While Canada’s productivity indicators have long been lacklustre, the urgency of addressing persistently sluggish economic performance has only recently made headlines.

What we’ve known for some time — that small businesses are relatively slow to adopt new technology, that skill mismatches diminish performance and impede growth — is no longer a conversation confined to economists and central bankers.

With poor productivity performance, quality of life in Canada is being eroded and policymakers urgently need effective solutions. Past federal measures introduced to boost innovation and productivity have been disappointing or delayed, failing to generate promised results. Productivity indicators continue to lag those of peer countries.

A new report points to a solution quietly underway at polytechnic institutions, which assist Canadian businesses as they tackle the obstacles that prevent them from adopting new technology, growing market share or expanding exports.

Polytechnics call this work “applied research.” Applied research responds to industry challenges by helping partners test new equipment, build prototypes and improve efficiency. Intellectual property arising from these projects is retained by the business partner, allowing them to commercialize the results without the constraints of shared IP.

Despite consistently modest federal investments in applied research, the impact suggests that applied research should be a bigger part of Canada’s innovation tool box.

According to The Economic Impact of Applied Research at Canada’s Polytechnics, every dollar invested in polytechnic applied research generates a return between $8.09 and $18.49. The impact is both economic and social, helping to derisk technology adoption and drive business solutions while delivering positive health and environmental outcomes that benefit society more broadly.

There is something to be said for pragmatic, incremental innovation over major funding announcements designed around another splashy productivity idea. It is time to leave the ribbon-cutting mindset behind and focus on the basics.

Why haven’t big investments been effective?

Canada has an economy reliant on small businesses and its productivity is closely tied to their success. While polytechnic applied research offices work with businesses of all sizes, some 85 per cent are small- and medium-sized, striking a fundamental chord in Canada’s productivity challenge.

Small businesses face unique barriers to innovation activity. They often lack the facilities, equipment and capital to engage in research and development. A shortage of technical staff and high regulatory burdens add to the risks. Here, intermediaries play a critical role, both guiding and supporting manageable growth that suits the needs of the business.

Partners surveyed for the study report the responsive nature of demand-driven research opens the door to further collaboration at their own cost.

More than half (51 per cent) credit increased R&D capacity to their applied research project and 48 per cent indicate improved competitiveness. Just over a quarter (26 per cent) report being able to access new markets and 14 per cent were able to attract new investment.

These impacts suggest applied research spurs private-sector investment by reducing the risk of R&D and lighting a path to relevant innovation activity that meets needs defined by businesses themselves.

While Canada’s productivity challenges are often attributed to a business community that fails to invest in innovation, the ability to adopt new technology and develop new systems also require a skilled and ready workforce.

According to The Conference Board of Canada, skills shortages explain about seven per cent of the productivity gap between Canada and the United States since 2003. Since 2018, had skills shortages not been an issue, they estimate Canada’s gross domestic product would be as much as $26 billion more. While skills gaps affect various sectors to differing degrees over time, the role of talent development cannot be ignored.

Again, applied research offers solutions. Polytechnic education encourages student engagement in business-led research projects. Their involvement provides dual benefits, both providing hands-on opportunities to solve real-world challenges and helping students develop connections to prospective employers.

Some 12 per cent of research partners indicate polytechnic collaborations help them create new jobs, many of them offered to the innovation-ready graduates who worked on their projects. This represents a talent win on the productivity balance sheet.

In a country as large and diverse as Canada, the productivity solution is unlikely to come down to any one thing. Yet, with additional federal support, polytechnics have the potential to significantly increase their applied research capacity, supporting innovation and productivity growth in the Canadian economy. The return on such an investment stands to be substantial.