Higher Education Strategy Associates

Tag Archives: Research and Development

September 13

Some Curious Data From OECD Education at a Glance 2017

The OECD put out its annual Education at a Glance  publication yesterday.  No huge surprises except for the fact that they appear to have killed one of the most-used tables in the whole book (A.1.2, which compared tertiary attainment rates for 25-34 year olds by type of tertiary program – i.e. college v. university) which is an enormous bummer.  The finance data says what it pretty much always says: Canada is the #2 spender overall on higher education at 2.6% of GDP (just behind the US at 2.7%).  If you read my analysis last year, the story is still pretty much the same this year.

But there are some interesting nuggets buried away in the report nevertheless – stuff that other media won’t pick up.  I thought I would highlight two of them in particular which pose some thorny questions about Canadian statistical data and what we think we know about higher education.

Let’s start with the data on expenditures per pupil at the tertiary level.  Figure 1 looks at costs in Short-cycle Tertiary Education (meaning career-oriented, which in Canada’s case means community colleges)

Figure 1: Total Expenditures per Student, Colleges (or equivalent), Select OECD countries

Among major countries, Canada spends the most (from both public and private sources) on college or college-equivalent student.  A couple of countries actually do outspend us (the Austrians and – totally out left field – the Czechs), but the important point here is that our expenditures are nearly 40% above the OECD average.  And if you’re wondering why the UK and the US aren’t there, it’s because the former has no college equivalent and the latter chooses to not to report on colleges on the batshit crazy spurious grounds that even if you’re studying for a (college-equivalent) associate’s degree, the fact that this can be laddered up into a full bachelor’s means everything is really degree-level.  Nonsense, I know, but there we are.

Now, let’s do the same with universities:

Figure 2: Total Expenditures per Student, Universities, Select OECD countries

There’s not much in figure 2 we didn’t already know: US and Canada in terms of total expenditure per university student at the top with us over 50% above the OECD average and Korea way down at the bottom because the Koreans do everything in higher ed on a shoestring.

Now, one new little detail that OECD has added to Education at a Glance this year is that it splits out the portion of total expenditures (that is combine short-cycle and degree-levels)  which are devoted to R&D.  And this data is a little odd.

Figure 3: Total R&D Expenditures per Tertiary Student, Selected OECD Countries

There’s nothing obviously egregiously wrong with figure 3 – except for the data on the USA, which is bananas.  Read literally, it suggests that Canadian universities on average spend twice as much on R&D as American ones do and that’s simply false.

(The explanation, I think, is that Canada and possibly some other countries claim that all professors’ time spent on research – notionally 40% of time or thereabout – counts as “R&D”.  Whereas Americans claim that their universities – which only pay staff for 9 months a year with the rest of the time notionally off for research – do not count time that way, preferring to claim that the government is buying profs’ time with research grants.  Basically, they view universities as mailboxes for cheques to pay for staff time and so all that time money gets claimed as government expenditure on R&D, not university expenditure on R&D.  GERD, not HERD, in the innovation policy lingo.  I think, anyway).

What’s actually a little crazy about figure 3 is that the denominator is all tertiary students, not just degree-level students.  And yet we know that R&D money is pretty heavily concentrated (98%+) in universities.  In a country like Germany where over 99% of tertiary students are in degree-level institutions, that’s not a big deal.  But in Canada, about a third of our students are in short-cycle programs.  Which means, if you do the math, that in fact the R&D expenditures per university student are a little ways north of $9750.  Now here’s figure 3 again, with just degree-level students in the denominator.

Figure 4: Total R&D Expenditures per University Student, Selected OECD Countries

And of course, subtracting these numbers means we can revisit figure 2 and work out total non-R&D expenditures per student in universities.  Canada still remains 40% or so ahead of the OECD average, but is now similarly that far behind the US in per-student expenditure.

Figure 5: Total non-R&D Expenditures per University Student, Selected OECD Countries

Now, to be clear: I’m not saying OECD is wrong, or Statscan is wrong or anything else like that.  What I’m saying is that there appear to be major inconsistencies in the way institutions report data for international comparative purposes on key concepts like R&D.  And that this particular inconsistency means that Canada at least (possibly others) look a lot better vis-à-vis the United States than it probably should.

Just something to keep in mind when making comparisons in future – particularly around research expenditures and performance.

March 27

Losing Count

Stop me if you’ve heard this story before: Canada is not sufficiently innovative, and part of the reason is that we don’t spend enough on research.  It’s not that we don’t spend enough on *public* research; adjusted for GDP, we actually do above-average on that.  What pulls us down is in international comparisons corporate R & D.  Our narrow-minded, short-sighted, resource-obsessed business class spends far less on R&D than its equivalents in most other country, and that is what gives us such a low overall R&D spend.

Familiar?  It should be; it’s been standard cant in Canada for a couple of decades at least.  And it gets used to argue for two very specific things.  There’s the argument which basically says “look, if private R&D is terrible, we’ll just have to make it up on the public side, won’t we?”, and where else to spend but on university research?  (Universities Canada used to make this argument quite a bit, but not so much lately AFAIK).  Then there’s the argument that says: well, since under the linear model of innovation in which public “R” leads to private “D”, the problem must be that public “R” is too theoretical on insufficiently focussed on areas of national industrial strength – and what we really need to do is make research more applied/translational/whatever.

But what if that story is wrong?

Last year, the Impact Centre at the University of Toronto put out a little-noticed paper called Losing Count. It noted a major problem related to the collection and reporting of R&D.  Starting in 1997, Statistics Canada adopted a definition of Research and Development which aligned with Canada’s tax laws.  This makes perfect sense from a reporting point of view, because it reduces the reporting burden on big corporations (they can use the same data twice).  But from a measuring Canada against other countries perspective, it’s not so good, because it means the Canadian statistics are different from those in the rest of the world.

Specifically, Canada since 1997 has under-reported Business R&D in two ways.  First, it does not report any R&D in the social sciences and humanities.  All those other OECD countries are reporting research in business, financial management, psychology, information science, etc., but we are not.  Second, work that develops or improves materials, products and processes, but that draws on existing knowledge rather than new scientific or new technological advances is not counted as Research & Development in Canada but is counted elsewhere.

How big a problem is this?  Well, one problem is that literally every time the Canada Revenue Agency tightens eligibility for tax credits, reported business R&D falls.  As this has happened a number of times over the past two decades, it may well be that our declining business R&D figures are actually a function of stricter tax laws than they are of changing business activity.  As for the difference in absolute amount being measured, it’s impossible to say.  The authors of the study took a sample of ten companies (which they recognize as not being scientific in any way) and determined that if the broader, more OECD-consistent definition were used, spending on R&D salaries would rise by a factor of three.  If that were true across the board (it probably isn’t) it would shift Canada from being one of the world’s weakest business R&D performers to one of the best.

Still, even if this particular result is not generalizable, the study remains valuable for two reasons.  First, it underlines how tough it is for statistical agencies to capture data on something as fluid and amorphous as research and development in a sensible, simple way.  And second, precisely because data is so hard to collect, international comparisons are extremely hard to make.  National data can be off by a very wide factor simply because statistical agencies make slightly different decisions about to collect data efficiently.

The takeaway is this:  the next time someone tells a story about how innovation is being throttled by lack of business spending on research (compared to say, the US or Sweden), ask them if they’ve read Losing Ground.  Because while this study isn’t the last word on the subject, it poses questions that no one even vaguely serious about playing in the Innovation space should be able to ignore.

January 29

Asleep at the Switch…

… is the name of a new(ish) book by Bruce Smardon of York University, which looks at the history of federal research & development policies over the last half-century.  It is a book in equal measures fascinating and infuriating, but given that our recent change of government seems to be a time for re-thinking innovation policies, it’s a timely read if nothing else.

Let’s start with the irritating.  It’s fairly clear that Smardon is an unreconstructed Marxist (I suppose structuralist is the preferred term nowadays, but this is York, so anything’s possible), which means he has an annoying habit of dropping words like “Taylorism” and “Fordism” like crazy, until you frankly want to hurl the book through a window.  And it also means that there are certain aspects of Canadian history that don’t get questioned.  In Smardon’s telling, Canada is a branch-plant economy, always was a branch-plant economy, and ever shall be one until the moment where the state (and I’m paraphrasing a bit here) has the cojones to stand up to international capital and throw its weight around, after which it can intervene to decisively and effectively restructure the economy, making it more amenable to being knowledge-intensive and export-oriented.

To put it mildly, this thesis suffers from the lack of a serious counterfactual.  How exactly could the state decisively rearrange the economy so as to make us all more high-tech?  The best examples he gives are the United States (which achieved this feat through massive defense spending) and Korea (which achieved it by handing over effective control of the economy to a half-dozen chaebol).  Since Canada is not going to become a military superpower and is extremely unlikely to warm to the notion of chaebol, even if something like that could be transplanted here (it can’t), it’s not entirely clear to me how Smardon expects something like this to happen, in practice.  Occasionally, you get a glimpse of other solutions (why didn’t we subsidize the bejesus out of the A.V. Roe corporation back in the 1960s?  Surely we’d be an avionics superpower by now if we had!), but most of these seem to rely on some deeply unrealistic notions about the efficiency of government funding and procurement as a way to stimulate growth.  Anyone remember Fast Ferries?  Or Bricklin?

Also – just from the perspective of a higher education guy – Smardon’s near-exclusive focus on industrial research and development is puzzling.  In a 50-year discussion of R&D, Smardon essentially ignores universities until the mid-1990s, which seems to miss quite a bit of relevant policy.  Minor point.  I digress.

But now on to the fascinating bit: whatever you think of Smardon’s views about economic restructuring, his re-counting of what successive Canadian governments have done over the past 50 years to make the Canadian economy more innovative and knowledge-intensive is really quite astounding.  Starting with the Glassco commission in the early 1960s, literally every government drive to make the country more “knowledge-intensive” or “innovative” (the buzzwords change every decade or two) has taken the same view: if only publicly-funded researchers (originally this meant NRC, now it means researchers in university) could get their acts together and talk to industry and see what their problems are, we’d be in high-tech heaven in no time.  But the fact of the matter is, apart from a few years in the 1990s when Nortel was rampant, Canadian industry has never seemed particularly interested in becoming more innovative, and hence why we perennially lag the entire G7 with respect to our record on business investment in R&D.

You don’t need to buy Smardon’s views about the potentially transformative role of the state to recognize that he’s on to something pretty big here.  One is reminded of the dictum about how the definition of insanity is doing the same thing over and over, and expecting a different result.  Clearly, even if better co-ordination of public and private research efforts is a necessary condition for swifter economic growth, it’s not a sufficient one.  Maybe there are other things we need to be doing that don’t fit into the Glassco framework.

At the very least, seems to me that if we’re going to re-cast our R&D policies any time soon, this is a point worth examining quite thoroughly, and Smardon has done us all a favour by pointing this out.

Bon weekend.

April 23

The State is not Entrepreneurial

If you’re interested in innovation policy, and haven’t spent time under a rock for the last couple of years, you’ve probably heard of Mariana Mazzucato.  She’s the professor economics at the University of Sussex who wrote The Entrepreneurial State, which is rapidly becoming the source of an enormous number of errors as far as science and economic policy are concerned.

Mazzucato’s work got a fair bit of publicity when it was released for pointing out that a lot of private sector tech is an outgrowth of public sector-sponsored research.  She has a nice chapter, for instance, outlining how various components of the iPhone – the touchscreen, the GPS, the clickwheels, the batteries… hell, the internet itself – are based on research done by the US government.  This is absolutely bleeding obvious if you’re in science policy, but apparently people out there need to be reminded once in awhile, so Mazzucato found an audience.

Where Mazzucato goes wrong, however, is when she begins to draw inferences; for instance, she suggests that because the state funds “risky” research (i.e. research that no one else wold fund), it’s role in R&D is that of a “risk-taking” entity.  She also argues that since the state takes a leading position in the scientific development of some industries (e.g. biotech), it is therefore an “entrepreneurial” entity.  From this, Mazzucato concludes that the state deserves a share of whatever profits private companies make when they use technology developed with public science.

There are two problems here.  The first is that Mazzucato is rather foolishly conflating risk and uncertainty (risk is tangible and calculable, uncertainty is not).  Governments are not a risk-takers in any meaningful sense: they are not in any danger of folding if investments come to naught, because they can use taxing power (or in extremis, the ability to print money) to stay afloat.  What they do via funding of basic research is to reduce uncertainty: to shed light on areas that were previously unknowable.  Individual companies do very little of this, not just because it’s difficult and expensive (if a company is big enough, that’s not a problem – see Bell Labs or indeed some of the quite amazing stuff Google is doing these days), but because the spillover from such research might allow competitors to reap much of its value (a point Kenneth Arrow made over fifty years ago).

The second issue is that nearly all of the examples Mazzucato offers of public research leading to technological innovation and profit are American, and a fairly high percentage of these examples were funded by the Defense Advanced Research Projects Agency (DARPA).  To put it mildly, these examples are sui generis.  It’s not at all clear that what works in terms of government investment in the US, with its massive defense infrastructure, huge pools of venture capital, and deep wells of entrepreneurial talent, hold very many lessons for countries like Canada, which are not similarly endowed.  Yet Mazzucato more or less acts as if her recommendations are universal.

The book’s recommendations amount to: government should own a share of young innovative companies by gaining shares in return for use of publicly-funded knowledge.  But this is pretty tricky: first, there are very few cases where you can draw a straight line from a specific piece of publicly-funded IP to a specific product, and even where you can, there’s no guarantee that the piece of IP was publicly-funded by your local government (Canadian start-ups benefit from knowledge that has been created through public subsidies in many different countries, not just Canada).  And while there’s a case for greater government investment in emerging companies (economist Dani Rodrik makes it here for instance), the case is not in any way predicated on government investments in R&D.  In Canada, the CPP could adopt such a policy right now if it wanted – there’s no reason why it needs to be linked to anything Industry Canada is doing in science funding.  To the contrary, as Stian Westlake points out, countries that have been most successful in converting public science investments into private hi-tech businesses eschew the idea of equity in return for scientific subsidies.

Worst of all – though this is not entirely Mazzucato’s fault – her argument is being picked up and distorted by the usual suspects on the left.  These distortions are usually variations on: “Someone said the state is entrepreneurial?  That means the state must know how to run businesses!  Let’s get the state more involved in the direction of the economy/shaping how technology is used!”  This way disaster lies.

So, Mazzucato did everyone a service by forcefully reminding people about the importance of publicly-funded R&D to any innovation system.  But her policy prescriptions are much less impressive.  Treat with care.