Knowledge Impact Requires Impact Investing

In this article we continue examining Canada’s position in the global innovation using metrics developed by WIPO with a particular focus on the Knowledge and Technology Output indicator.?(In our previous article, “Canada in the Global Innovation Index (GII), 2011-2021” a historical performance of Canada was presented.) The historical trends of the Knowledge and Technology Output indicator for Canada among world 130+ economies are shown in the embedded Figure in yellow dotted line. It fluctuates between 19 and 23 position.?

As the name suggests, the indicator aims to capture the results of innovation inputs, activities and investments within the economy. It covers three attributes that are traditionally thought to be the fruits of innovation: Knowledge Creation (blue), Knowledge Impact (gray) and Knowledge Diffusion (orange) also shown in the Figure.

Knowledge Creation currently includes five indicators that are the result of inventive and innovation activities: patent applications filed by residents both at the national patent office and at the international level through the Patent Cooperation Treaty; utility model applications filed by residents at the national office, scientific and technical published articles in peer-reviewed journals and citable document H-index. All indicators have equal weight. Both patent application indicators (national and international) have been noted as “weakness” for Canada from 2011 to 2021 indicating very low scores in this activity. Hence, Knowledge Creation score is mostly coming from a high quantity of publications and high citation index (H-index) that Canada has managed to keep at high levels. For a few years, the score in the citation index has been marked as “strength” for Canada.

Knowledge Impact can be thought as a materialization of knowledge creation. It is based on five statistics representing the impact of innovation activities at the micro and macroeconomic level: increases in labor productivity, the entry density of new firms, the number of certificates of conformity with standard ISO 9001 issued, the fraction of high-tech manufacturing out of total manufacturing and spending on software. Out of 5 statistics, only software spending has been repeatedly marked as “strength”. Two other indicators, new firms and ISO certification have been marked as “weakness”. It should be noted that scores in labor productivity and high-tech manufacturing also indicated a far from adequate performance. ?

Knowledge Diffusion includes four statistics all linked to sectors with high-tech content or that are key to innovation: intellectual property (royalty and license fees) receipts as a percentage of GDP; high-tech exports as a percentage of total exports; exports of computer, communications, and other services (ICT) as a percentage of commercial service exports; and production and export complexity. Two parameters, ICT services export and production and export complexity have been repeatedly marked as “weakness”. Ranking in intellectual property receipts has been gradually deteriorating with time.

While not presenting historic performances of all specified statistics, we've attempted to capture the major trends and contributors for all three indicators. Measuring innovation is an extremely difficult task and no metrics is perfect. In some years, new performance indicators were added into WIPO classification. Also, global ranking not only depends on developments and growth in Canada, but changes in other world economies competing in innovation. What we can make of the numbers depends on us. We can always say that our strong and sustainable performance has not been accurately captured in the presented metrics. And that would be right but will trap us in the vanity metrics. To be constructive, we can acknowledge the problem. It would be a big step in a right direction.

Canada invests a lot in innovation. Since 2011, Canada has always been in the top 10 economies ranked high by innovation investments. Somehow, translation of these inputs into innovation results or outputs hasn’t been very efficient. The chart below (Source: WIPO report, 2021) shows the relationship between innovation inputs and innovation outputs for 130+ world economies with Canada being marked. Dots represent economies and the solid line is the trend line showing the expected performance. Innovation underperformers are grouped below the trend line. The interpretation is simple: a proportional outcome is expected from a certain input.?

Deep-tech is called sometimes “hard-tech” for a reason. Hard to build, tough to commercialize, hard to invest. However, deep technology builds deep foundation for the future. Seems like a paradox: everybody needs it, but nobody wants to pay for it… For deep-tech industry, it can easily take more than 10 years for technological advances to be widely adopted, create jobs, enhance economic productivity and improve people’s prosperity, health and well-being. It doesn’t fit a typical timeline of VC investors thus making deep-tech companies less attractive for VC investment.

The analyzed time span of 10 years may be relatively short to notice the impact of deep-tech. Rather, it should be viewed as a snapshot of Canada reflecting our current standing. The core of the technology sector is deep-tech. Not to invest into deep-tech today means not having the future. Yes, there will be a future but not the future we want for Canada.