We face serious challenges in research and higher education in laying claim to title as an ”œinnovation nation,” the thematic of this issue of Policy Options. My main message? There is no room for complacency. We know that the knowledge revolution has changed the world. How? Let’s begin with a few facts.

As stated in box 1, the growth in global expenditures on R&D is outpacing economic growth, and the number of people earning higher education degrees is expanding rapidly. The facts show that innovation drives economic growth in industrial countries, and it is rapidly becoming the engine for many up-and-coming economies. According to the OECD, innovation accounted for two-thirds to three-quarters of economic growth in Austria, Finland, Sweden, the United Kingdom and the United States between 1995 and 2006.

The same report noted that innovation accounts for much of the gap between advanced and emerging countries. But with the huge focus on R&D and higher education in many Asian economies, the label ”œemerging” will not stick for long. Singapore has ”œemerged” to become the number one country in the 2010 IMD World Competitiveness scoreboard (box 2), bumping the United States out of its number one ranking into third place. And in the 2010 World Economic Forum Global Competitiveness Report, the United States, which already lost the top spot to Switzerland in 2009, dropped to fourth place, outranked by Switzerland, Sweden and Singapore, in that order.

Consider China (box 3). In 2009, China usurped Japan to become the world’s second-largest economy. Japan’s lagging performance is a large part of that story, but there’s no denying China’s impressive growth. Also, and to state the obvious, 2009 was not a great year for the advanced economies, being the year of the Great Recession. Still, the Chinese economy grew by nearly 10 percent, while the G7 economies all contracted in the steepest global synchronized recession in 60 years. Innovation and competitiveness are driven by a well-educated population, a sustained, effective investment in fundamental research and a commitment to R&D&D: research, discovery and dissemination (development). China’s massive investments in these are showing results, as is evident in box 4.

The number of Chinese people obtaining a tertiary education grew nearly fourfold in just nine years. According to the UNESCO Institute for Statistics, China’s tertiary graduation numbers were 1,775,999 in 2000 and 7,071,047 in 2009. In 2007, China also took the number two spot for volume of research articles published. Who ceded that title to China? Japan. Gross expenditure on R&D (GERD) grew in China from 0.6 percent in 1996 to 1.5 percent in 2007. Growing GERD by 250 percent is pretty impressive, even if the starting point was fairly low. But factor in average growth of 12 percent annually in China’s GDP, and you begin to see the formidable strides it has taken. To put this in perspective, China’s GERD is rapidly approaching Canada’s, which sits at 1.9 percent.

Indeed, as box 5 illustrates, all the BRIC countries " the emerging economic powers of Brazil, Russia, India and China " tripled their production of scientific articles in just over a decade. In approximately the same period, the US share of publications dropped from 25 percent to 18 percent. In 1980, people from developing Asian economies accounted for 14 percent of the people who completed tertiary education worldwide. In 2000, those same countries were home to 25 percent of degree holders. And in 2006, Brazil, Russia, India and China produced half as many doctorates as all 30 OECD countries combined. The time when non-Western scientists had to partner with prominent Western scientists before achieving international acclaim is over. In the coming years, we are likely to see the situation reverse.

In some respects, nations are just like individuals. It’s clear that innovation and the education that equips people to innovate are key to progress. But they’re also essential for staying ahead. We can see this in the policy changes of the European Union, which is striving to raise R&D to 3 percent of GDP. The EU is working to make its universities more autonomous, more entrepreneurial and more accountable and, therefore, higher performing.

Now for an overview of Canada’s recent innovation story. In the early to mid-1990s, having been for decades highly productive with highquality science and education, Canada began to lag in research, while the US was leaping forward. Canada experienced an alarming ”œbrain drain,” not in numbers per se, but in having many of its brightest minds lured stateside. Talent goes where the opportunities are, and Canada was simply no longer compet-

itive to top talent in key fields. Compounding the challenge of a growing federal deficit, Canada lacked a national strategy for education and research. Education is a provincial responsibility in Canada, and research is dominantly a federal domain. Provinces have long favoured a largely unitary approach to university funding: a one-size-fits-all approach that doesn’t recognize or encourage differentiation by institution on the basis of excellence. And in these years of the mid-1990s, most provinces sharply reduced university grants. (I could also go on about how Quebec universities are underfunded as to their real needs because student tuition fees are less than half what they are in Ontario, but that’s a story for another day.)
Times were bleak. Fortunately, with the emerging impact of the dawn of the knowledge era, and the loss of some top performers, Canada’s federal and provincial governments awoke to the urgency of supporting high-quality research and, in some cases, education.

In 1996, with its economic house getting back on track, the federal government, in collaboration with university and industry leaders and advisory groups, formulated a new R&D strategy " one focused on ”œthe creation of a more effective, integrated innovation system.” The federal government reimagined its role as ”œthat of information analyst, knowledge disseminator and network builder.”

This paradigm shift (see box 6) brought with it substantial investment in universities targeted to support four proven ”œpillars” of research excellence:

  • well-prepared people,

  • infrastructure,

  • research operating support and

  • a new program in indirect research cost recovery.

These programs, along with funding from Canada’s federal granting councils, represent well over $20 billion of federal investment in university research since 1997. The programs balance the strategic economic objectives of government with increasingly rigorous peer review that fosters excellence and impact by international standards. Many encourage collaboration across institutions and sectors, a great benefit to a country with a very large geography and a small population.

In a visionary move, the federal government created the Canada Foundation for Innovation to address the burgeoning need for large, coordinated investment in research infrastructure. That investment was recently augmented with $2 billion of stimulus funding through the Knowledge Infrastructure Fund.

Talented people are the cornerstone of the Canadian strategy: 20 Canada Research Excellence Chairs, competitive support for graduate students and postdoctoral fellows, and 2,000 Canada Research Chairs "which on a per capita basis would scale to the equivalent of 20,000 endowed chairs in the US.

From 1997 to 2007, federal investments in university research began to make up for the lost years, growing by an average of 11 percent annually. The ”œbrain drain” was halted. Indeed, in the past decade alone, McGill, for example, has recruited over 930 outstanding new tenure-track researchers and professors " that’s over half of our tenure-streamed faculty " on the basis of worldwide competitive searches. In 2010, four Canadian universities earned a spot in the top 100 of the QS World University Rankings, with McGill leading at 19th. Importantly, the focus on building Canada’s innovation capacity has been sustained through changes in government.

It’s a moving story, but our progress is still fragile. And we are not an island. We are connected in so many ways to our American neighbours. As President Kennedy famously said half a century ago, in his speech in the House of Commons: ”œGeography has made us neighbours; history has us friends; economics has made us partners and necessity has made us allies.”

I was recently appointed a member of the new US National Research Council Committee studying research universities, which is examining ”œthe top ten actions that [we]…could take to assure the ability of the American research university to maintain the excellence…needed to help the United States compete, prosper, and achieve national goals for health, energy, the environment, and security in the global community of the 21st century.”

My research on the US and Canada, as a member of this committee and of Canada’s Science, Technology and Innovation Council, shows that the details of the innovation challenges of the two countries vary somewhat. But we are bonded, not just by geography, not just by shared history, but by a basic, stark reality: we’re stagnating, while others are racing ahead.

The US is still a giant " by far, the world’s largest R&D-performing nation. But giants can fall. In the US, GERD peaked in 1964, when it was almost 3 percent. Consider the latest OECD rankings (figure 1). In 2007, the US sat 8th; Canada was 14th, behind the OECD average. Now let’s compare the growth of GERD for US, Canada, the UK and France with the growth of select Asian economies. Growth has flatlined in the US and many developed countries (figure 2).

The lines look like the prairies. In Asian economies the lines of growth over time in GERD look like the slopes of the Rockies (figure 3).

In Canada, GERD has dropped despite massive investment from governments and universities. Why? In 2008 Canada’s Science, Technology and Innovation Council authored the first multinational, comparative State of the Nation report to examine Canada’s innovation performance. We found the most urgent problem is that ”œCanadian companies do not invest as much as their competitors around the world in R&D,” though there is a lot happening at the top and the bottom of the scale. According to the OECD, the 25 largest R&D companies accounted for onethird of all domestic industrial R&D in 2009, and small Canadian research companies performed a far higher percentage of business R&D than their US counterparts.

But in the sizable middle of Canadian industry, R&D investment is thin. We not see this not simply as a private sector problem, but as a need for all partners in Canada’s innovation system to work more closely together. To quote the State of the Nation report, ”œWe have learned that…stimulating innovation requires sustained collaboration and a systemic response by different individuals and institutions in the innovation system working together.”

While US businesses expend an enviable $265 billion annually on R&D " the equivalent of Norway’s entire GDP " average annual R&D growth over the last decade was below the OECD average, and only one-seventh that of China’s businesses.

Despite the stories you sometimes hear about big-name innovators who never completed college or even high school, high levels of education are the key enabling factor for most 21st-century innovations. The US’s worrisome performance overall in primary and secondary school education " a condition shared by several Canadian provinces " is a sign of trouble to come, if not effectively addressed. And all of North America needs an action plan to mobilize boys to attain a higher level of education.

In tests of the performance of 15year-old students in 39 countries through the OECD’s Programme for International Student Assessment (PISA) (figure 4), the US ranked 18th in science of 39 countries, with 9 percent of American 15-year-olds considered top performers. Canada placed a respectable sixth. But Finland, the best-performing country, had more than 20 percent its 15-year-olds ranked as top performers.

In math, the performance was even poorer (figure 5). The US ranked only 27th, with less than 8 percent of students considered top performers. Hong Kong, China scored nearly 28 percent.

Canada leads the world in the percentage of combined community college and university graduates. But we lag far behind in university graduation (figure 6), particularly for PhDs " often the very people who drive innovation most.

The US, with its legendary higher-education system, now sits at 15th of 24 countries tracked by the OECD, and below the OECD average for rate of university graduation at 39 percent. And 11 of 24 countries tracked by the OECD boast graduation rates of 40 percent or higher.

In fact, university graduation rates in both Canada and the US have barely budged in recent years, while the OECD average graduation rate for universities nearly doubled from 1995 to 2007 (figure 7). And that doesn’t include the Asian economies. Think of it: 1995 to 2007, that’s just 12 years " I’m sure there are Senate debates that last longer than that. Finland soared from 20 percent to 48 percent. Switzerland went from 9 percent to 31 percent.

You may be thinking, ”œJust how many university graduates do we need? Isn’t 35 percent enough?” At one time, the answer would have been yes. But not today. In most countries, the percentage of younger people holding university degrees is significantly higher than the percentage of older people. Not so in the US, where the two groups have roughly the same levels of education. And international students received more than 50 percent of science and engineering doctorates awarded in the US since 2006. In 2007, international students received 68 percent of the American engineering doctoral degrees granted.

Clearly, there is much work to be done in building the ”œinnovation nation.” Acknowledging the seriousness of the global challenge would be a good beginning.