Just what is productivity, and why does it matter?

Kevin Lynch and Munir Sheikh outline a prescription for fixing Canada's innovation woes in an op-ed in today's Globe and Mail. The piece is a shortened version of their recent article in the Policy Options September 2011 edition on "Innovation Nation." Their premise is a good one: "Innovation can be thought of as the process by which successful firms understand this dynamic [constant change in world markets], change, adapt and modify their products, processes or concepts of markets to take advantage of the changing environment" (p.1). Low business spending on R&D accounts for our low productivity and that "productivity growth is the dividend produced by innovation" (p.2). Importantly, they also posit "the crucial point that productivity growth is as much a social issue as an economic one because it defines our aggregate living standards" (p.2). There is also a weak understanding in firms of how productivity is measured and impacts firm performance: "The challenge with multifactor productivity as an explanatory framework is that no firms sit down and establish a multifactor productivity strategy; they have no idea what it is" (p. 4). Indeed, research done at George Brown College shows a very weak understanding in local firms of the relationship between productivity and innovation.

All of this is not news, but Lynch and Sheikh do point out that we need to foster better upstream investment in R&D rather than downstream tax incentives. More direct support for innovation in firms rather than tax incentives after the fact is a better way to incentivize firms to spend on R&D. This is precisely the point of the College and Community Innovation Program, administered by NSERC, that is funding college applied research efforts. The CCIP is showing positive effects in prompting R&D investment in firms who partner with colleges and polytechnics to address innovation gaps and needs. Applied research conducted in concert with student learning gives our students innovation literacy and entrepreneurship skills. The CCIP is a small but positive step in the direction of fostering greater firm-level innovation and R&D spending. Analysis and evaluation of the program's effects and effectiveness will lead to fine tuning and iterative improvements. But certainly in George Brown College's experience we have enjoyed positive interactions with industry partners who access faculty and students in an effort to get new products and processes to market. With college applied research accounting for about 1.5% of total public investment in R&D, this is an excellent return on investment. It is also an excellent return on Innovation that increases industry R&D spending and our collective capacity to innovate, leading to improved social and economic productivity.