and we really believe that is essential for us to optimize our strengths and assets."

"With all sectors working together, Canada can become a world innovation leader," said Guy Rouleau, a Canada Research Chair in genetics at Université de Montréal, and another member of the council.

Using a number of benchmarks to measure innovation, such as investments in machinery and equipment and percentage of gross domestic product spent on research and development, the report shows Canada is lagging behind other leading nations and that investments in a number of areas have dropped since the last report in 2008.

Research and development performed by business in Canada is low when compared to international standards and it decreased between 2007 and 2009, the report said. Universities and governments are playing their part in investing and conducting R&D, the report suggests, it's the private sector that is falling behind and limiting Canada's overall innovation performance, the council said.

The federal government spent just under $6 billion in direct research and development funding in 2009, the report showed, but it also supports indirect funding through generous tax credits. About $3 billion was spent on R&D at government institutions and the rest was directed to universities, businesses and private non-profit organizations.

Canadian universities score well

The report isn't all bad news – it notes that Canada has a strong international reputation, is attracting new talent and doing well in higher education research. Canadian high school students are ahead of other countries in reading, math and science and the number of graduates in science and engineering, especially at the doctoral level, is growing quickly.

Canadian universities rank well among the world's top education institutions and the scale and quality of their research is impressive, the council said.

Peter MacKinnon, president of the University of Saskatchewan and a member of the council, said the federal government has made wise investments in new Canada Excellence Research Chairs and the Vanier Scholarships, examples of initiatives that are helping attract talent to Canadian universities.

"I think we've achieved some marvelous successes there," he said. "The talent through the public investment has been very, very substantial and the talent pool is deepening."

But the knowledge translation piece of the puzzle is still missing, MacKinnon said.

"We're struggling with it," MacKinnon said. "We need better means of collaboration and I think we're making strides there but we also need, the report notices, a greater business investment in research and we need to take into account particular portfolios like machinery and equipment and information technology."

It takes a good plan and an integrated system to move ideas from imagination to the marketplace, the report noted.

The council is encouraging the use of "clusters" to foster more collaboration and enhance Canada's innovation performance.

When small and large companies, governments, and research institutions in the same geographic area partner together and both compete and cooperate with each other, they can increase productivity and attract more venture capital, according to the council.

"The participation of innovation-intensive companies in such clusters and the active collaboration of the research and business communities will help ensure that Canada's world-class research can be successfully commercialized for the benefit of this country," the report said.

Smaller companies full of innovation opportunities

Another way to boost innovation is to pay more attention to small and medium-sized businesses (SMEs) and help them build on their strengths, the council said. Larger companies are doing well at adopting new technologies that can boost productivity and innovation and are tapping into the Internet commerce market but smaller companies are having a harder time.

They can also help with the knowledge transfer problem, the council said, if new talent coming from universities are deployed to SMEs. Support from government and universities can help achieve that, the council members said.

Howard Alper, chair of the council, said other countries are doing better at making use of young talent and that's helping transform small businesses into bigger ones.

"That's a major challenge for us, is how to position Canada to better advance in terms of developing new leading companies from small, medium enterprises," he said.

Upcoming report looks at government funding

The federal government launched a science and technology strategy in 2007 specifically to make sure Canada could compete with global economic leaders. Tuesday's report does not provide an evaluation of it but MacKinnon said the discouraging results should not be taken as a sign the strategy is failing.

"I don't think it's a case of something going wrong I think it is a case of a lot more work to do," he said.

The federal government appointed an expert panel last year that will release a report this fall. It will take a closer look at how public funds can be better used to help the country cash in on its innovation and the council said the upcoming report has the potential to reshape government programs.

The Conservative government issued a statement following the release of the report saying it points to areas where it needs to focus its attention.

"Making sure that Canadians have every opportunity to get their ideas from the labs to the marketplace is critical for Canada's future economic growth," said Gary Goodyear, minister of state for science and technology.

Goodyear said the State of the Nation report, along with the upcoming expert panel report, will provide the government with "important advice as we continue to implement the science and technology strategy and seek ways of maximizing the results of private sector innovation."