INDY Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, June 11, 1998

• 0908

[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I would like to call this meeting to order.

Our orders of the day, pursuant to Standing Order 108(2), are a study on information technology preparedness for the year 2000; and a study on the management and operation of the Natural Sciences and Engineering Research Council of Canada, National Research Council, and Social Sciences and Humanities Research Council of Canada.

I want to welcome our three witnesses today, the Natural Sciences and Engineering Research Council of Canada, the National Research Council of Canada, and the Social Sciences and Humanities Research Council of Canada.

• 0910

I believe all the witnesses have opening comments. I would propose that we begin with Dr. Carty, from the National Research Council. Would that be okay?

Dr. Arthur J. Carty (President, National Research Council of Canada): That will be fine, thank you, Madam Chair. And thank you for giving me the opportunity to appear before and speak to the committee.

I'd like to start off by reminding you what NRC is. We're a truly Canadian institution, with a mandate to undertake, assist, or promote scientific and industrial research in the Canadian interest. We do that by carrying out research in twenty research institutes and four technology centres right across the country. We also are responsible for the Industrial Research Assistance Program, which consists of a network of 240 industrial technology advisers, in every province and in every territory. So we have what you might call a national reach. We also carry out medium- to long-term research in our facilities. We provide national infrastructure and facilities for our partners and clients, the academic community and industry. We also operate the Canada Institute for Scientific and Technical Information.

I think that gives you an idea of the scope of our activities, and it leads me into the year 2000 readiness issues.

I personally alerted NRC management to the year 2000 problem way back in the early part of 1996 and asked Jacques Lyrette, who's our vice-president, and also Mike Pawlowski, who's the director general of finance and information management, to look at the issues and to take action.

So we have a year 2000 oversight team. It's led by the vice-president, and it consists of a core group created to monitor year 2000 readiness and to share best practices across all of the components of NRC. Every senior manager in NRC, every institute leader, branch leader, and so on, has been briefed on the issue and the importance of it has been stressed.

We have a bit of an advantage, in a sense, in that we made a decision two and half years ago to go to a completely new integrated financial human resources project management and material management system to replace our old financial system. That is an SAP system, and it is integrated and Y2K-compliant. We introduced the financial part of that system on April 1 of this year. We've had a few teething problems with it, but we're well on the way to having the financial part of that running relatively smoothly.

The other units, human resources and project management, are the second phase, and that's following later this summer and in the fall. This of course will handle all of our management, sales, distribution and invoicing, and we expect to have all modules in place for all of that by 1999.

It's not at a small cost, I might tell you. Our overall costs over seven years are probably going to be of the order of $ 30 million. So it has been a very substantial investment at a time when we've suffered significant budget cuts.

We also made some other changes in 1997-98. We made a decision to standardize all of our software for word processing, e-mail and communications. That has meant, in terms of that kind of software, at the current time we're about 95% Y2K-compliant. That was a tough decision, too. Every institute is now compatible; every branch is now compatible.

Let me say a word about real property. In March of this year we completed a full risk assessment of security and building systems, because we have a large number of buildings, not only here in Ottawa but across the country, and we've taken action to address critical systems, with full compliance by the end of 1999. That's on real property.

• 0915

As far as the Canada Institute for Scientific and Technical Information is concerned, CISTI delivers information electronically to industry and academia. It's very dependent on electronic technology—for example, our Intellidoc system—for transmitting information and documents.

All of the systems in CISTI have been tested. They've done a full audit, and they will be converted and fully compliant by the end of this year, 1998-99. That's another estimated cost of about $ 2 million.

As far as internal programs are concerned, of course in our sixteen institutes and four technology centres there are different research programs and equipment linked to a variety of partners. They in part provide services to industry.

We've already conducted two surveys in 1997-98 to assess Y2K readiness. We have completed a full audit of two of those institutes, and the report on that will be tabled and distributed next week. Those two full audits will provide us with the methodology to address the readiness of all of the research equipment right across the council. The cost of that will differ, of course, depending on the institute.

I would like to say a few words about IRAP, because IRAP has a particular relevance here. As far as the administration of IRAP across the country is concerned, we'll be in good shape there, because the IRAP financial system will be the same as the one we are implementing for NRC. As a whole, they'll be plugged into that—in other words, upgraded and compatible.

With regard to Y2K support to small and medium enterprises through IRAP—and this, of course, is a critical area—every one of our 240 IRAP ITAs, industrial technology advisers, have attended training sessions, and all have been alerted about the need to assist SMEs with Y2K problems. They've all been briefed on the resources available.

I think I should point out to you that IRAP reaches 10,000 small and medium companies per year as part of its program. We are collecting information on Y2K-related issues constantly. That's being updated and made available to the SMEs through IRAP and through the Canadian Technology Network.

I'll just say a bit about what the assistance to SMEs can take the form of. First of all, ITAs can identify resources to help address a company's specific problems. It might be information, it might be government services, it might be private-sector suppliers. ITAs could also provide to an SME a link to companies that have addressed similar problems so that solutions can be shared.

The IRAP programs are also actually taking this as an opportunity, because of course there are many software companies in Canada that will in fact develop new products that will address date-sensitive technology issues. In those cases, then, the IRAP program will provide support for those companies to actually do the R and D and to implement the technology.

We also have within IRAP a software sector group. That group is providing advice to the whole IRAP network and to CTN.

That basically is where we're at with Y2K.

I would like to spend a few minutes, if I might, on NRC management issues and bring you some information on the state of our budget and our current direction.

NRC has a vision to build an innovative economy, or to help Canada build an innovative economy. The vision is that as Canada's foremost R and D agency, NRC will be a leader in the development of an innovative, knowledge-based economy through science and technology.

Now, I really believe—and perhaps it would be a bit surprising if I didn't—the NRC is truly a Canadian national treasure. It plays a very important and distinctive role in supporting the research and development base in this country, not only through focused research programs, an area important to economic growth, but also through providing unique facilities and infrastructure essential to the academic and industrial communities.

• 0920

I've also mentioned IRAP, which is a magnificent program most people know something about. While NRC helps to fill the strategic R and D gap in Canada in focused areas, our research programs are designed and focused on wealth-generating sectors of the Canadian economy that are entirely congruent with the government's macroeconomic and industrial strategies. For example, we have major programs in biotechnology, manufacturing, aerospace, and scientific and technical information.

We help lever private sector investment in R and D, and that's important, because that has played a contributing role in the fact that industry now is investing more money in R and D than it did in the past. We have a base of excellent research and a proven track record of contributions to Canada.

You may not know that we have a Nobel prizewinner at NRC. A significant number, or a high percentage, of Canadian Nobel Prize winners have actually worked at NRC at one point in their career.

We have a program of local and regional innovation initiatives that speak to growing local economies by interacting with the local community. There's a series of initiatives in Vancouver, Alberta, Saskatoon, Winnipeg, and here in the national capital region. We're working on initiatives in New Brunswick, Nova Scotia, and Newfoundland.

I've mentioned the facilities. We do have unique world-class experimental and testing facilities that provide support to industrial sectors. The difficulty there, of course, is that with budget reductions that infrastructure is beginning to deteriorate. Of course, we're responsible also for national programs such as the building codes, the infrastructure codes, standards, certification of new materials, etc. Through CISTI we provide access to global science and technology for academia and for industry.

The last page of my notes contains a graph of our budget changes over the last five years, from 1994-95, for the research institutes in CISTI. As you can see, we have lost $ 46 million as a result of budget cuts from the first and second program reviews. That has had a significant dampening effect, significantly affecting our ability to enter into partnerships, to renew our infrastructure, and to contribute to those innovations and initiatives that are so important to Canada.

Madam Chair, thank you very much. That's my presentation.

The Chair: Thank you very much, Dr. Carty.

I would now like to turn to the Social Sciences and Humanities Research Council of Canada.

[Translation]

Mr. Renaud, please.

Mr. Marc Renaud (President, Social Sciences and Humanities Research Council of Canada): Good morning ladies and gentlemen. It is a pleasure to be back. As I understand it, I was given ten minutes to answer two basics questions: Where are we at in our plans and priorities? What is our state of preparedness with regards to the Y2K problem? I am here today with Ian Calvert, who is our specialist at the SSHRCC and at the SNERC on that second issue. We will very gladly answer all your questions on that.

[English]

In fact, I have good news on both fronts, on both these questions.

Just a word on SSHRC, in case you don't know what it is. SSHRC is the main tool for financing research and training in the humanities and social sciences in Canada. Our clientele are the 20,000 researchers working in universities in those fields and 40,000 graduate students—about 55% of the university enterprise. Those of you who had a chance to walk through the congress last week at the University of Ottawa could see how varied a crowd it was. The 7,500 people there covered really a wide gamut of fields, from research on fine arts to international fiscal law.

Another way of presenting what SSHRC is all about is maybe to say that Tom's shop is building computers; Arthur's shop is basically plugging in the computer and getting the computers connected; we work on the people bitching about those computers; and Henry Friesen's MRC is actually working on people who are almost dead after a life of working on those computers. That shows a little bit about how our work is divided.

The strength of agencies such as SSHRC, such as NSERC, and such as NRC is its merit review system, one of the best in the world. We really try to finance the best and brightest, and we're admired, actually, for this review system.

We received this year a budget increase of $ 13 million, which really helped to move us forward. Let me give you an outline of what we're doing.

First of all, thanks to an increase in the operational budget, I'm currently restructuring the organization with two goals in mind.

• 0925

The first goal is to get SSHRC to become not only a granting council but also a knowledge-brokering organization. We're really sitting on a gold mine of expertise and research in Canada, and yet we never tap into this gold mine. Therefore I would like SSHRC to move in the direction of being capable of moving ideas and people around much more efficiently than we've done in the past.

The second goal I am pursuing with this restructuring is to improve what we call our incubator capacity. This is a capacity to pick up needs and translate them into researchable targets so we all benefit from this gold mine we're sitting on.

The oldest employee at SSHRC actually has said that SSHRC is undergoing its quiet revolution, because there's a lot of changing around. That's what's happening consequent to the increase in the operational budget.

Consequent to the increase in the programs budget, we're basically investing on four fronts.

The first one is we've substantially improved support for students. We moved the scholarship from $ 15,000 to $ 16,600, which is a modest increase compared to what NRC and NSERC are doing, but that's the most we can do. We also increased the success rate from 38% to 43%.

[Translation]

At the postdoctoral level the success rate has gone up from 19% to 25%, but it is still desperately low. As you know, we fund only 5% of students in our areas. Yet surveys from Statistics Canada show that people with masters and doctorates in the humanities do have better work prospects than those coming from other areas, contrary to the general perception. Furthermore, most of them are paid higher salaries. So we find ourselves in a very ironic situation. On our campuses there are two kinds of students: those in the natural sciences, with scholarships of about $ 19,000, and those in the humanities, who get $ 15,000 or $ 16,000. Our priority is to invest in students. It is crucial because they are our future.

[English]

The second target we decided to cope with straight on is to address major knowledge gaps. Because of the communications revolution, because of globalization, because of this unparalleled unleashing of market forces on a planetary scale, we're now experiencing problems we never thought we would have to tackle—problems we don't know much about and problems for which we don't have any ready-made solutions.

Therefore we feel at SSHRC that it's our duty to invest and get the researchers throughout the country to confront those questions and look at them with the research tools so as to bring this knowledge to bear on policies and on the evolution of our own attitudes.

So we're going to invest in understanding what's happening in social cohesion. We're going to invest in order to try to understand how our cultures are evolving following this globalization and this unleashing of market forces. We're going to invest in order to look at the social determinants of health. My hope is that a year from now, SSHRC is going to be perceived as a key player in this emerging worldwide population health paradigm.

We're also trying to be very open to partnerships with business, and therefore we have several joint initiatives, some with NRC, some with NSERC, some with IDRC, some with the Forest Service, some with the policy research secretariat.

So the second goal we have is to address those knowledge gaps.

The third one is to increase

[Translation]

funding for basic research. This year I have had the opportunity to go across Canada and to meet my colleagues in academia. I was moved to see how deeply demoralised they are. Something is wrong. People are no longer interested in research because of the lack of funding. University professors now often see themselves as elementary teachers and say: "I'm just giving my class and so long. Then I just go home. I don't see myself as having a role in developing knowledge." Seeing this state of affairs, at the SSHRCC we felt that it was crucial to increase funding to basic research so that people who showed merit in our competitions, but to whom we could not afford to give grants, could find financial support. This year our success rate has gone up from 36% to 43% and we're telling researchers that

[English]

the old rule, the rule according to which you publish or perish, is slowly changing. You have now to abide by a new rule, which is get public or perish. We're also helping them out with research time stipends for those who really want to work on key research questions.

That's the third area in which we invest.

• 0930

The fourth one is trying to build new links between the university and the surrounding community. This is the first time in SSHRC's history that we will create research centres and institutes, but on two major conditions: one, that those research centres be targeted to questions that are at the peak of the competence of a given university; and two, that those research centres be built in full-fledged partnership with people in the community. It may be private firms, it may be the public sector, it may be community groups.

This is an idea that has come out of the CRICs idea, although we modified the CRICs concept to make it more of a university-community enterprise. We intend to invest in this to create sixteen in the next two years, as a pilot project. My guess is that the demand out there for this new role for universities is enormous and we will be packed with all kinds of applications for this, although we don't have the choice. We're putting $ 3 million in this to try it, but this is a program that should grow and grow. I expect that if we have the money, this will become a program in the $ 50 million category.

So this is where we're at in terms of investing and in terms of our priority.

On the year 2000 issue, a paper was circulated. I'm going to basically read what's there, because it's pretty complete. These are the two last pages.

SSHRC is on target in its efforts to ensure that the council's internal system functions correctly during and after the year 2000. The AMIS project—

A voice: What does AMIS stand for?

Mr. Ian Calvert (Director, Information Management Systems, Natural Sciences and Engineering Research Council of Canada): Award Management Information System.

Dr. Marc Renaud: It's a nice title, because it functions in both languages. This is our key initiative in that respect.

The AMIS project is adapting the Y2K-compliant NAMIS system that was developed previously at NSERC. AMIS will replace all the systems that are currently non-compliant; they are Wang-VS-based systems and Superbase systems.

Like NAMIS, the NSERC tool, AMIS will be a bilingual, GUI-based, Windows-compatible client-server system consistent with Treasury Board standards and the blueprint document. Among other features, AMIS will offer users a council-wide integrated database, flexible awards administration, powerful query tools, and detailed on-line help. It will provide the foundation for many systems capabilities now under development, including electronic information exchange with universities and with other stakeholders.

SSHRC is also selecting a package from the list of the Treasury Board to replace its finance system and make it compliant. Implementation of this new system is expected by April 1, 1999.

A Y2K assessment of the old Wang-based system has targeted September 1999 as the implementation deadline for AMIS. Accordingly, a contingency plan is also being pursued in case AMIS is delayed. During the next few months we will be upgrading the Wang operating system in database software and then testing the SSHRC application software. This will help us anticipate any changes that might be required to the non-compliant systems.

The need for additional contingency plans will be reviewed later in 1998. It will depend upon the results of the network inventory assessment upgrades and on the progress towards implementation of the new finance system package.

SSHRC is participating in the industry portfolio working group that has been established to ensure coordination of portfolio agencies on the Y2K issue.

Finally, the council has just established, in partnership with the Natural Sciences and Engineering Research Council, a working group to develop the council response to external Y2K issues—those associated with the institutions and activities supported by the council grants.

[Translation]

Thank you very much.

[English]

The Chair: Thank you very much, Dr. Renaud.

I'm now going to turn to the Natural Sciences and Engineering Research Council of Canada and Dr. Brzustowski.

Dr. Thomas A. Brzustowski (President, Natural Sciences and Engineering Research Council of Canada): Thank you, Madam Chair.

Good morning, ladies and gentlemen.

Let me begin by thanking the committee for the support you have given our efforts and our needs in your reports. I very much appreciate the words of support that were in your last report, and I'm quite sure the fact that our budget was increased reflects the understanding of our mission and the importance of our mission that originated here. We're very grateful for that. I would like to add also that the research document prepared by the research staff of the committee quite accurately describes the position of our budget and our ideas. Once again, Madam Chair, let me thank the committee for that.

• 0935

I should like to do two things very briefly this morning. One is to give you three quick impressions of material that is in the handout in our deck, which I will not go through to save your time. Also, I would add a few words about the year 2000 problem that are unique to NSERC and haven't been presented yet. The reason I say “a few words” is because you've just heard from Dr. Renaud a great deal about the administrative systems that we share, so there's nothing to add there.

The impressions I would like to leave with members—and they're all found in greater detail in the handout we've prepared—are, first, that NSERC has been very active in the last year in explaining to the public two things: the importance in their daily lives of the research in science and technology; secondly, the return on the public investment that has been made through our organization.

I have been travelling across the country speaking to business audiences, to tell them that in fact research in science and engineering does have an impact on their lives. Not only that, but in their communities there are local heroes who've made major contributions for which Canada is known—I hesitate to say this, but I think it's true—perhaps more abroad than at home, and to give an indication of the return on that investment.

[Translation]

In all my presentation I stress the importance of natural sciences and engineering research in our daily lives, but it isn't easy. Everyone understands the importance of medical research.

[English]

Every one of us wants to avoid pain, wants to avoid loss of function, wants to turn to cures in the event of illness. People understand that. But the field in which we work is a little more difficult. Therefore, I would like to leave this impression, Madam Chair, that NSERC is actively trying to communicate this to the public, to business audiences, because the academic audiences understand it already, and we have done this in Montreal, Toronto, Vancouver, Calgary, Edmonton, London, Ottawa, and have dates in Quebec City, negotiating in St. John's, Halifax, and Winnipeg and Saskatoon, across the country. There are local heroes in each community who can be held up as examples to the local business community to say you should be proud of what these people have done; this had an impact on your lives, this had an impact on your businesses. You may not recognize the names, but you'll recognize the names of the institutions. That is very well received; it's picked up by the media.

In terms of their return on investment, Madam Chair, let me just say one thing, because I think this really means a great deal. Over the 20 years that NSERC has been the agency supporting university research, we have supported the advanced training to masters and doctoral degrees in science and engineering of 47,000 young people. That's three Corel Centres full; that's a Skydome or a B.C. Place or two-thirds of the Big O in Montreal full of young PhD's and masters, educated to the most advanced level in science and engineering. They are the job creators for the rest of the country.

The second impression I would like to leave, Madam Chair, is to invite the committee to think of the work of NSERC in the context of innovation, bringing new goods and services to market. You are the industry committee, so that's a preoccupation, obviously. Secondly, we are developing new processes to make and do the things that we already make and do better and more effectively, more efficiently and more productively.

The impression I would like to leave with you is simply this: one thinks of basic research as having some potential but vague and unpredictable benefit to the economy. We can in fact demonstrate a sample of 107 start-up companies that came out of basic research—not project research in partnership with industry, but basic research—new companies providing 5,800 jobs, high value-added jobs to Canadians, generating $ 1.1 billion in annual sales and working with a very high economic multiplier in the community, some people say maybe as high as eight or nine in creating jobs for others.

• 0940

Finally, and this picks up what is in the research staff's paper, we do face budget pressures for the future. I'd like to just give one impression. These are all in the notes, but I would like to leave you with the impression of one of these, a situation that is good for Canada but is a pressure on the NSERC budget.

It's hard to believe, but it's true that with a fixed number of permanent university positions, the number of people we have to support as university researchers is growing. Now, how can that be? Well, it happens in two ways. The first is that a number of senior people who have opted to retire early from their university careers but who are active in research are continuing to be active in research. They no longer get a university salary, they no longer sit on committees and do administrative work, and they no longer teach undergraduates, but they continue to do research. They continue to supervise graduate students and they continue to win support from us in their competitions, because they're good, they're active. This is very good for the country. This is making the public dollar go far.

The second reason—it is quite surprising, but very important too—is that some of the people retiring are people who were appointed in the early, middle, and late 1960s, at a time when a rather smaller proportion of university faculty did research than do today. Many of the retiring people, therefore, did not do research. However, they are being replaced by young faculty who all do research. So at the same time as the total number of university positions is fixed, we are having to support a larger group of researchers. I think that is great for the country, important for Canada, but it does create a pressure on our budget.

Finally, Madam Chair, I'd like to turn to the year 2000 question and just add something that is unique to us.

One of the things we provide to the research community is funding to purchase equipment. We've been doing that for many years, and there's a great deal of equipment in the university research laboratories that was bought before the 1990s, when nobody thought of the year 2000 problem. Call it legacy equipment, if you will, but a lot of that equipment has embedded chips in it, embedded micro-processors that are date-sensitive. A lot of that equipment is not supported by manufacturers, because sometimes the chips were bought as a commodity, and sometimes the program is permanent within the chip and you can't reset the date for 1972 and go on as if nothing has happened because the calendars for 1972 and 2000 are the same.

On many occasions we encounter surprise from researchers that there should be a problem. “I just used this thing to measure forces and weights, so why should that...?” In fact, some of these data logging systems will simply not accept data unless it's logged in chronologically with the time signal. So we have been bringing this to the attention of researchers and we are going to be doing it much more systematically through university research administrators. We are not capable of replacing that equipment; we simply don't have the resources.

We are capable of providing some help with upgrading equipment in our equipment competitions, but to a large extent the university research community is going to be on its own with the old equipment. I regret that, but I also believe they have a great deal of ingenuity in the labs and they will eventually find ways around this.

We are raising the awareness. We have a role to play in that. We may be able to help with some acquisition of newer equipment, but not with the whole problem.

Madam Chair, I'll stop right there. I'd be very happy to enter discussion and answer questions.

The Chair: Thank you very much, Dr. Brzustowski.

I want to thank all three of our witnesses for their opening comments.

I'm now going to turn to questions and start today with Madame Lalonde.

• 0945

[Translation]

Mrs. Francine Lalonde (Mercier, BQ): I thank the four witnesses for being here this morning.

Let me first express my surprise. We have heard many people on the year 2000 issue. We have heard spokespersons for large businesses and large crown corporations, as well as people from SMEs. But it is the first time I hear that in universities, in places of higher learning, and in the research community there might be major problems.

Now that you mention it, I recognize that it makes sense because you can be totally involved in an advanced and detailed research project and forget that the computers or systems you are using may not be Y2K compliant.

Mr. Brzustowski, on the sheet you gave us, you say that the announcement is expected during the summer period. It would mean that there are, in universities and among researchers, people who are not at all aware of the issue. That is my first question. Secondly, what do you intend to do?

I will have to ask several questions because there are three agencies. I will ask them all at once and you can answer afterwards. So that it what has struck me the most.

Mr. Brzustowski, your brief is full of fascinating information, but one thing in particular struck me. You said that you help as many people as before, but that the needs have increased. You also say that because professors are retiring and are being replaced by young professors there is a gap in the critical mass of research capability. Again, it is the first time I hear this. I would like you to give us more details.

Finally, I would like you to explain the increase in direct cost through the implementation of user fees for many services. Does it mean that those costs are now charged to universities?

Mr. Renaud,...

[English]

The Chair: Let's deal with one at a time.

[Translation]

Mrs. Francine Lalonde: Yes.

[English]

The Chair: Dr. Brzustowski.

Dr. Thomas Brzustowski: Madam Chair, I will try to answer these questions. It's quite clear that I must be faulted for not having been sufficiently clear on a couple of things.

On the issue of the university problem in the year 2000, I believe the universities are addressing the problem in their administrative systems, in their enrolment systems, in their mark-reporting systems. It is the individual pieces of research equipment in individual labs that may cause a problem. This will not cause a breakdown to the university system as a whole, but it will cause difficulties to individual researchers in particular experiments. Some of them may be able to get support from the manufacturers, but if it's old equipment they probably won't. They may have to fix things on their own. Some people were not aware of this. I think they are now becoming aware of it.

The problem is not in the university system. It is in the particular research labs of individual professors with particular pieces of equipment. It's not an insoluble problem. It will delay them. It will distract them, but I'm sure they will be able to deal with it.

The second point is on the issue of early retirees and young people. The point I want to make is that the number of permanent funded university teaching positions is not changing very much. If anything, it may be declining slightly. However, some of those people who are retiring have not been doing research and are being replaced by young people who do. That's good for the country but a problem for us.

Secondly, some of the people who are retiring were very active in research and very good at it and they will continue to do it after retiring. They deserve our support. They win the competitions. They are delivering good value for the public dollar spent on them, so we support them. But we also have to support the new faculty who replace them.

• 0950

So the fact that some people will be doing the research essentially on an unpaid basis, as unpaid research professors in the universities, is a problem for us. It's not a problem for the country. This is a good thing. This is a bonus. The country is winning on that basis.

As my final point, the conversion of indirect costs to direct is one of the budget pressures we feel. Universities used to be able to provide more services than they can afford now, for free to researchers. This was part of the indirect costs that we never paid for. However, they can no longer afford to provide as many, so they either charge for those services or they discontinue them. In that case, they have to be bought commercially. That means the NSERC dollar now has to pay for things it didn't have to pay for before.

The Chair: Madame Lalonde.

[Translation]

Mrs. Francine Lalonde: Thank you.

Mr. Renaud, I would ask that next time you present us with a text entirely in French and another entirely in English.

Mr. Marc Renaud: Yes, I take note.

Mrs. Francine Lalonde: We request that of all relatively large businesses and institutions.

But your enthusiastic presentation was very stimulating. We know that we will be asked to help you obtain more funds because what you said regarding the demoralization of researchers and professors is worrisome. You didn't say anything about those who might be attracted to other countries where they will be better paid, but we know that it is often the case for the brightest students who have no difficulty in finding jobs.

Can you give us an idea of how much more money would be needed, not to satisfy all your needs, but in order to reach a sufficient critical mass to satisfy current needs? It would be good for us to know that. As you know, we are now on to other subjects than deficit reduction.

I would also like you to tell us more about those major joint projects that you mentioned on page 4. You talk about a project in partnership with the Policy Research Secretariat.

And, finally, I would like to talk about a fundamental issue, that of the Y2K. I must say that I do not understand what you're talking about when you say Wang-VS-based systems, Superbase systems. You seem to be saying that you will try to implement a new system that might overcome the problem of communication between the present systems. I wonder if you will be able to do all that in time for the year 2000, since your target date is September 1999. All the experts we have heard so far have told us that it would be much too late and that by then it would be difficult to put in place a successful contingency plan.

And finally, one general question. Our four witnesses this morning are, as Mr. Carty said, a treasure of knowledge, information and research processes. Is all this jeopardized because of the Y2K issues and, if so, to what point?

• 0955

Mr. Marc Renaud: First let me answer quickly on the issue of the funding. In 1992, the Royal Society of Canada had done a detailed study on the funding of research in Canada and had come to the conclusion that the SSHRCC budget at the time—that is 1990 to 1995—should reach $ 263 million. It also recommended a budget of $ 500 million for the Natural Sciences and Engineering Research Council of Canada.

Today the NSERC budget is around $ 500 million while ours is still at $ 100 million and not at $ 263 million as the Royal Society had recommended. Germany invests in the Max Planck Institute the same amount that Canada invests into the SSHRCC, but we have 20,000 researchers.

I am now convinced that if Canada wants to make good use of its resources in this area, our budget must doubled within three years: one third, one third and one third.

And we can explain how the investment should occur since we are starting this year to implement programs such as the information forums, the research centres, and the statistic investments that are preparing us, in a way, for the type of investments that we will need in the year 2000. So that is my answer to the funding question.

The work in partnership with the Policy Research Secretariat, that you must know fairly well, is the result of what the Clerk, Mrs. Bourgon, had asked from deputy ministers. They were to identify the issues of the future. They had identified three or four major issues. One was on present social fragmentation, a lack of social cohesion that had not been anticipated. For the last 30 years we have been talking about equity, but not about social cohesion. Consequently, very few researchers are working on the issue compared to what we really need given the challenges ahead of us. We are telling researchers that we may be prepared to create chairs in universities for those who are knowledgeable in the area of social capital, social cohesion, and so on and that we will invest additional funds for research projects in those areas. The same holds true for globalization. There is a subject that leaves us all baffled. We had never imagined such a thing. Our whole universe is changed. We feel lost.

It is our job to think of all that and to proceed in a rigorous manner to try to understand what is happening. So we are telling researchers that is our top priority. We must understand and we must find solutions so that we can adjust and come out on the winning side in the future.

So that is how we work with them. It helps us because they participate in choosing projects and in identifying issues. We set up working groups to help us conceptualize those issues so they can be researched. Things are going well and the future is extremely promising.

As to the Y2K issue, I must admit that I am just as ignorant on that as you might be. I just don't understand it. I have been plunged into the issue eight months ago. What I do understand is that our system is completely outdated. I have to tell you that we process 10,000 applications per year, a little over 30,000 curriculum vitae, and approximately 50,000 assessments. It is an incredible amount of paper work. And everything is done by computers. You can imagine what would happen if the system failed. We wouldn't be able to spend our money properly. That is the real issue.

On a technical aspect, Ian might be able to tell you whether we will be ready in September 1999.

[English]

Mr. Ian Calvert: Thank you for the question. I don't think there's any doubt that this is a challenge for SSHRC.

I want to emphasize what Marc had said earlier, that we're not starting from scratch. Four years ago the two research councils, which are co-located in the same building, decided to merge their administrative support services, so there's a common finance division, a common human resources division, and a common information systems division, which I head.

At that time, NSERC already had well under way the development of a year-2000-compliant awards management information system, NAMIS. That was successfully brought into production in January. SSHRC is adapting that system; SSHRC is not starting from square one with that, so that means the development time will be much shorter. As well, because we now have a common team, the team that's developing the system for SSHRC is a very experienced team that was successful in implementing this system for NSERC.

• 1000

I can understand your concern about September 1999. That is when we will have all of the functionality replaced. There are a series of a modules in this system and we will be introducing them starting in April.

As is mentioned in the document, though, should there be a delay—we're not anticipating a delay—we do have a contingency plan, and that involves the existing system and installing newer releases of the operating system on it and making some necessary urgent patches to that system. We don't think we're going to need to go very far on that because of the progress we're making on the AMIS project. It began last October and the project is proceeding very well. So I don't feel that program delivery for SSHRC is jeopardized by the year 2000 problem.

[Translation]

The Chair: Thank you, Mrs. Lalonde.

Mr. Bellemare, please.

Mr. Eugène Bellemare (Carleton—Gloucester, Lib.): Thank you very much, Madam Chair.

[English]

Finally I get to meet Mr. Carty after so many years of trying to meet him. I'm one of his neighbours, and every time I show up at NRC, Dr. Carty is very busy or on a trip somewhere representing our country. But I do think of him very often, Madam Chairman, especially in the summertime, if I may, when windows are open. He has a terrifically huge heat exchanger, which I suspect is connected to his wind tunnel, and around the middle of the night I usually get wakened and I'm warned that dawn is soon approaching. I wait until dawn and then the machine turns off. He's been improving that machine, as far as noise is concerned. Perhaps by year 2000 it will be ready.

At any rate, I have a biased affection for NRC because I've been living next door for the last thirty-some years. So my eleven questions are all directed to him. I know I won't be able to put all those questions in the first session, but if you will bear with me I would like to put my name down for every time you come back to this side and you run out of members for questions.

My first question, Dr. Carty, is are you directly involved with the year 2000 problem at the NRC, or is it your finance VP who's the one directly involved?

Dr. Arthur Carty: I am directly involved in the sense that I oversee everything at NRC, including the solutions to the year 2000 problem, and I was originally responsible for bringing it to the attention.... But the vice-president, who has the lead on this and is leading the team, is actually the vice-president of industry and technology support, so he has a responsibility for CISTI, IRAP, and four of our institutes.

Obviously we have a core group of people, which includes the director general of information, financial and information management systems. That's critically important, because we're replacing our entire financial system, and actually have done so; it was implemented on April 1. And of course this is bringing into place a totally integrated information, finance, human resources, material management...a totally integrated system, which will make it actually very much easier for us to operate as a business once it's all complete. I oversee the whole thing. Of course I'm not in touch with all of the day-to-day problems, but I regularly attend briefings and I whip up the troops occasionally, to make sure they're aware of what the program—

Mr. Eugène Bellemare: That's good.

This VP of yours, finance.... You seem to orient your concern on the financial aspect, talking about finances. But today's issue is really year 2000, so our concern is really the year 2000 and not your budget at this point. We are concerned about your budget, but today's meeting is on year 2000. You seem to have given all the importance to the management of the NRC vis-à-vis the financial aspect of the NRC and the impact it has on all your activities.

• 1005

The Chair: If I could interject, I just want to clarify for the committee members that the meeting today is on both year 2000 and performance review, and we asked the witnesses to give us an evaluation of their performance because we didn't have time before we finished the estimates to visit with all the agencies that belong to Industry Canada. So I just want to clarify. I did ask the witnesses to prepare their presentation on both of those aspects. I apologize.

Mr. Eugène Bellemare: We risk having a very long meeting. My fixation today is on year 2000.

The Chair: That's fine. Your questions can be on either issue.

Mr. Eugène Bellemare: Anything else, for me, is not pertinent, and all my colleagues here, especially Madam Lalonde, will make sure that the financing, especially dans la belle province du Québec, is done very nicely.

The Chair: I wanted to make sure you're aware of how I asked the witnesses to—

Mr. Eugène Bellemare: All right.

The tone, Dr. Carty, was that.... I'm glad you're taking care of the financial aspect, the management aspect of the NRC, and I say that sincerely. In the research community and in the community as a whole, you are highly respected, including by myself. We like you. Your name always comes up and it's always in a positive sense. I wouldn't want anyone else to be director of the NRC but you.

Dr. Arthur Carty: Thank you very much. I won't answer that question.

Mr. Eugène Bellemare: This VP for finance, is he a high-tech person?

Dr. Arthur Carty: Actually, the vice-president is the vice-president of technology and industry support.

Mr. Eugène Bellemare: I know that. He himself, is he...?

Dr. Arthur Carty: He himself was previously the president of the communications research centre and his training is as an engineer. He has training in telecommunications and information technology. So he is the person who has much of the expertise we need to lead this team toward the solution to the issues surrounding the year 2000 problem.

Mr. Eugène Bellemare: At the NRC you must have someone who is really a top person in high tech, either in programming or integrated chips.

Dr. Arthur Carty: We have lots of people who are experts in the information technology—

Mr. Eugène Bellemare: You must have one who's top dog.

Dr. Arthur Carty: There's Mike Pawlowski, who's the director general of financial information—

Mr. Eugène Bellemare: Don't give me names, because it might be another neighbour of mine. You must have someone who is really the one person responsible for the IT.

Dr. Arthur Carty: I think I would say that in terms of information management, it is the director general of our corporate branch.

Mr. Eugène Bellemare: Yes, but is he an expert?

Dr. Arthur Carty: Yes.

Mr. Eugène Bellemare: Good.

Dr. Arthur Carty: I would emphasize that we have an information management committee chaired by the vice-president, which includes Pawlowski and includes the director generals of the institutes, CISTI and IRAP. So we have a very strong group of people who are involved in this.

Mr. Eugène Bellemare: May I proceed to my next question?

The Chair: One last question, Mr. Bellemare, before I move on.

Mr. Eugène Bellemare: You say you have a $ 30 million budget over seven years for this year 2000 problem.

Dr. Arthur Carty: No, not just the year 2000 problem. You may remember that the government and many government departments are replacing their financial systems by an SAP system. Most of the government departments are doing that at the present time.

Mr. Eugène Bellemare: I was under the impression that the budget for seven years was $ 30 million. You raised that question. How much in your budget has been allocated over the years, and is allocated this year, for the year 2000 problem?

Dr. Arthur Carty: What I would have to add up, from the point of view of the information management and financial side, our annual expenditures over everything we do in Canada, it's probably the order of $ 4 million.

Mr. Eugène Bellemare: In preparation—

Dr. Arthur Carty: In replacing the system, you not only have to buy hardware, you have to buy the software; you have to have—

Mr. Eugène Bellemare: Have you made an estimate of how much it would cost to convert and to adapt and to be compliant to year 2000 for everything you do at NRC?

• 1010

Dr. Arthur Carty: Yes, I think I'd have to spread that out over several years going back to 1996. But including the replacement of the financial system, I think we'd be talking about $ 40 million.

Mr. Eugène Bellemare: How much of that have you spent so far?

Dr. Arthur Carty: It's spread out over at least five years, and probably seven. So if you divide by five, it may be $ 8 million.

Mr. Eugène Bellemare: That's so far, out of $ 40 million.

Dr. Arthur Carty: Yes.

Mr. Eugène Bellemare: The clock is ticking.

The Chair: Thank you, Mr. Bellemare.

Mr. Lastewka.

Mr. Walt Lastewka (St. Catharines, Lib.): Thank you, Madam Chair. I just want to ask a number of short questions, and I hope the answers will be short too.

Do any of the witnesses in each of their areas have mission-critical items on Y2K, as described by Treasury Board?

Mr. Ian Calvert: We don't have any of the 25 systems that were identified within the two research councils, NSERC and SSHRC.

Mr. Walt Lastewka: What about NRC?

Dr. Arthur Carty: Yes, we do, but many of those are actually being accommodated by total replacement of the financial and information management systems.

Mr. Walt Lastewka: When will those mission-critical systems be completed?

Dr. Arthur Carty: As I said, the financial system is now in place. We have a few bugs that are being ironed out. We expect to incorporate the human resources and the project management modules beginning in September, and the whole project is scheduled for completion by April 1, 1999.

Mr. Walt Lastewka: So when we review estimates a year from now, your answer will be that it is completed. Is that my understanding?

Dr. Arthur Carty: Certainly from that major component, yes.

Mr. Walt Lastewka: Dr. Carty, as we get closer to 2000, we know full well SMEs will be the biggest target area that will not have completed their work. The next Statistics Canada review will be very interesting and will tell us how far they've gone. Do you expect to be called on to assist SMEs across the country in one way or another?

Dr. Arthur Carty: We are already assisting SMEs. IRAP reaches about 10,000 small to medium enterprises per year and provides support to about 3,500. Our ITA community, in other words, is in contact with somewhere in the order of 10,000 to 12,000 SMEs. For those small companies, via IRAP and CTN and our network, we are not only making them aware of the year 2000 problem, we're providing them with the sources of advice and help from wherever it's available.

The CTN network is a network of 800 member organizations, many of which are knowledgeable about software problems. So I have less concern about the SMEs that are involved in technology than about the rest of the SMEs, of which there is a very large number, that are not involved in any way with technological aspects of their business.

Mr. Walt Lastewka: I'm concerned that the statistics show that as we get closer to the year 2000, the Government of Canada will be pressed to assist SMEs, and departments that have the technology, knowledge, and expertise will be counted upon. That's why I asked the question. Especially with the IRAP program and having people in the field, there are many small businesses in Canada, and that is the area we would be aiming for.

Dr. Brzustowski, I want to ask you a question. I commend you on your work in getting the message out to the public on what you're doing and what your area does. It was cited a year ago and a couple of years ago that there was not enough accountability to the Canadian people. It's important for them to know the value they're getting from your work.

My concern in your area is that private funding is always difficult. What work has been done to get more private funding to help offset some of your budget problems?

• 1015

Dr. Thomas Brzustowski: Thank you for the question. The activities of NSERC are divided into two large areas. One is the support of basic research in the universities through grants. We do that with all our own money. We spend over $ 200 million in that direction.

There's also a research partnership program, and that includes a number of university industry programs, industrial research chairs, collaborative research and development grants, industrially oriented research, with various degrees of private sector involvement. An NSERC dollar there attracts, on the average in some programs, $ 1.50 or $ 1.60 from the partners. There are still all direct costs. So what is spent at the university is about $ 2.50 or $ 2.60 for programs we approve on a competitive basis.

So with the matching, and in some cases much more than matching, of our money from the private sector, the amount being spent in the universities on basic research and project research is roughly equal.

The last budget gave us some additional resources to enhance university and industry partnerships. That came at just the right time, because some of those programs were hitting success rates that were so low they might have discouraged applicants, particularly industrial applicants who simply don't have the time to put in proposals with a very low chance of success.

Over the last 20 years, and particularly over the last maybe 12 or 15 years, over 1,000 Canadian companies from the largest to the smallest have invested $ 600 million of their money in matching the research we do. I'm sure this committee is aware that they also get an R and D tax credit for their contribution to that and lever the indirect costs that are involved in supporting university research, such as the salaries of the professors, heat, power and light and so on. So they get an excellent deal on that.

In addition to that, a lot of companies sign research contracts with universities in which we're not involved. We don't provide any money for those. They pay the whole cost, direct and indirect. We're not involved in those. There's a lot of that activity going on too.

Mr. Walt Lastewka: Every time I see a chart on corporations and businesses spending money on research—and that's accumulative, R and D, tax credit and all—our country's corporations and businesses always fare at the bottom of the list or in the middle of the list. Unless that has changed recently, that's exactly the area where I see it. Are we not asking enough? Why can't we get our corporations to invest more in Canada? Compared to other countries, we still fare very poorly.

Dr. Thomas Brzustowski: This is a very interesting and very difficult question. I can provide fragments of answers and I can provide one insight that comes from a member of the board of the NRC, which is very important.

First of all, the auto industry is an example of an industry in which process development is being done in this country on the production line, but product development is done generally in the home countries, largely in the United States. For example, that industry may be spending on the average 3% or 4% of sales on R and D, but the component spent in Canada might be a fraction of 1% because they don't develop their products here. So there's the branch plant.

In some areas this is now changing, and companies like Ericsson in Montreal and some of the pharmaceutical companies have given product development mandates to their Canadian operations, so the spending has gone up.

Another reason is the historical structure of our industry. For a long time, the downstream value added to natural resources was really a small component. From there comes the insight of a gentleman by the name of Otto Forgacs, who used to be director of research for MacMillan Bloedel, which I find so very compelling. He says that our industrial structure, which is now changing, is responsible for the low R and D spending. He correlated this for 60 or 80 companies across many sectors. He says it's the lifetime of the product in the market without significant change that determines your R and D spending.

• 1020

He proposed a formula that I've been quoting widely and calling the Forgacs Law. It says that the percentage of sales spent on R and D multiplied by the number of years that a product can be in the market without significant change is equal to 16.

He gives some examples. Automobiles undergo major model changes every four years. They spend 4% of sales on R and D. Companies in telecommunications and information technology, which might have major product changes annually, might be spending 15%, 16% of sales on R and D. His own industry, which essentially might have spent money every two or three decades on changing a process for pressure-treating construction timbers, would spend maybe 0.5% on R and D. That percentage times 30 years is close enough to 16. Some biotech start-up companies, in which things change very rapidly, might be spending more than 100% of sales on R and D.

I think the reasons have to do with the structure of our industry. There are branch plants and a dependence on products that have not changed rapidly in the market. All of that is changing. The statistics, mostly recently, have shown that even though the percentage of R and D spending compared with the gross domestic product by the private sector is low in this country, it has grown faster than that of a lot of other countries over the last several years. So that's a sign that things are changing.

The Chair: Thank you, Dr. Brzustowski.

Dr. Renaud, would you like to respond?

Dr. Marc Renaud: I just have a word on this issue of private sector partnering and financing. On the SSHRC board, there's a person who's the head of the best-endowed foundation in Canada, the J.W. McConnell Family Foundation. His name is Tim Broadhead.

Eddie Goldenberg came to visit this board last week. The discussions started on the role of private financing. Broadhead made an extremely convincing case, in my view, that Canada should stop dreaming about this idea of partnering with the private sector.

We've asked the private sector to contribute to CFI, the Canadian Foundation for Innovation. We asked them to partner with the Foundation for Health Services Research and the national centres of excellence. Universities are begging for money out of the private sector.

Tim's point was that we're cash-strapped. It's finished. We cannot go along that road any more. Somehow, somewhere, governments have to kick in again. I just wanted to relate this, because it's impressive.

The Chair: Dr. Carty.

Dr. Arthur Carty: I'd like to add one point to that. The fact of the matter is that industrial contributions to R and D in this country have been increasing for the last several years at about 5%. That has been balanced off by the fact that government contributions to R and D have been declining at about the same rate. So we have essentially a plateau.

One of the reasons why industrial contributions to R and D have been increasing is because the granting councils and NRC have programs to lever resources and encourage participation in joint projects with industry. That has had a significant factor in leveraging industrial investment, and I expect it will continue to do so.

The Chair: Thank you very much, Dr. Carty.

[Translation]

Mrs. Lalonde, do you want to ask another question?

Mrs. Francine Lalonde: Yes. It is very interesting.

Mr. Carty you have partially answered the question I wanted to ask, but I'll go back to it. You said that preparations for the Y2K are going well with regards to property management and for the Canadian Institute, but that in the research institute where the most important components for research are to be found, where there are systems with embedded chips, the situation is more difficult.

• 1025

You say that a full audit was done in two of the 16 institutes. The results should be known next week and you will then be able to develop a methodology. It seems to me that it is all happening at a very late date. I imagine that next week you will tell us what is in those reports, but there is reason to be concerned.

Mr. Arthur Carty: Yes, but I must also stress that we have done surveys in two of our institutes in 1997 and that major problems have already been identified then. Also, recently we have gone to two institutes to

[English]

an audit to look specifically at problems of embedded chips and home-grown software.

[Translation]

Mrs. Francine Lalonde: So, it's the chips.

[English]

Mr. Arthur Carty: So we are tackling not just the IT aspects of this, but also the embedded chips problem that will be significant in any research operation, in any scientific instrument. So we have a process in place that we feel will be essentially complete by the end of this fiscal year for all of the institutes.

[Translation]

Mrs. Francine Lalonde: You say that we can help the 12,000 SMEs that deal with you. Can you tell us how you are able to help? Could you also offer that help to other SMEs that we are trying to make aware of the problem—because they aren't all aware—and who are wondering where to turn for those services? Are your services as expensive as in the private sector? Have you developed any systems?

Mr. Arthur Carty: Let me first say that the IRAP is intended to help SMEs with technology. Most of the companies we help already have the expertise and are doing their own research and development in the area of technology.

[English]

What this means is the 10,000 SMEs with which we are regularly in contact will be very well served by the ITA network and by CTN.

We're not going to turn away the very large number of other SMEs that might come to CTN and IRAP for advice that are not particularly involved in research and development or in technology. We'll provide as much advice as we can through the network and through both the IRAP network and the Canadian Technology Network, but I would emphasize that IRAP serves only a fraction of the small and medium-sized companies in this country, probably only about 10% to 15%. So there is a large number of small enterprises with which we would have really very little contact. We're not going to turn them away, but we'll have to depend on them coming to us, rather than dissipating all of our energy in searching them out.

There is another way we've been helping. There has been a series of SME fairs across the country, and at each one of those we have IRAP making presentations, pointing out what the issues are with regard to the year 2000 and where they can seek advice and where they can get input.

[Translation]

Mrs. Francine Lalonde: Mr. Brzustowski, you said at the beginning of your presentation that the drop in the value of the dollar and the low exchange rate have made imported scientific instruments very expensive. How important a factor is that in replacing, upgrading or expanding your equipment?

• 1030

Mr. Thomas Brzustowski: It is the same percentage of that by which the dollar has fallen.

Mrs. Francine Lalonde: So it depends on when you start...

Mr. Thomas Brzustowski: Exactly. The dollar has fallen from 74 cents US to about 68 cents, I believe.

Mrs. Francine Lalonde: But if it impact on a large part of your equipment,...

Mr. Thomas Brzustowski: It affects most of our scientific instruments.

Mrs. Francine Lalonde: So when your budget has been allocated, and taking inflation into account, it represents a considerable amount and it must complicate your life even more.

I had asked Mr. Renaud what amount he will need in order to make better use of the research and development capability. Mr. Brzustowski and Mr. Carty, have you estimated how much your budget should be? Your answers would be useful to us in preparing our report.

[English]

Dr. Thomas Brzustowski: Let me give one fragmentary answer.

Any number I could give today would be soft, but the six budget pressures are firm. We know what they are. One big unknown is the cost to NSERC of operating the research infrastructure that the Canada Foundation for Innovation will do, because their funding ends when the key is turned, and we have to provide the funding after that. So that's one thing.

We've taken this question very, very seriously, and a year ago last February I met with every one of our 25 discipline committees of volunteers who make decisions about grants. I said I want you to think for a year about how to give me a number, which wouldn't be a wish list but would be your realistic estimate according to all the criteria of quality and importance that you assign, of what the amount of money would be that is really needed to do the work you want to support.

Those numbers are in. On average among the disciplines, it is a doubling that is required.

So I can say this to you: We spend about $ 250 million a year on research grants and research equipment. If that needs to be doubled, then our budget in a few years shouldn't be $ 501 million but $ 750 million, and then we have that additional cost of operating the infrastructure that is not in place yet.

There's my answer. It's the best answer I can give. The six pressures we know; we understand them. The numbers are an estimate.

The Chair: Thank you.

Dr. Carty.

[Translation]

Mr. Arthur Carty: The budget cuts following the program reviews hit us very hard. In the first program review we lost $ 76 million, while this year, in the second round, we will loose another $ 13 million. The impact on the institutes has been significant.

[English]

The institutes insist they have lost about $ 46 million over four years. What has happened as a result of that? Well, we have lost people, we have converted some institutes into full cost recovery operations, we obviously have not replaced equipment and infrastructure that we would consider essential, and the deterioration in operating dollars continues. It really is quite difficult to operate.

• 1035

For example, we don't have enough money to enter into new partnerships, simply because partnerships require two people to come to the table, each with something. We don't have anything to bring to the table, so we can't enter into those partnerships.

I will just give you a very simple example of how the change in the value of the dollar has affected us. In the Canadian academic community, we are involved in international telescopes, and you might have seen an article in The Globe and Mail this morning about new observations on the universe. We pay those obligations in U.S. dollars to the Canada-France-Hawaii Telescope, between Gemini telescopes and James Clark Maxwell telescopes, for our researchers and for the Canadian community as a whole, so this year alone our Herzberg Institute of Astrophysics is almost $ 1 million behind the eight ball, simply because of exchange differences, and that's at a time when we're losing $ 13 million.

Those are the sorts of impacts, so what kind of dollars do we need? The granting councils did have their budgets restored to 1994-95 levels in the last budget and that was extremely welcome. I'm very supportive of that. As far as NRC is concerned, we'd like to think that over the next three years we could see some restoration of our operating budget. We will be proposing in the order of $ 25 million a year in order to get us to where we were in 1994-95 by the year 2000 or 2001.

The Chair: Thank you very much, Dr. Carty.

Mr. Peric.

Mr. Janko Peric (Cambridge, Lib.): Thank you, Madam Chair. It's a very interesting discussion.

Dr. Carty, I know that funding is probably the most painful area of your department, but we hear that government should have some kind of role in enhancing the interest of the private sector in taking a more active role, especially in regard to financial contributions. What is your suggestion to this committee? Where should the government be involved and in what way?

Dr. Arthur Carty: Let me answer from NRC's point of view. The fundamental principle for NRC, in our vision, is to work in partnership and in collaboration with others, and that certainly includes a major component of collaborative projects with industry. We do generate money from those collaborations because industry puts its resources together with ours so that we can tackle major problems.

In some of our institutes in particular, like the engineering ones, in aerospace, for example, we also provide unique and extremely important services to the industry. Over the last two or three years, for example, our wind tunnels have been extremely heavily occupied, as Monsieur Bellemare knows, with the aerospace industry because of the growth in that industry, and they pay for the services on a cost-recovery basis.

We will be putting forward a new strategic initiative with some of the aerospace companies to renew the infrastructure for aerospace, which is the only infrastructure of its type in Canada. If it weren't there, these companies would have to go to the United States to seek the research and development expertise that we have in our Institute for Aerospace Research. We will be coming forward with a major program for gas turbine engines and for materials for the aerospace industry, which will involve a very substantial investment from the private sector. But of course government and NRC have to do their part. This will be a program where there are contributions from both sides. That's an example of what can be done.

The Chair: Dr. Renaud.

Dr. Marc Renaud: Humanities and social sciences throughout the world are very much dependent on government. This doesn't mean, however, that we didn't do the best we could in terms of linking up with industry, and we're moving in that direction. We already have projects with Nortel. We're moving along towards more collaboration with industry people, especially in those sectors that are very relevant for all the business people that are in our field, commerce, etc. Yet at the end of the day we cannot expect a lot of money to come from the private sector for the kinds of enterprises we are doing.

• 1040

For ten years I've been the vice-president of the Canadian Institute for Advanced Research, and I've been helping Fraser Mustard lobby for private money—a lot. My conclusion is that the pool of capital in Canada that is available for humanities and social science research is pretty small. It's much smaller than it is in the U.S., where these big foundations exist because basically there were no taxes for a while so they have these piles of money that can go in all kinds of directions. So government is very important to us.

The Chair: Thank you, Doctor.

Mr. Peric.

Mr. Janko Peric: Since the private sector share is only 5% and the government contribution is falling 5%.... Now if the government brings that 5% to the private sector level, how far would that carry you?

Dr. Arthur Carty: Don't get me wrong: the percentage increase in the industrial R and D investment is about 5% per annum. Of course, the total investment of the private sector in R and D is about 45%. The government's is probably at about 35%. The industrial investment in R and D is already higher than the public sector investment in R and D, because of course industry is a major contributor to the GDP.

Mr. Janko Peric: But hearing from you that in technology and other stuff you mentioned before, you have to upgrade.... Even if the government contributes more, let's say 5% on top of the present contribution, how far would that carry you? Where are you going to be in 2005? How far behind other countries are you going to be? How far behind not the United States but the Pacific Rim countries are you going to be?

Dr. Arthur Carty: Erosion of the infrastructure is a very significant problem. In part, not in total, as I mentioned, the infrastructure problems in the universities will be handled by the Canada Foundation for Innovation, which is a great initiative and is now beginning to get under way. That program is not open to the National Research Council. We can contribute to universities that are applying for CFI funding but we ourselves can't draw from the fund.

I'll give you a specific example of how we need to reinvest. At present at NRC we have a thin films group in the microelectronics area which is absolutely the best in the world. It's at that point partly because in our Institute for Microstructural Sciences we have absolutely first-rate instrumentation that's been developed over a period of 25 years, partly in-house and partly purchased.

Being right at the frontier in that field can be very quickly eroded unless you have the ability to keep up with developments. This year we have had to put in $ 10 million from our capital fund in order to accommodate the program review cut of $ 13.1 million, so obviously our ability to invest in the acquisition of new state-of-the-art equipment is very much reduced.

Mr. Janko Peric: Lastly, Dr. Brzustowski, you mentioned that for the last couple of years you have been in personal contact with the private sector and so on. Do you see any improvement? Do you see more interest or more involvement from the private sector?

Dr. Thomas Brzustowski: I do, and the figures show it. Dr. Carty has pointed out that the rate of R and D spending in the Canadian private sector has been increasing. Our number is now at 1.6% of GDP whereas it seemed to be stuck at 1.5% for a long time.

I support everything my colleagues have said, but there's one additional factor that industry focuses on, and that is people. This is why I put so much stress on those 47,000 young Canadians with doctorates and masters' degrees. An advanced education in research is not only an advanced education for research. In fact, many of these people will do very different things. They are superbly qualified for high-level problem solving in all sectors of the knowledge-based economy. They have their own networks of sources of knowledge around the world. They've generated new knowledge. They know trends in knowledge. They can assess what's good and what's bad. That's what they do.

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Now, what is the impact of this? Committee members are undoubtedly aware that there are warm relations between Canada and Sweden, that some major Swedish investments in R and D are being made in this country. Why is that? The Swedish business leaders are very open about it. They say that they have a large number of international and multinational corporations engaged in areas that depend on advanced science and technology and that Sweden is too small a country to provide the intellectual base for that work—not enough people. They say that's why some of the R and D in pharmaceuticals and wireless telecommunications, for example, has been brought outside.

Our attraction, in addition to everything else, will be the people. We have to invest in the training of these people. That's why I started off by thanking the committee, because when the budget placed a priority on supporting more advanced students, more postgraduate students, and supporting them better, we were taking steps in the right direction.

So in addition to all the investments we need to make an infrastructure, we have to make the investments in our people. That will be the basis for the continued growth of the industrial R and D spending, at 5% or faster per year. I firmly believe that.

The Chair: Thank you very much, Mr. Peric.

Another committee will be coming in here shortly, so I will indulge Mr. Bellemare with two more questions and then Mr. Lastewka with one question.

Mr. Eugène Bellemare: I was looking at the part IIIs, Dr. Carty, and I see on page 44 that your budget has been increased from $ 491 million to $ 506 million for total budgetary expenditures.

Dr. Arthur Carty: Yes. I think there are several things that you have to be aware of. When I was talking about the reductions to institutes and to CISTI, those numbers are absolute. Over the last two years, there have been transfers to NRC for some contributions we make. For example, we are the principal agency responsible for the TRIUMF facility in British Columbia. That was a decision made by the Liberal government three years ago.

Mr. Eugène Bellemare: If I stick to the books, there is an increase in your budget. In my view, it's too small.

I'll switch back to page 29, where you talk about program management. When I was taking notes without looking at your presentation, you spoke of $ 30 million. I looked in your presentation report, where that goes down to $ 20 million. Then when I asked you questions a while ago, it went up to $ 40 million. Let's stick to $ 40 million since this was the last figure you gave me. You gave me three different figures.

My point is that if I take your last figure and divide it by seven and look at program management, where we should be looking at year 2000, I calculate that you spend possibly less than 1% of program management funding for year 2000 preparedness. Nowhere on page 44 do I see anything that relates to year 2000. That really concerns me. This comes more as a comment more than anything else.

I'm going to have some quick questions if you would give me very succinct answers.

Dr. Arthur Carty: I think that's a little bit unfair. Let me go back to the $ 40 million figure I spoke of.

Mr. Eugène Bellemare: No.

The Chair: Mr. Bellemare, let the witness answer, please.

Mr. Eugène Bellemare: He's taking up my time.

The Chair: The time is for both of you.

Mr. Eugène Bellemare: I know, but he's going all over the riverfront.

The Chair: You raised several points and he has a right to respond. I would like to hear Dr. Carty's response to what you just put on the table.

Dr. Carty, please.

Dr. Arthur Carty: You asked about the $ 40 million, but you asked about the expenditures on the year 2000 program. It's very intertwined with the replacement of the government financial system. I was being honest in telling you what the total picture is for the replacement of everything we do in information management and financial management. It's not all associated with the year 2000 problem, but it's a significant way to avoid year 2000 problems, by replacing your financial system. That financial system was totally outdated. It needed replacement. It's year 2000 compliant, and it's costing us a lot of money.

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Mr. Eugène Bellemare: I said I agree that you need more money and you should get more money. If there's a vote in the House or in caucus, you have my support. But you scare the hell out of me when it comes to year 2000, because I really don't think you're all that ready.

Dr. Arthur Carty: Let me say that I think we're more ready than any other government department.

Mr. Eugène Bellemare: That's scary.

How many more questions do I have?

The Chair: One.

Mr. Eugène Bellemare: I am very concerned, Dr. Carty, about electrical energy. You were very useful and very accommodating during the ice storm. I suspect that the hydro energy of Canada, in our grid system, is not ready. I also suspect that we could have a major catastrophe in the size of a cataclysm should there be a breakdown. God forbid, but they are not ready. Therefore there's a hurricane that's about to hit us and we have to get ready.

Do you have contingency plans in case of a hydro electricity breakdown throughout the total grid system, or I should say in the Ottawa area to begin with? God forbid, the total North American grid system.

Dr. Arthur Carty: At NRC?

Mr. Eugène Bellemare: Yes.

Dr. Arthur Carty: We have emergency diesel generators that served extremely well during the ice storm. For example, in Quebec, both of our institutes were serving as centres for the community because as least we did have light and electricity, and we were able—

Mr. Eugène Bellemare: Never mind what happened in the ice storm—are you ready in case of a cataclysm of some sort at NRC? Do you have a contingency plan for all your facilities?

Dr. Arthur Carty: We don't have a contingency plan. The contingency plan is that we'll be ready for all year 2000 problems by the middle of the year.

Mr. Eugène Bellemare: If you don't have a contingency plan, I am upset, really upset with you.

The Chair: Thank you, Mr. Bellemare. I think we have that point, and I think Dr. Carty has explained they do have back-up diesel generators.

Mr. Lastewka, you have one last question, please.

Mr. Walt Lastewka: Thank you, Madam Chair.

First of all, I'm not going to talk budgets, because our chair was a very strong promoter of budgets for research. I want to get that on the record. I don't think you will have a problem with this committee when it comes to research. But I am concerned with SSHRCC.

Dr. Renaud, I want to understand—and I've asked the witnesses before and some today—what are you and your organization doing to make Canadians aware of the value of your department, your research? This is an area where, as you know, in the past we've had difficulty of things having gone wrong. So what has been done or what are you doing today to make sure Canadians understand the value, that the money being spent in your department is being spent properly?

Dr. Marc Renaud: Thank you for the question, because this is a major challenge for us. People in the humanities and social sciences have felt that they were entitled to research money without necessarily explaining to the public what kind of research they were doing and why they were doing it. In that context, several things are being done now.

First, SSHRCC itself is going to put its act together in order for people to know the research results that have been achieved. When I arrived here in Ottawa in September, I was asked by Ronald Duhamel, the secretary of state for science, to show him the kind of relevant research we have for federal departments. I was amazed at the result, because we were covering, wall to wall, the interest of all the ministries and agencies in Ottawa, on all kinds of angles, yet nobody knew about it. So we have assured a role to make this public.

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Secondly, the researchers have a role to play. The Federation of Humanities and Social Sciences have started a movement to ask all researchers to write into the papers, to write up op-ed pieces, to get the stuff out into the real media. One of the members of the SSHRC board is wondering if we should not change the allocation criteria where people publishing in the Globe and Mail would have as much value as publishing in some very pointed scientific journal.

Further to this, we're going to organize a very important information conference in November that will take place here in Ottawa, which will bring to Ottawa the 100 best researchers in this country. We're going to ask them to talk to the media and talk to members of Parliament to explain what they do. So we have all kinds of tools to get that done, because, I agree with you, this is one of the major challenges we're confronted with.

Mr. Walt Lastewka: I see submissions here by NRC and NSERC on things they have done in the past, to share with Canadians or this committee some of the things, breakthroughs and so on, they've done. I don't see one from SSHRC.

Dr. Marc Renaud: That's a very good point. If you have any ideas, tell me. I mean, I'm jealous of my colleagues because they can show you: here is a computer, I did it; here is a cell phone, I did it. I mean, they're creating objects. We're bringing about change in institutions and change in people's attitudes toward life and toward institutions. It's much more difficult for us to sell. That's the bottom line. Yet we do have to achieve that. We have to find a way to explain what we're doing.

Mr. Walt Lastewka: I know that you've done a lot of good work, but I don't think that time has been taken to properly provide to Canadians your value. Until SSHRC does that, that question will continue to be a big question.

Dr. Marc Renaud: Absolutely.

The Chair: Dr. Carty, did you wish to add to that as well?

Dr. Arthur Carty: No. I think I would like to have a chance to respond to the specific financial questions Monsieur Bellemare posed, because he was criticizing NRC because of page 44. If he looks down at the financial information in that table on page 44, he will see that if you compare 1997-98 with 1998-99, total operating dollars are decreasing from 90.7 to 72.6, and total capital is decreasing from 47.1 to 34.8.

The next line is transfer payments, which I was trying to get around to: an increase from $ 133 million to $ 170 million. Those are things that are transferred into NRC for programs we support in other places, such as TRIUMF. Those transfer payments are not part of our regular operating or our regular institutes.

Mr. Eugène Bellemare: Are you adding what's on page seven, cost of services provided by other departments and whatever revenues you may be getting from them and revenues you may be getting from the private sector?

Dr. Arthur Carty: No. If you look at page 44, that's down at the bottom of page 44.

Mr. Eugène Bellemare: So your revenues are moved up from $ 46 million to $ 50 million.

Dr. Arthur Carty: Yes, because of an effort made to—

Mr. Eugène Bellemare: He's posing me questions now.

The Chair: I know. I thought he was going to respond to Mr. Lastewka's question. I have to apologize. We really do have to go.

Mr. Eugène Bellemare: I've got more questions for him, if he wants.

The Chair: I think you and Dr. Carty could discuss this maybe over coffee next door or something.

Mr. Eugène Bellemare: I don't drink coffee.

The Chair: Or water, whatever. We understand you're very close neighbours. Anyhow, we will be having other meetings.

I do appreciate you coming today, witnesses, and for discussing not only your performance review but your Y2K projects and your compliance issues and where you're at. We look forward to meeting with you again in the future and we will continue our battle on your behalf. Thank you.

This meeting is now adjourned.