Saturday, July 23, 2005

How Canada is falling behind in R&D

I love my country, but I don't love everything about it. And, right now, I'm somewhat ambivalent about the state of our political leadership. Same-sex marriage aside, we've got some problems, and one of them is that we're clearly falling behind both our G8 partners and up-and-coming powers like China, India, and Brazil in terms of R&D. Macleans blogger Paul Wells, who recently made his first appearance here at The Reaction, weighs in on a troubling (and under-reported, because nationally embarrassing) story here.

A country's commitment to R&D may be determined by calculating its GERD (Gross Expenditure on Research and Development, measured as a fraction of GDP). Currently, the U.S.'s GERD stands at 2.6%, Japan's at 3.2%. Both China and the E.U. are expected to be at 2.2% by 2010, but there was much hand-wringing going on in Europe when E.U. research commissioner Janez Potocnik announced recently that Europe's GERD had only increased by 0.2% from 2002-2003.

So what's the problem north of the 49th? Well, our GERD actually declined from 2002-2003, and, according to Wells, it has continued to do so. Paul Martin's Liberal government speaks proudly of our public-sector investment in R&D, but Canada's problem is relatively low private-sector investment in R&D. Now, this is hardly a problem that government is capable of addressing in any significant way (without further regulation of the private sector), and I'm not sure how Wells would solve it, but he may be right in his prediction that in this century "Canada will become more of a place where the new giants buy their steel and crude oil so the high-margin products of the future -- cities and machines and software and business processes -- get built elsewhere".

In other words, we're in trouble. We're falling behind because we're not investing adequately in the future -- and because our political leaders (both Martin and his opponents) simply aren't willing to address (and likely aren't even capable of addressing) the problem in any real way. For all the talk recently of Canada's paltry commitment to foreign aid, there won't be much room for foreign aid if our economy doesn't continue to expand. And that's not going to happen without a more serious commitment to R&D, both public and private.

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6 Comments:

  • This is a misleading analysis. Measuring R&D as a percent of GDP and then comparing rates is only stable if the GDP rates of the countries being compared are relatively the same.

    For 2002, GDP growth rates in France and Germany (the two largest countries in Europe) was slower than Canada's. Germany's GDP growth in 2002 was 0.4%, France's was 1.1%, U.K was 1.6 and Canada's was 3.4%. All figures according to IndexMundi (http://www.indexmundi.com/
    http://www.indexmundi.com/g/g.aspx?c=gm&v=66
    http://www.indexmundi.com/g/g.aspx?c=fr&v=66
    http://www.indexmundi.com/g/g.aspx?c=uk&v=66
    http://www.indexmundi.com/g/g.aspx?c=ca&v=66 )

    The only thing the GERD is saying is that R&D growth didn't keep pace with Canada's GDP growth. We're not "falling behind". The EU's economy sucks and their GDP growth rates suck.

    You can do the math yourself to figure out that Canada's R&D growth rate was actually higher than the EU's in a straight comparison of R&D without taking it as a percent of GDP.

    Misleading and dishonest.

    By Anonymous Anonymous, at 10:07 AM  

  • You're right that Canada's GDP has grown faster than that of some of our G8 partners (well, G7, if we take out Russia), but GERD must be tied to something in order to mean anything. Taken in absolute terms, GERD (spending on R&D) means what exactly? So what if a country's expenditurs on R&D have, say, doubled over the course of, say, two years? If that country's GDP has, say, quadrupled over that same period, then R&D investment clearly isn't keeping up with the economy as a whole. What GERD measured as a percentage of GDP tells us is what part of a country's economy is devoted to R&D. Canada's GDP may be going up -- and I agree that our economy has been quite good recently -- but our investment in R&D is going down relative to our overall economic performance.

    In addition, GERD measured as a percentage of GDP tells us to what degree a country is investing in the future and preparing for the next waves of technological progress. It's a statistic -- so it doesn't tell us everything and, like all statistics, it's open to criticism (I agree) -- but it's important, I think, to see how we measure both against ourselves and against other countries. A country with a high GERD/GDP is clearly a country that is investing heavily in the future. Israel, with its heavy emphasis on high-tech industries, is a good example, as are Sweden, Finland, and South Korea. A country with a low one is clearly a country that is losing ground and not investing enough in the future. New Zealand, Italy, and Spain are good examples. No, this doesn't mean that they're not investing at all, it just means that they're investing less than the more forward-looking, R&D-heavy countries.

    Canada is somewhere in between the Swedens at the top and the Spains at the bottom (of developed countries). There is solid R&D investment in this country, especially by the public and university sectors, but our private sector is clearly where the problem lies -- Australia has the same problem.

    I've been doing some additional research on GERD, and I'll post something later to expand on these comments.

    By Blogger Michael J.W. Stickings, at 12:26 PM  

  • Michael,

    the proper statistic to use would be R&D expenditures per capita. Just like GDP per capita.

    If you did that then Paul Wells couldn't argue that "Canada's doing a lot worse than Europe" and you couldn't say we were "falling behing" because we're actually ahead of all large EU countries and you wouldn't say and it's "nationally embarrassing" because it's not in fact at all.

    For example, you mention South Korea but South Korea's GDP per capita is only 60% of Canada's GDP per capita. Correspondingly, they could have a GERD off the chart but the actual R&D per capita would still be below Canada's.

    With just a cursory look at the data, the only country with its act together seems to be the U.S.

    It is the only country ahead of Canada in GDP per capita that also has a larger population than Canada's and the U.S also has a higher R&D per capita as well.

    All large EU countries, Japan, and Australia have a lower GDP per capita than Canada.

    If you are researching GERD and R&D then it would be useful to put together a R&D per capita table before drawing any conclusions. (I was unable to find such a table myself in a quick search).

    Don't go off the deep-end.

    By Anonymous Anonymous, at 5:55 PM  

  • I've just posted a second piece on GERD/GDP. You make some good points, however, and I'll look more into GERD per capita. Let me know if you find anything.

    By Blogger Michael J.W. Stickings, at 6:27 PM  

  • My long, cranky answer to "Observer" is in your other posting on this topic. Here I'll just say that for anyone looking for various indicators about all of this stuff, an OECD publication called "Main Science and Technical Indicators" offers one-stop shopping.

    By Anonymous Anonymous, at 11:28 PM  

  • By Blogger haydar, at 10:32 AM  

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