Chrystia Freeland receives a standing ovation as she delivers the federal budget.

Canadian finance minister Chrystia Freeland introduced the country’s federal budget on 7 April.Credit: Canadian Press/Shutterstock

The Canadian government has announced that it will invest Can$1 billion (about US$780 million) over the next five years to create a funding agency focused on innovation in science and technology. The unit will buck a trend of countries trying to replicate the renowned US Defense Advanced Research Projects Agency (DARPA); instead, it will be modelled on innovation agencies in Finland and Israel. But some critics say that this strategy might not be a good fit for Canada, which is seeking to improve its poor track record of innovation.

The country has long lagged behind its peers, ranking last in the G7 group of wealthy nations in terms of business spending on research and development (R&D). Canadian businesses invest just 0.8% of the country’s gross domestic product in R&D, compared with the G7 average of 1.6%.

“This is a well-known Canadian problem — and an insidious one,” said finance minister Chrystia Freeland in her 7 April speech setting out the fiscal year 2022 federal budget, which authorizes the agency. “It is time for Canada to tackle it.”

The budget also includes a number of other innovation measures, including a Can$15-billion Canada Growth Fund aimed at stimulating private investment in low-carbon industries and restructuring supply chains. “There must be about 20 points [in the budget] that are there to drive innovation,” says Alain Francq, director of innovation and technology at the Conference Board of Canada, a think tank based in Ottawa.

A pile of experiments

This is not the first time Canada has tried to tackle innovation. “There has been a pile of innovation experiments over the past decades,” says Paul Dufour, a senior fellow at the Institute for Science, Society and Policy at the University of Ottawa.

The most recent created the innovation ‘superclusters’: five industry-led public–private collaborations scattered around the country that focus on specific areas, such as artificial intelligence and ocean-based technologies, in which Canada is globally competitive. Established in 2018, the superclusters have had mixed success so far, but were awarded Can$750 million in the fiscal year 2022 budget to continue their work for another six years.

Although officials have not yet finalized the details of the innovation agency, it will differ from the superclusters, says Dan Breznitz, co-director of the Innovation Policy Lab at the University of Toronto, who is advising the government on its design. The superclusters are in specific regions of Canada and focus on certain industries, he says, whereas the innovation agency will have a national focus and support a wide range of industries — from high-tech start-ups to resource-based industries such as forestry.

The Canadian government plans to announce more details about the agency before the end of the year, after further consultations with stakeholders.

Breznitz envisions a “nimble, fast-moving, independent organization that is deeply engaged with business”. He says it should respond more quickly than government bureaucracy — in the same way that the Israel Innovation Authority (IIA) can give an answer on funding applications within about ten weeks — and it should be at arm’s length from government so that projects are given space to fail.

Next to the IIA, the Finnish Funding Agency for Technology and Innovation (TEKES) makes another good model for the Canadian agency, Breznitz says, because 30 years ago, the problems facing Finland were “eerily similar to the problem Canada has now”. Finland spent less on business R&D and depended on selling natural resources to a large neighbour — Russia — just as Canada is currently dependent on the United States, he adds. But Finland has since “moved to being one of the most innovative countries in the world, not just in new industries, but old ones, too”.

He credits the IIA and TEKES with helping the Israeli and Finnish business sectors to rise to the upper ranks of the global league tables on R&D spending, creating new companies, products and jobs.

Steering away from DARPA

Not everyone is convinced that the Finnish or Israeli model will work in Canada, however. Canada’s big businesses tend to be conservative, and are difficult to motivate when it comes to R&D spending. “For any of this to work,” says Dufour, the new agency “needs leadership from the private sector”. He adds: “I’m not sure we’ll have that here, like in Finland or Israel.”

Canada is also a very different country: bigger than either Israel or Finland, both geographically and in population, and with stronger regional governments that sometimes make collaboration at the national level difficult, says Alex Usher, president of Higher Education Strategy Associates, a consultancy based in Toronto. A big part of the success of the IIA and TEKES comes from playing matchmaker with university researchers and businesses to form partnerships that can develop ideas and then take them to market. Canada might be too big to do that quickly, he says, and its businesses don’t necessarily think about universities as innovation partners.

Even so, Usher adds, the current path is more appropriate than cloning DARPA, the vaunted US innovation agency that gave rise to GPS and the Internet. Many countries, including the United States, have attempted to replicate DARPA in a variety of fields, but few have seen much success.

A lot of DARPA’s prosperity comes from the deep-pocketed US Department of Defense buying its inventions — something that isn't replicated in Canada and other countries, Usher says. And Breznitz points out that DARPA mostly generates inventions, rather than commercializing them. So even if a DARPA clone did generate inventions in Canada, it wouldn’t fix “our critical problem” of making money from them, he says. Breznitz is widely credited with killing the DARPA idea in Canada and steering the government towards a model that helps companies to develop technologies and take them to market quickly.

But he says the most important move has been getting the government to acknowledge that it has a role in fixing the failure of Canadian businesses to invest in innovation. “We’ve been stuck in this horrific equilibrium,” he says. “And it’s up to the government to change it.”

That change will not come quickly. “If you want to fix a system failure, that’s not something you change by next year,” Breznitz says. “But in a decade, you might look back and say, ‘Wow.’”