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PEARL and BERD

February 23, 2011

A couple of things on my mind today:

The Globe and Mail published an editorial today raising concerns about the likely closure of PEARL (Polar Environment Atmospheric Research Laboratory), Canada’s northernmost research station. Located in Eureka, NU, PEARL houses atmospheric research instruments and researchers whose work is at the forefront of efforts to understand arctic atmospheric science and global climate change. PEARL is in jeopardy due to the termination of federal funding to a major supporter, the Canadian Foundation for Climate and Atmospheric Sciences (CFCAS), in the most recent budget. CFCAS activities will wind down this year, and unless PEARL can replace the roughly $1-million in annual operating costs provided by CFCAS, the centre will likely need to shutter. The Globe editorial draws a link between closing PEARL and eliminating the long-form census, arguing both eliminate the ability to track and analyze long-term trends with rigorous data.

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An astute and helpful reader brought to my attention a very interesting policy paper (.pdf here) prepared by Ron Freedman, partner at the Impact Group. Freedman looks at our innovation anxiety from a fresh perspective, and suggests that our concern may be unnecessary. Freedman looks more closely at Canada’s so-called “BERD Intensity Gap” and discovers that Canada may not be lagging in the way the statistics suggest. BERD (Business Enterprise Research and Development) is a crude measure of a nation’s innovation insofar as it describes the amount of industrial R&D spending as a proportion of GDP. Canada’s poor performance in BERD spending was highlighted in the Council of Canadian Academies 2009 Innovation report, lamenting that Canada’s poor performance (14th of 20 OECD countries) hadn’t changed in more than 25 years.

But Freedman looks at the numbers more closely and points out that BERD intensity in both Ontario and Quebec, the centre of Canadian industry, is at the OECD average. He also points out that if our industrial structure were normalized with the US, Canada’s BERD intensity would equal its neighbour. He has two conclusions:

  1. our industry-focused economies do not suffer from a BERD intensity gap, and
  2. the economies of the other eight provinces are more resource-focused, which makes them less BERD-intensive by nature.

The second point receives more attention, and provides further argument that our BERD-intensity gap is overblown. First, despite their low-BERD nature, Canadian resource industries are more BERD-intensive than their American counterparts. Second, since BERD is a measure of R&D spending divided by GDP, it is subject to the “denominator effect”. That is, the more successful our resource industries are (and the higher commodity prices go), the higher GDP goes, and the lower BERD intensity becomes.

There  is a lot of interesting information in the relatively short document, including implications for Canadian policy. It certainly gave me pause for thought, and highlighted the challenges in comparing complex entities like national economies and the pitfalls in trying to measure something as nebulous as “innovation”.

2 Comments leave one →
  1. SpongeBob permalink
    February 24, 2011 20:04

    This document highlights the fact that Canada might be on average in terms of BERD but still lags in terms of innovation. This means that despite our efforts – paid for by companies, but also by tax payers supporting the tax cuts related to investments in R&D – we do not see the impact on the Canadian economy.
    Let’s now consider the fact that some companies, like Merck-Frosst, had great successes in R&D, leading to products like Vioxx – OK, not a perfect example – and Singulair, developed in Montréal. Were these drugs marketed from Canada? No. The same applied in the ‘70s in the petrochem industry. Most of the R&D performed in Sarnia was commercially deployed from the US. This could explain part of the innovation gap compared to the BERD

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