From curiosity to wealth creation: how university research can boost economic growth.

Author:Howitt, Peter
 
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Innovation and productivity are at the forefront of the Canadian public policy agenda. Governments should improve the incentives for universities and their researchers to pursue research lines that can eventually be commercialized.

THE STUDY IN BRIEF

Technological and scientific research are crucial to long-term economic growth. Canadians are three times as rich today as 50 years ago thanks to new products and processes. The source of technological innovation is research and development (R&D), most of which takes place in the private sector of the economy.

University research, however, is the source of the basic building blocks of many of the core sectors of the economy, in everything from information technology to pharmaceuticals to much more. It is crucial for economic growth that the innovations that occur at Canadian universities get commercialized and find their way into the rest of economy.

Canadian universities lag behind their US counterparts in generating technology transfer between academic research and companies. With innovation and productivity at the forefront of the Canadian public policy agenda, it is crucial that governments create the right incentives for university researchers to pursue research that can eventually be commercialized.

Rather than governments directing researchers to pursue business-related research, the overarching priority for Canada should be to attract the best researchers in the world. Though it may seem paradoxical, the evidence supports the view that the greatest benefit to society will come from scientists for whom practical utility and individual financial reward are minor considerations. The best way to attract such scientists to Canada is to redirect our research support towards the problems that are most challenging from a scientific point of view, not towards those that bureaucrats view as most likely to lead to commercial success.

Although the federal and provincial governments are taking steps to encourage the commercialization of research, they should go further by:

* requiring that all federally funded research papers appear in open access online repositories;

* developing a template available to all university researchers that outlines the terms of commercialization such as intellectual property rights or revenues--between universities, researchers and their business partners; and

* building on recent reforms to the National Research Council that make it more business-oriented, but with the eventual goal of making it a pan-Canadian technology transfer institution, leaving federal funding for research to granting organizations.

Since business R&D has been falling as a share of the Canadian economy, and is a critical input to the commercialization of university research, it is also important that Canadian governments take measures to encourage Canadian businesses to invest in the commercialization process.

Technological progress is the ultimate source of long-run economic growth. It is what makes the average Canadian three times as rich today as 50 years ago.

We are richer not because we produce more typewriters, black and white television sets and rotary-dial telephones, using the same processes as 50 years ago, but because we have invented new products and processes. We now have jet airliners, high-definition televisions, computers and automatic teller machines; we have discovered new production processes, like lean manufacturing techniques and just-in-time inventory management that produce and deliver goods more efficiently than before; and we have made medical advances like laser surgery, organ transplants and angioplasty that enable us to live longer and healthier lives.

The source of these technological innovations is research and development (R&D), most of which takes place in the private sector of the economy. But business R&D is not the whole story. University research also plays an important part in the innovation process, through a variety of channels. For example, researchers at universities were the first to develop a great deal of medical, engineering and computer technology. In addition, many scientific discoveries that originate in basic university research ultimately find their way into new technologies, as when breakthroughs in biology lead to new methods of genetic engineering, or when advances in solid-state physics make it possible to design faster processors for computers.

Indeed, university research is at least as important as private R&D in many sectors. According to Cockburn and Henderson (2000), hardly any of the major drugs that have come onto the market since 1965 have resulted from private research alone; university researchers undertook most of the basic research, discovered many of the new molecules, and conducted many of the clinical trials. Likewise, teaching hospitals connected to universities are the source of most new surgical procedures. University research was also the source of almost all the basic building blocks of our information age, from the basic architecture of digital computers through the development of the underlying protocols of the internet. And many of the firms that pioneered modern information technology were spinoffs from universities like MIT and Stanford. These firms combined to create networks, in Route 128 and Silicon Valley, whose innovations are responsible for much of the productivity growth we have experienced in North America in the past quarter century. (1)

This Commentary analyzes the process of technology transfer--the process through which university research contributes to technological progress and economic growth--from the viewpoint of the modern theory of innovation-based economic growth and in the light of academic research on the topic of technological change. It shows that Canadian universities lag behind their US counterparts in generating technology transfer, and suggests measures that might be taken, by businesses, universities, provincial governments and federal granting agencies, to increase the contribution that university research makes to Canadian economic growth.

More specifically, Canadian businesses should devote more resources to research and development so as to play their role in the technology-transfer process to the extent that businesses do in the United States. To encourage this, the federal granting agencies should set a higher priority on creating a research environment that will attract the very best scientists and engineers to work in Canadian universities. Universities and provincial governments should provide university researchers with access to a broader range of commercial and legal expertise in their interactions with business, and the federal government should:

* create an online repository providing open access to all federally funded research papers;

* develop a series of standard protocols to govern the sharing of commercialization revenues between universities, researchers and their business partners; and,

* implement the recommendation of the Jenkins report to the effect that National Research Council Institutes be reoriented towards fostering university/industry collaboration. Recent changes to the mission of the National Research Council to make it more business-oriented are a start, but further reforms would make it a pan-Canadian technology transfer institution, leaving federal funding for research to granting organizations.

UNIVERSITY RESEARCH IN CANADA

Canada spends billions of dollars every year on university research. In 2011, for example, our expenditure on higher education R&D (HERD) was $11.4 billion, which was 38 percent of total Canadian R&D expenditure, or 0.7 percent of GDR Most of this expenditure was publicly funded, either directly in the form of government sponsorship of research, or indirectly through grants to faculty research or support provided through the general funding of publicly supported universities. (2)

Over the past three decades, these expenditures have grown more than twice as fast as the overall economy. The percentage of Canadian GDP spent on research in higher education has grown from one-third of 1 percent of GDP in 1981 to two-thirds in 2011 (Figure 1).The rapid growth starting in the late 1980s reflects to a large extent increased federal funding. In 1989, the federal government adopted a science and technology policy for the first time, and began focusing on universities rather than government labs in the National Research Council (NRC) as a locus for scientific research. Eleven years later, the federal government also started the Canada Research Chairs program to support professors whose research is highly ranked, and also started funding Networks of Centres of Excellence. The Centres of Excellence in Commercialization and Research (CECR) program was started in 2007.

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About 30 percent of the public funding of university research is channelled through three separate granting agencies, namely the National Sciences and Engineering Research Council (NSERC), the Canadian Institutes for Health Research (CIHR) and the Social Sciences and Humanities Research Council (SSHRC). (3) Most of these agencies' budgets go towards funding individual and group research projects by university faculty, although a significant amount of it also goes to supporting Canada Research Chairs, Networks of Centres of Excellence and Centres for Excellence in Commercialization of Research.

The most highly rated Canadian universities are all engaged in significant amounts of research. All of them have a technology transfer office (TTO) that provides assistance for faculty members seeking to partner with private business in their research, to get funding for their research, to gain intellectual property (IP) protection for discoveries coming from their research, and to start up businesses based on technologies they have developed. TTOs help to decide which discoveries are worth patenting and then assist in the filing...

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