Mario Ostrowski is a researcher partnered with St. Michael's Hospital and the University of Toronto in pioneering AIDS research.
In his recent book The Great Stagnation, George Mason University economist Tyler Cowen suggests that much of the Western world's economic growth since 1973 has been illusory. Mr. Cowen argues that this is in part a result of reaching a plateau in scientific and technological development: most scientific and technological innovation since that time represents incremental improvement on existing discoveries and not new discoveries. These marginal improvements create marginal benefits as opposed to revolutionary change.
Coincidentally, in the recently released Jenkins Report on Innovation in Canada, the panel noted the stagnation in Canadian innovation and the relatively low returns on Canadian R&D funding. The practice of spreading money between a wide variety of research projects in all regions of the country rather than targeting the most promising research was cited as a potential cause, and a recent Globe and Mail report noted that significant tax benefits for R&D are being received by firms engaging in scientifically dubious work. Canada is content to incentivize the sort of research that will result in incremental improvements rather than entirely new discoveries.
The stagnant innovation noted in the Jenkins Report is not a uniquely Canadian phenomena, and may be a result of the increasing scientific expertise required to move beyond existing knowledge. Mr. Cowen believes that overcoming stagnation will require an increase in the social status of scientists relative to other professions, so that our best and brightest will not prefer law or finance or view university science and math as a prerequisite for careers in medicine or dentistry.
Perhaps there a is role for our government in stimulating groundbreaking research and increasing the status of scientists.
What if our government were to provide significant funding to support a small number of capital-intensive research projects that, if successful, could yield the sort of significant breakthroughs that lay the foundation for a return to robust growth? The Large Hadron Collider project in Europe is but one example. Funding this research may not necessarily yield immediate economic gains, but the subsequent practical applications of significant discoveries are what will result in an end to the stagnation in innovation.
Such funding would not take the form of a tax expenditure such as the SR&ED tax credit, but would instead be provided by direct transfers from the fisc. The recipients of this funding could be determined by Canada's leading scientists in order to minimize political interference, in a manner similar to the recent shipbuilding procurement process. This would avoid reliance on Canada's existing research-funding model, which is better suited to smaller grants for marginal improvements and commercialization rather than large transfers for theoretical advancements.
The costs of this research stimulus could be funded by an "innovation tax," which need not be a new tax at all. Rather, Parliament could increase the GST from 5 per cent to 6 per cent, and legislate that the difference between the expected GST revenues at 5 per cent and the realized revenues at 6 per cent be used solely for scientific research. This "innovation tax" would not impose additional compliance burdens on Canadian businesses, would be easy to collect and would take advantage of the relatively low marginal cost of funds for additional GST revenues. This 1-per-cent increase in the GST rate could raise revenues in the range of $6-billion per year.
The increase in funding for the most promising theoretical research should increase the possibility that a significant discovery can be made, and the publicity that will accompany the awarding of a grant should raise the profile of the scientists involved. Consequently, this proposed plan of action would not only kick-start current research, but also increase the output of future research as a result of an increased importance for scientists and scientific research.
Such a program must be combined with an effort by the government of the day to explain that there is no guarantee of success in advanced scientific research, and we must be vigilant to defend against small-minded commentators who will label the program a failure when immediate economic results or tangible breakthroughs are not attained. Like everything else in life, where there is a high reward, there is a high risk of failure.
Of course, government cannot go it alone. We cannot dictate an increase in status for scientists relative to other professions; the media, teachers and parents will play a large part. If Hollywood can make an interesting movie about tax lawyers ( The Firm), there is no doubt that it has the creativity to make a hit out of Einstein or Newton.
Mike Dolson is a lawyer with Felesky Flynn LLP.