Who is to Blame for Canada’s Innovation Gap?

Innovation Stock Photo

By Maura Forrest

March 27, 2014

It’s hardly news that Canada is lagging in innovation.

For years, the Conference Board of Canada has warned that Canadian innovation is not keeping pace with the nation’s competitors. Canada is currently ranked 13th out of 16 peer countries in terms of innovation. And in 2013, the government’s Science, Technology and Innovation Council found that Canada ranked 25th out of 41 economies for business investment in research and development.

Now, a Toronto Star opinion piece has pointed the finger squarely at the Canadian government. Economist Mariana Mazzucato argues that policies to liberalize trade and investment in this country have done more harm than good. She writes that “it is only those countries that have substantial public finance in place that can direct support to emerging technologies."

So how does innovation in clean technology compare to the overall trend?

There is certainly room for government to take a more proactive role in Canadian clean tech. A lack of long-term government policy was listed as one of the major challenges facing clean energy entrepreneurs in a 2013 Pembina Institute report. Many businesses recommended a national carbon pricing strategy to boost investment in innovative technology.

But when it comes to clean technology, attracting venture capital may be just as important as public policy.

The most recent Canadian Clean Technology Industry Report found that venture capital accounted for more than 40 per cent of total equity funding, while crown corporations contributed just five per cent.

The Pembina report concluded that businesses struggle to access capital because “they are both high risk and have high capital needs." And venture capital investment in clean technology is down from $599 million in 2010 to $216 million in 2013. Without more support from government or the private sector, innovation in Canadian clean technology could stagnate.

Still, there is some reason for optimism. The 2013 federal budget committed $325 million of additional funding to Sustainable Technology Development Canada, a fund that has helped spawn a number of clean tech companies.

And venture capital investment increased slightly in 2013 from $156 million the previous year. If that trend continues, Canada could improve its standing in clean tech innovation on the global stage.