Prime Minister Stephen Harper is hinting that Ottawa will overhaul a $3.5-billion SR&ED program.  The recent Jenkins Report recommended that the SR&ED tax credit be made simpler and smaller.  Among suggested changes to the Scientific Research & Experimental Development program, the report suggests that the credit should be limited to labour costs, and that the generous refundable portion of the credit for smaller Canadian-owned companies should be reduced.

The Jenkins report also recommends redirecting the savings to more direct funding of business research.  The current program provides a level playing field for both SMEs and larger corporations, reimbursing companies equally for monies that have been spent on research and development.  Should we allow bureaucrats to “pick winners” and make decisions about which companies the funding should go towards?

Quoting a recent publication from the Mowat Centre, “picking winners” was a term originally used in a paper by Nelson and Langlois (1983) in reference to the practice of government officials picking specific technologies to commercialize, a practice that was found to be the least successful form of government support identified in their research.  This more direct manner of investment is often disparaged as either “corporate welfare” (Taylor, 2008) or as a distortion of markets. However, such investments were pivotal in building capabilities in what became leading sectors in Ontario. While in essence it requires ‘picking winners’, it is about picking sectors and not technologies.   This is an important distinction and one that is often lost amidst the confusion surrounding the term’s use in ideological debates over industrial policy.