Our appreciation of the importance of investing in basic scientific research has grown steadily since the end of World War II. Although it is difficult to quantify the direct social and economic benefits derived from scientific research, the emergence and rapid growth of a whole range of new products and entire industries derived from Nobel–prize winning breakthroughs in fields such as magnetic resonance imaging, superconductivity, lasers, antibiotics and transistor action, lends support for the idea that they do exist. The time from scientific discovery to the commercialization of research results may often be long, but many examples can be found of innovative Canadian products and start–up companies that grew out of scientific research conducted by their founders — either as part of their graduate education or their academic career. These instances provide further support for the popular belief that public investment in basic science generates sustained economic and social benefits. But at what cost? How should these benefits be measured or evaluated? Does the eventual outcome justify the overall level of investment in scientific research? Once we leave the realm of assumptions and popular perceptions, and enter that of economic research and scientific evidence, the arguments become more difficult to judge, if only because the problems of measurement and proof are difficult to gauge.

The precise nature of the relationship between public support for scientific research and the level of economic performance and social well–being remains more a matter of affirmation, than a set of facts based on measurement and analysis by science policy researchers. There are several reasons for this uncertainty relating to the nature of knowledge, government programs, and the innovation process. Researchers are confronted with the near impossible task of measuring a process that is characterized by heterogeneity, subtlety, and multiple causality. Most economic studies have attempted to measure statistical correlations between inputs, such as the level of public funding for research and development, and various economic outputs. Science policy studies, on the other hand, have tried to understand the detailed dynamics underlying the relationship, drawing on surveys, bibliometrics, and case studies. Both approaches have failed to generate simple evidentiary measures of the relationship between government–funded research and economic performance.

In this report, we situate these issues in the context of current debates about science and technology policy in Canada. We review the results of empirical research into the relationship between public funding for scientific research and the level of economic performance. Our report surveys several recent reviews of the economic benefits of publicly–funded research.

The empirical evidence of the directly measurable benefits of this investment has proven difficult for economists and students of science and technology to construct. Econometric approaches often fail to account for the heterogeneity of the innovation process. Recent surveys have highlighted the variety of actors and relations in the innovation system, but do not offer detailed analysis of particular technologies. Case studies point to the complexity of the relationship, highlighting the interpersonal and tacit character of much of the process of knowledge creation and diffusion. However, taken collectively, the body of evidence reviewed in this report provides a strong indication of the social and economic benefits that accrue to a country's innovation system from public funding for basic research.

The evidence presented confirms that government–funded basic research is a critical source of investment for developing a society's learning capabilities. Government funding expands the technological opportunities available for firms to draw upon as they go about developing new products and processes. It supports the training of students, who upon entering industry, transfer their skills and knowledge about science and technology into the private sector. Given the localized nature of the innovation process, government support for basic research fosters the creation of dynamic agglomerations of firms around centres of higher education and it sustains the growth of untraded interdependencies among these parts of the innovation system.

The critical issue for Canada is how well we have absorbed these lessons. Over the past decade, governments of both major parties have offered rhetorical support for the importance of investing in basic scientific research, but their fiscal actions have not always mirrored their words. In the late 1980s and 1990s, budgetary spending on basic research in the higher education sector increased; but this growth came to a sudden halt in 1995 and has fallen precipitously since then. Actions taken in the 1997 budget to create the Canada Foundation for Innovation and to stabilize funding for the Networks of Centres of Excellence offset some of this damage, but cannot, on their own, sustain the degree of research activity that is needed. The challenge for the next federal government is not only to restore the funding for scientific research to the level achieved before 1995, but to go further, if we want to transform Canada into a truly knowledge–based economy.