Canada is now a mid-level player in the global innovation race, passed by rising powers China and South Korea in some categories and falling further behind long-time rivals such as the United States, Germany, Norway and Sweden.

In a report being released Tuesday in Ottawa, the Science, Technology and Innovation Council says Canada’s innovation performance has slumped on most key measures in the two years since its last report card.

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The conclusions are familiar to those who have closely followed the innovation debate. A flood of studies has shown that Canada has talent and resources in spades, but isn’t leveraging them effectively to consistently produce the kind of innovation necessary to make the country prosper over the long haul.

What’s particularly frustrating to experts is that Canada isn’t making any progress, in spite of knowing for some time where the country falls short.

Indeed, Canada ranked worse or stagnated in 18 of 24 benchmarks tracked by the council since its 2008 report, according to the 76-page document, a copy of which was obtained by The Globe and Mail.

“Current best efforts are not getting us to where we want to be,” concludes the council, which is chaired by University of Ottawa chemist Howard Alper.

Among other things, the country is spending less per capita on research and development, business R&D is down, venture capital relative to GDP is down, government spending on R&D has fallen and the ranking of Canadians in high-school test scores is lower.

And while Canada spends a lot of money on R&D through tax credits, it spends less than its peers in direct contributions to innovative companies, according to the report.

A recentinvestigation found that a significant chunk of the nearly $5-billion that Ottawa and the provinces give to companies in refundable R&D tax credits goes to dubious research and unscrupulous consultants. The result is that Canadian taxpayers are spending billions of dollars on a program that too often delivers little or no new R&D.

The STIC report also found that from 2000 to 2007, Canadian companies spent 75 per cent of what their U.S. counterparts did on machinery and equipment, per worker. And they invested in information and communications technology at half the pace of U.S. companies.

The report pointed out that the strong dollar provides a window of opportunity to invest in imported technology at lower cost.

Another major area of concern is labour productivity, which has been growing at less than 1 per cent for the past decade. Among advanced economies, that puts Canada 23rd out of 33 countries in productivity, according to the Swiss-based International Institute For Management Development.

On the positive side, Canada’s performance is improving in areas such as R&D spending by the provinces, funding of research through the tax credits and the percentage of the population with postgraduate education.

“Data show that some Canadian industries are global leaders,” according to the report, titled State of the Nation 2010. “We are also fortunate to have a strong talent pool that could deliver on high ambitions. The challenge is to deploy talent well, invest in advanced technology, integrate innovation into corporate and country strategies and leverage our efforts to deliver prosperity for all Canadians.”

Among the key observations in the report is that the country needs to do a better job of fostering clusters around its leading companies. These tend to be few and far between in Canada, and the recent struggles of Research In Motion Ltd. demonstrate that the country’s depth of innovation leaders is pretty thin.

“Support for clusters is one way to build critical mass in both short-term and long-term research areas of joint interest to companies and research organizations,” according to the report. “Such collaborations also improve companies’ ability to recruit Canada’s highly qualified graduates.”

Another federal advisory panel, headed by Open Text chairman Thomas Jenkins, is currently reviewing what Canada spends on R&D, with a focus on the controversial Scientific Research and Experimental Development tax credit. His report is due out before the end of the year.