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STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, November 4, 1999

• 0936

[English]

The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I call the meeting to order. Welcome, everyone. This morning series of individuals will present what I am sure will be some interesting perspectives on the pre-budget consultation.

It's a round table that I really enjoy every year. As you have probably gathered from the economic and fiscal update delivered by the Minister of Finance, this is an issue that is extremely important to the Government of Canada and to the people of Canada as we attempt to define what type of country we really want to build for ourselves and for future generations.

We have representatives from the Aerospace Industries Association of Canada, Mr. Peter Smith, president and CEO; the Automotive Industries Association of Canada, Mr. Michael Bryan, chairman, board of directors, and Ms. Beverlie Cook, vice-president; Partnership Group in Science and Engineering, Dr. Denis A. St-Onge, chair, and Dr. Howard Alper, past chair; the Insurance Bureau of Canada, Mr. George D. Anderson, president and chief executive officer; the Natural Sciences and Engineering Research Council of Canada, Dr. Thomas A. Brzustowski, president; and the Canadian Bureau for International Education, Mr. Jim Fox, president.

Welcome to you all. You're all experts and you've all been here before. You know how this committee works. You have approximately 10 minutes to make your presentation. Thereafter we will engage in a question and answer session.

We will begin with Mr. Peter Smith.

Mr. Peter Smith (President and CEO, Aerospace Industries Association of Canada): Good morning, Mr. Chairman, and thank you for the opportunity to present the views of the Canadian aerospace industry.

AIAC submitted a detailed paper to this committee in August. To avoid repetition, allow me simply to highlight some of the salient points and by so doing express the concerns of the industry I represent.

For the first time in decades the government has the financial flexibility to secure the economic future of all Canadians. What is needed is courage and leadership. We are undoubtedly a trading nation operating in the global marketplace, affected by the global economy, therefore these budget deliberations must take into consideration this new paradigm.

Perhaps no industry in our economy represents globalization as much as the aerospace industry in Canada. Today more than 75% of our total output is exported. During the decade of the 1990s, our industry has grown dramatically, nearly three times that of the GDP. We have succeeded in the world marketplace with products of excellence, but unfortunately all is not well. Let me give you a couple of examples.

Since 1995 the Canadian content of the aerospace products has declined from 66% to 54%. While our exports have soared, imports have risen faster. That means goods produced offshore are imported into Canada. If current trends are allowed to continue, two-thirds of the material inputs to Canadian aerospace products will come from offshore. That means fewer jobs for Canadians.

Why has that situation arisen? There is indeed an innovation gap between us and our competitors. We need to compete since there is virtually no domestic market for aerospace goods and services. Positioning Canada as a competitive leader must be a priority of this government. We invest in innovation and technology. We unquestionably lag our major competitors in this regard, with virtually no defence budget and only modest investments in such programs as the Technology Partnerships Canada program.

• 0940

Regrettably, we have the lowest rate of investment of all the G-7 nations except Italy. The AIAC is therefore calling for an innovation agenda. We need leadership from the government. We are assuring you of cooperation from industry. In order to stimulate more rapid adoption of innovation, increased investment by government in R and D is absolutely essential.

There are many policy tools already in place today—TPC, the NRC, the IRAP program, scientific research credits—but these must be adequately funded in order to create and sustain our competitive advantage.

Innovation comes from people. The aerospace industry in Canada must attract and retain highly skilled, high-value workers. Once again, we compete for the best and the brightest in the global marketplace.

We have found that our tax regime in Canada puts us at a distinct disadvantage. Our industry must compete for workers who are highly mobile, able to take their skills anywhere. It should not be surprising that more and more of the material inputs of our products come from offshore. That's where the innovative, creative workers we need are going. It should not be surprising that we have trouble attracting and retaining people we need.

Similarly, our corporate tax regime is not competitive. The corporate rate in Canada is 43%. In the United States, the largest importer of Canadian aerospace products, the rate is 39%. This truly does not help to attract industry to settle here. Such a phenomenon does not encourage risk-taking and does not encourage investment in innovation.

AIAC therefore appeals to this government to take a leadership role. We must position Canada as a competitive nation in the global economy. We must invest in innovation. We must examine personal tax rates that allow us to compete for high-value workers. We must set corporate tax rates that attract investment and innovation and encourage responsible risk-taking.

This government has an opportunity to lead. Let's make Canada competitive. The UN has repeatedly said we have the best country in this world in which to live. Let's now make Canada the best country in this world in which to work.

Thank you.

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

We'll now hear from the Automotive Industries Association of Canada, Mr. Michael Bryan and Beverlie Cook. Welcome.

Mr. Michael Bryan (Chairman, Board of Directors, Automotive Industries Association of Canada): Thank you for the opportunity to present to you today. I would like to introduce myself as the chairman of the Automotive Industries Association of Canada, and representing the volunteer population of that association, Beverlie Cook, vice-president and staff member.

Actually, it's good to meet the man who keeps on sending me letters. Thank you for all those letters, Mr. Bevilacqua. I have replied to some of them.

Whom do we represent? We represent the $15-billion automotive aftermarket. This is the industry that repairs and services our vehicles. We work closely with other associations such as the Canadian Automotive Repair and Service Council, led by Dan Bell. This was formed in 1988 to develop a human resources strategy for the automotive aftermarket. We also work closely with the Canadian Automobile Dealers Association and other provincial associations.

Why are we here? We're here to support the submission we made earlier, the AIA submission, which addresses three issues. The first one was broad-based tax relief, the second was debt reduction strategy, and the third was targeted tax relief.

Today I want to focus particularly on targeted tax relief. We're seeking the provision of tax relief on the cost of tools that must be purchased as a condition of employment by apprentices and technicians working in the auto repair industry. Why is that an issue? The high cost of tools with no tax deduction is a deterrent to young people considering auto repair as a career.

For example, somebody entering the industry and wanting to become an apprentice in an auto service repair shop will have to pay something like $4,000 for his own tools as a condition of employment. Each year he will have to update his tool kit with another $1,000 or more of tools, with no tax deduction on that. These are people who on entering the industry are earning $9 to $10 an hour. These are people who on average, when they become licensed technicians, earn between $20,000 and $40,000 a year. These are not high earners, but they get no deduction on the tools they must purchase as a condition. The studies have shown that the average cost of tools owned by a technician is about $15,000. So we're talking fairly large sums.

• 0945

One of the effects of this is it also creates a shortage of skilled labour in our industry. There is no refill in the pipeline. My colleagues at the CARS Institute the other day were telling me that very few of the people they train are beyond the age group of 30 to 50. There are no 20-year-olds, there are no 17-year-olds or 25-year-olds; they're not coming into the industry. So as the boomers retire, we are already suffering from a shortage of skilled labour that will only be exacerbated as time goes on. Remember, we're operating in a market where we have more cars every year. There are more vehicles on our road every year. It is not a declining industry or a declining market.

Another reason of course is the high cost of tools. Anybody looking at joining this industry will look at the cost of tools, which is always going to be there, but where there is no tax deduction on those tools it just strengthens the problem. It's not the same as a plumber or an electrician, for example, who more or less carries his tools with him. An electrician or plumber carries the tools in a box or on his belt. The investment is just not at the same level.

Here we are talking about expensive tools that have to be replaced and updated as tools and sizes.... Like going from standard to metric, things become obsolete, new vehicles are introduced, and there are new components on vehicles. So there's constant updating of tools. It's not a one-off purchase. It doesn't go away. It just gets worse.

So what we're seeking here is fairness and equality with other trades, such as musicians, artists and chain saw operators, who under legislation on tax deductions seem to be in a similar position with the tools they have. We're looking for equality there.

You may ask why the employer doesn't pay for this. Well, he does. Employers in the automotive service and repair industry spend on average $350,000 to $700,000 equipping their repair shop with equipment and tools. But here we're talking about the tools that belong to the individual in order to allow him to practise his trade.

What would the benefits be of a tool tax deduction? We have jobs for youths in this industry. We have jobs today that are being unfilled, and there is no replacement pipeline. We would like to see a level playing field to allow our industry to compete with others for the talent that exists in the youth pool today. We think a benefit will also be that it sends a signal to youth that government values the auto repair industry, which is part of the engine of our economy, particularly here in Ontario. We also believe it will send a signal to industry that government recognizes the importance of skilled labour in properly repairing and servicing our cars so they are roadworthy and safe.

Last year this committee supported our request for tool tax deduction for automotive technicians. We were grateful for that. We're asking for your support again, and we're encouraged by Mr. Martin's recent comments in the press, which have indicated that with the wise management that is taking place over the last few years we are now in a position to be looking at more tax cuts. AIA urges the government to allow tool tax deduction for auto technicians. This is an opportunity for the government to contribute to its goal of providing meaningful employment opportunities for Canada's youth, yet cost Canadian taxpayers very little.

Thank you for your time. If you have any questions I'll be pleased to take them.

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

We'll now hear from the Partnership Group in Science and Engineering, Dr. Denis St-Onge and Dr. Howard Alper.

[Translation]

Dr. Denis A. St-Onge (Chair, Partnership Group in Science and Engineering): Thank you very much, Mr. Chairman. I greatly appreciate your kind invitation to come here today. It's a pleasure for us to participate once again in the process of setting priorities for the next budget.

[English]

I'm not going to read the submission we sent you. There are copies available for you. I would like to highlight some of the points.

• 0950

We are particularly pleased that most of the points we made in our first priority, to celebrate and nurture excellence, have essentially been addressed in the Speech from the Throne, and in particular in the speech that was made by the Prime Minister in addressing the Speech from the Throne. I have to say I would not have done it better had I written the speech myself. I'm very pleased by what he said, particularly regarding the creation of the 21st century chairs of excellence, which addresses most of our concerns. We are, I can assure you, very pleased to see this happen.

In this context, we recognize there will be brain circulation in the global research economy in which we now are. People will leave this country to go and work elsewhere for a variety of reasons. We do not accept that the principal reason they leave is related to taxes. We do believe that if taxes are reduced over the next five years, as was announced by the Minister of Finance, it is certainly a good thing.

But the main reason research scientists leave to go elsewhere is that the conditions for research are better elsewhere. Therefore, the point we have to address in this country is to make sure we have conditions for research that are among the best in the world. At Partnership Group in Science and Engineering we are elated, of course, with CFI in particular, which allowed for infrastructure to be put in place not only to keep good scientists here but to bring them back if, for whatever reasons, they've gone away. It is this sort of attitude we need to nurture and develop and increase.

Our main thrust in our recommendation today has to do with making sure we continue to invest in research. On this subject I want to read you a short quote from David Caplan, chairman and CEO of Pratt & Whitney. My colleague over there would obviously know him. This comes from a book that was circulated with the Ottawa Citizent last weekend:

    Over the past few years, I have been vocal on the importance of increasing R&D investments in Canada. It is really a matter of choice. Either we want to be among the leaders or we simply accept that our standard of living will be gradually reduced. It is not a hard decision to make.

This in a nutshell underlines the absolute necessity for Canada in the knowledge economy to continue investing at an increased rate, as was mentioned by the first speaker a few minutes ago.

We also would like to encourage the government to establish new global partnerships, particularly to facilitate the work of scientists who want to work at international facilities—for instance, for an astronomer to go and spend some time at some extraordinary facility in Hawaii. This is an obvious example, but there are many others like that. This is not always as easy as one would hope. I don't have an easy solution except to suggest this is something that needs to be addressed. Maybe Dr. Brzustowski will want to address this issue as well.

We would also encourage Canada to facilitate international scientists to come from other countries to work in Canada, in some cases where we have the best facilities in the world, in particular to allow foreign companies to be eligible for matching funds by granting councils in university-industrial partnerships. This would be extremely beneficial for science both in Canada and at the international level.

• 0955

The third point we make is to create and develop clusters. I'm not going to insist on this, because it is such an obvious benefit for all if clusters are created. There are well-known examples. The biopharmaceutical industries in Montreal are excellent because there is a cluster. Kanata is an excellent example of a cluster. The nurturing of different companies and institutes creates excellence that is more than the sum of the parts.

The creation of a new tri-council initiative to promote multidisciplinary collaboration at one centre is something that is probably going to happen in part because of the 21st century chairs, among others. But this is the sort of initiative we would like to encourage the government to consider further.

Finally, there is a need in this country to look at the research done in government departments. There is no doubt that program review has led to a substantial decrease in the quality and quantity of research done in government labs. Unfortunately, this was done by cutting from the top and shaving across, and it was not targeted. The result is that you have excellent laboratories that have been left like plums in the sun and have turned into prunes, literally.

There is a need for a review of what research needs to be done by government labs and what should best be left to either industry or universities. There is no need for duplication. There is no need for government to be involved in some aspects of research. Private industry can do it and probably do it better, and it's the same thing with universities. On the other hand, there is a need for research in government for policy reasons and so on, but this has not been clearly identified. We would strongly recommend that if a review like this is undertaken, which we hope will be the case, it be done by active research scientists and not by some abstract consultant who would write a report that might not address the crucial issue of what research should be done by government and why.

Those are the main points. Again, I want to thank you and to congratulate the government for the chairs, which I think is an outstanding initiative. Thank you, Mr. Bevilacqua.

The Chair: Thank you, Dr. St-Onge.

We will now hear from the Insurance Bureau of Canada, Mr. George Anderson and Mr. Paul Kovacs. Welcome.

Mr. George D. Anderson (President and Chief Executive Officer, Insurance Bureau of Canada): Thank you very much, Mr. Chairman, and good morning. It's nice to be here and discussing a subject that's perhaps slightly less contentious than the financial services reform package we've appeared on many times over the years.

I suppose, though, this committee and the government is faced once again with competing and conflicting advice, and that makes for interesting times for policy-makers. The good aspect of this debate this time around is that given the projected surpluses announced by Mr. Martin, it would appear that we can cover a range of choices. We're not really in a zero sum game to the extent we were when we were fighting deficits, where one group's gain was another group's loss. So I think there's room for optimism right across the board.

What is obvious to us, whether it be from east to west or left to right on the political spectrum, is that it is increasingly clear that what Canadians want from the next several budgets of the federal government is broad-based personal income tax reductions. We agree that this, along with making our corporate tax rates more internationally competitive, should be a priority for the government in the years ahead.

Some people would see a conflict between tax reductions and social spending. I believe this is to some extent a false dichotomy. Many of Canada's most effective social programs are delivered through the tax system, and many social program expenditures in turn support greater productivity and job creation. Consequently, I would argue that the trade-off between tax cuts on the one hand and social spending on the other, especially if it is implemented through the tax system, is not as clear or as absolute as some might suggest and as the debate we read in the papers would suggest.

• 1000

It is clear, however, that Canadians do feel their disposable income is not growing. This is what you might call politically an issue with a bullet, and it seems to be a growing trend, from all the surveys I've seen recently.

So from our point of view, at this juncture it would seem best that the government look at tax reduction as a basis for creating a broad sense of well-being that underpins optimism about the future and generates faith in the economy. To do that, governments must cut taxes. The cuts must be real and truly felt, and they must be seen to be fair and effective. The era of giving on the one hand and taking away on the other, whether it be between government programs or between levels of government, must, in our opinion, come to an end.

Mr. Chairman, I'd like to focus my remarks today on another subject that's very close to our hearts, and that is the growing public concern about natural disasters. Mr. Martin mentioned this in a speech recently as one of the rising human and financial costs facing the federal government. For the past two years this committee has played an important role in helping us advance recommendations to take some action in this area. We believe the time has come to look at a natural disaster reduction plan for Canada.

Over the past three years Canadians have been hit by three very costly natural disasters. There was the flood in the Saguenay region; the flooding caused by the Red River; and of course the great ice storm of 1998, which affected parts of eastern Ontario, Quebec, and the Maritimes. Over 4 million Canadians were impacted one way or another by these severe weather events just in the last three years. The 1998 ice storm was Canada's most expensive natural disaster and resulted in more insurance claims than any other natural disaster in North America, including claims under hurricane Andrew. Losses paid by insurers and by the government exceeded $2.7 billion. According to the Conference Board of Canada, the ice storm cost a further $1.6 billion in lost economic output and $1 billion in lost income. Unfortunately, there's every indication that these severe weather events will continue to happen in the future and that the cost to taxpayers is going to grow exponentially.

Since the sixties, disaster recovery payments by taxpayers have been doubled every five to ten years, not only an alarming Canadian trend but also an international trend that needs to be addressed. Canadian governments have spent on average $500 million in the past three years to repair damage caused by extreme weather events, and yet homes and businesses are often put right back in harm's way very shortly after the event has occurred.

We believe it's time for a more visionary approach. We know which areas of Canada are at risk from different types of severe weather and from earthquakes, which is a huge risk in our country. We know how to improve the protection of people in homes and businesses. We know how to reduce the economic impact and human suffering related to natural disasters. But, quite frankly, we're simply just not applying this knowledge in a consistent and coordinated manner for the protection of the Canadian public.

When Canadians have taken steps to prevent disasters or to reduce their impact, those measures have worked. Let's take the Winnipeg floodway, for example. It was built in the early fifties after a large percentage of Winnipeg's homes were destroyed by the continuous flooding of the Red River. The cost at that time, which was shared between the federal and provincial governments, was $63 million. It was considered to be a huge expenditure. Some of you in this room will recall the ridicule the premier of Manitoba was subjected to because of building this diversionary spillway around the city. I think it was referred to as “Duff's ditch” at the time. But in fact it's a living testament to the value of some foresight and some planning ahead of time. Savings to date from that $63 million investment are over 20 times the original investment. The floodway was clearly a sound economic decision. It saved all levels of government hundreds of millions of dollars in response and recovery costs.

There's a hail suppression program in Alberta, which is another excellent example of an initiative to reduce the effects of severe weather.

• 1005

Mr. Chairman, Canada needs to do more of these kinds of projects in order to reduce losses from natural catastrophes, including the threat of earthquake in Vancouver and in the St. Lawrence Valley. As a nation, we've historically been effective at helping communities recover from disasters wrought by severe weather. However, we've paid very little attention to trying to avoid at the front end the damages that these severe weather events can create. It's a bit like saying that Canadians are great at war, but we're not so good at peace.

Mr. Chairman, we're urging all governments to develop a natural disaster reduction plan to reduce Canada's vulnerability to natural disasters. The plan calls for a modest set of investments and projects to help local communities reduce their vulnerability to natural severe weather and geological events. These projects would ultimately lower the costs that governments, and especially the federal government, will have to bear in the future.

In our view, this plan has three components. The first is a natural disaster protection fund to which all three levels of government could contribute up to $750 million over a five-year period, in order to finance projects that will reduce local communities' losses from severe weather events. This program could form an important component of the federal government's proposed infrastructure program—and Mr. Martin has talked about that.

The second thing we need to do is to look at our current arrangements for disaster response and recovery. These arrangements are slated to come under review in the next year or so, and we think a loss prevention element should be added to the current program. That is, every time there's a natural disaster, an amount equal to about 15% of what governments have spent in recovery from that disaster should go towards investments that attempt to reduce the impact should that severe weather or other event occur. Such a program exists in the United States, and our information is that it's working very well.

Thirdly, we need to develop what we call a culture of preparedness in our communities. We need to get people who are thinking about making infrastructure investments to think about the disaster reduction and prevention elements of those investments, and to consciously make decisions with those in mind.

We believe that helping communities to prepare for natural disasters is sure to bring all Canadians together. Every region of this country is subject to one form or another of severe weather events. On the Atlantic coast, we've most recently been reminded that there is a growing prospect of disastrous hurricanes occurring, with the effects of storm surge in the Bay of Fundy area. The threat of major earthquake is both real and inevitable on the west coast and in the St. Lawrence Valley, as I mentioned already. Communities on the Prairies face reoccurring flooding, hailstorms, and perhaps the terrible prospect of drought. Central Canada has seen a number of tornadoes in recent years, along with the ice storm. Of course, Quebec also faces a problem of regular flooding.

Allowing these communities to deal more effectively with the dangers of severe weather is cost-effective, in our opinion. The Winnipeg floodway and Alberta cloud seeding programs—which are used to reduce the damage caused by hail—are just two examples of many worthwhile projects that we could undertake.

Our organization is willing to work with all levels of government to see this program become a reality. As I said, I think it could be part of the national infrastructure program. I therefore urge the members of this committee, along with you, Mr. Chairman, to continue to show the leadership you have on this file. Let's start working towards a national disaster protection fund that will help Canadians and bring them together around a very important subject.

Thank you.

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

We'll hear from Dr. Thomas Brzustowski, president of the Natural Sciences and Engineering Research Council of Canada. Welcome again.

[Translation]

Dr. Thomas A. Brzustowski (President, Natural Sciences and Engineering Research Council of Canada): Thank you, Mr. Chairman. Thank you for inviting me back and thank you for your personal support of NSERC and for the support of the entire committee which is invaluable to us.

[English]

Mr. Chairman, I realized coming here this morning that I would not bring the excitement that you experienced in your London meeting, but perhaps we can inject a little colour into the proceedings. I would ask you to consider this piece of paper that was handed out, and I would ask you to consider it very seriously. In addition to being colourful, it is a very careful and complete description of what NSERC does, why we do it, and how we do it.

• 1010

You'll notice that our vision is very clear. We see ourselves as an instrument to help Canada achieve prosperity and help Canadians achieve a higher quality of life. We've used the phrase “Smart Canada en tête”, which I like better in French than in English because it has two meanings: as Canada at the head of the line and Canada using its head. By that we mean a country in which the citizens are capable of using knowledge in a very smart and effective way in all areas of social and economic activity. We consider that an important part of the vision.

We invest in people, first and foremost; we invest in discovery; and we invest in innovation. These are our three main program lines. The investments in people are the fellowships and scholarships for the support of young people in particular. You will remember that the instruction to us in the 1998 budget was to increase that. That was done and it was extremely welcome.

The investment in innovation is the investment in university-industry partnerships that connect the generators of knowledge with those who use it productively in the economy. You will remember again, Mr. Chairman, that a second instruction in the 1998 budget was to provide some increase in that area of our activity.

Finally, the discovery part is the investment we make in basic research, which underlies everything else. This provides access to knowledge and provides the training of knowledgeable people. It creates new knowledge and gives us access to all the knowledge created around the world that we don't pay for—that's the other 96% to 97%.

Of course, our goal is excellence in all of this, and we operate through peer-reviewed competitions—a mechanism in which we trust.

Finally, the red band at the bottom acknowledges that we have constitutional limitations on our mandate, but we don't have any constitutional limitations on creating partnerships with people who have responsibilities in education, for example, and helping and influencing them in that way.

Mr. Chairman, I would ask you to think of this as a very carefully prepared and serious summary of what we do, how we do it, and why we do it. Then I will move on to my brief.

The brief was distributed in September, and I think I would be wasting the committee's time if I went over it. But let me, if I may, draw attention to two parts of it.

On the first page in both languages, particularly the second paragraph under the section “NSERC and universities” or

[Translation]

NSERC and universities,

[English]

we try to answer the question of why we are putting so much stress on university research in Canada. Why do we keep talking about this?

I offer the opinion, and I think I can back it up, that in the global knowledge-based economy, in which so much depends on advances in science and technology, Canada's comparative advantage lies in the universities. We have some absolutely first-rate private sector research and development, but we don't have very much of it. We have some absolutely first-rate research in government laboratories, but we don't have as much of that as do the countries we compete with. But if you look at the numbers of students, the student-faculty ratios, the numbers of faculty researchers and the quality of the research they do, we are in the same league as our competitors. Therefore, our comparative advantage lies in our universities.

Having said that, let me just underline the two functions because they're so important.

[Translation]

University research generates new knowledge, but at the same time, it does two other things as well. First, it educates and trains people to create and use new knowledge and second, through those people and through those who teach them, it provides the country with access to knowledge from around the world.

[English]

On opening the door to the research created in the world, in the age of the Internet you can download anything, but knowing what to download, understanding it, and knowing what to do with it requires the grounding and the research.

• 1015

At this point I would like to state my plea in coming before you today. My plea is for completeness in the job that government is doing. Do the whole job. You've heard this twice before. You've acknowledged it in writing in your last report. The Canada Foundation for Innovation is exactly what was needed. It was a wonderful idea to provide the country with a catch-up in base research infrastructure, high-quality research infrastructure, research infrastructure to support the most modern work; but we now need the funds to operate that equipment, to operate those facilities. That very important job will be only begun unless those operating additional funds come.

Referring to the Speech from the Throne, we had the absolutely wonderful announcement of 21st century chairs, eventually 2,000 of them, for a total faculty complement in all our universities in all subjects of around 36,000, so a very significant percentage. Yet we're going to attract to this country some of the best researchers we can find. We obviously have to provide more research support to them than we have in the past.

The point was made that it's the opportunity to do attractive work, important work, leading-edge work, that attracts people to Canada and keeps them here. In addition to providing the chairs, which will pay salary and some of the research costs, we obviously must open up the whole area of research support to these people. These people, being the very best, will be successful in all our competitions. These people will win big, and that's why we're going to bring them here. That's what the Prime Minister wanted.

So my plea is that the committee urge the government to seek completeness, to do the whole job.

Finally, I would like to bring to your attention something you will also hear from others. It's in our brief. It has to do with the microelectronics industry in Canada. That industry is a huge success story. It's growing fast, it's successful in world markets, it has had an impact on our lives, and it has created lots of excellent jobs in this country, but its growth is limited by the availability of highly skilled people.

The industry has lobbied very hard on that for a couple of years, and what has happened? The provincial governments, at least as far as I know in Alberta, Quebec and Ontario, have agreed to pay the cost of additional enrolments in these areas. The universities have gone out and have actually attracted many of the additional faculty members they need, people of very high quality. The industry is providing some facilities, some sharing with the provincial programs.

The last remaining piece is the federal piece. If we have this wave of new faculty coming into these important areas, we must provide the means by which they can stay at the leading edge, so the people they educate will be the ones that industry will need to thrive on. We need to have research grant money for them.

That is not theoretical. In its own internal reallocations of resources, a process we do every four years, NSERC increased the resources in computer engineering, computer science, and electrical engineering by about 22%, at the expense of the other disciplines. We moved it out of there to move it into those areas. That growth rate turns out to be not enough, and the applications coming in this fall are vastly in excess of our expectations of predicted growth on which that reallocation was based. We need money to provide research grants to these excellent people we're attracting in an industry that's creating wealth in this country, creating excellent employment.

I'm sure you will hear from the industry on this in other sessions around the country. They will probably tell you that Brzustowski has the right idea but is way off on the numbers, and they'll tell you I should be asking for three times what I'm asking in the brief. They may be right, but I draw to your attention that in an area where there is a success, a huge success, and further success is limited by the availability of people trained at the leading edge, there is a role we can play. In fact the federal piece is the last piece in the puzzle, and I urge that particularly to your attention.

• 1020

[Translation]

Mr. Chairman, thank you for your attention and thank you once more for your support.

[English]

The Chair: Thank you, Dr. Brzustowski.

We'll now hear from the Canadian Bureau for International Education, Mr. Jim Fox and Ms. Jennifer Humphries. Welcome.

Mr. Jim Fox (President, Canadian Bureau for International Education): Thank you very much, Mr. Chairman and members of the committee.

It is estimated that about a third of Canada's jobs now are knowledge jobs and that this portion will increase. Since this country depends so heavily on international trade, they might better be called international knowledge jobs.

The recent Speech from the Throne put some important emphasis on connectivity in Canada and investing in research and development, all elements of a knowledge-based economy, but it failed to mention the international knowledge strategy that Canada badly needs.

[Translation]

Even though Canada is one of the most multicultural countries, it is one of the least internationalized nations in terms of education and trade. Even though education relations and culture are the third pillar of our foreign policy, we are lagging further and further behind in this area, instead of moving forward.

[English]

In fact, in the time since this government has come to power, we have slashed our international education program from $26 million to $20 million. Today only 3% of our post-secondary students undertake learning abroad, and like our trade, they go almost exclusively to the United States.

Our international student enrolments in the last decade have stagnated, even though demand has more than doubled worldwide. We end the decade with 1,000 fewer international students than we began it. We spend the least per capita of all OECD countries on international education: 80¢, as compared to Australia's $9.

Economic studies, including the very recent report of the Conference Board of Canada, cite many positive economic impacts of international education, a positive correlation to economic performance, a strong positive impact on GDP growth, and a positive impact on innovation.

[Translation]

If we want to continue being a major world player, we need to devise an international knowledge strategy. Given the current state of affairs, we have reason to believe that this will not happen overnight or without federal support. What is needed is both an investment and an action plan.

[English]

Tony Blair is committing Britain to doubling its international student intake and its scholarships for British nationals. France has indicated it will increase its international students from 120,000 to 500,000. The European Community already commits $1 billion each year to international educational exchange. Australia is planning to make education one of its top three exports, and the United States is on the verge of announcing an international education strategy aimed at keeping its number one position as the world's educator. Incidentally, all these commitments are being realized in the next five years or less.

Canada has much to offer too. Our recent study of the international students in Canada revealed that 80% of them would recommend a Canadian educational experience to a relative. Let's hope it's a relative they like.

Canadians apply in droves for the few opportunities for study, international co-ops, and work internships abroad. It was interesting to hear of the interest in professional exchanges as well, of researchers and scientists. It's clear that commitment to international exchange is important. My own organization, the Canadian Bureau for International Education, continues to export Canadian education to buyers who value it highly. We've sold more than $500 million worth of education to foreign countries.

• 1025

So what must be done to strengthen Canada's international knowledge performance?

Since international academic relations are a federal concern, the Government of Canada needs to invest $100 million per year in an international knowledge strategy. The strategy would advance Canada's interest through education in the world. Other elements are:

Strategic international scholarships to attract the world's best brains through study and research in Canada—you might call it a brain gain strategy.

Strategic international learning for many more Canadians to study, participate in international co-ops, internships and professional exchange.

Strategic marketing of Canada as an educator in the world for fields linked to our export trade, drawing attention to Canada's knowledge resources in these fields and exploring the Internet as a prime marketing tool for multimedia delivery of programs at a distance and high-quality programs in Canada. A special fund will need to be established to stimulate educational exports.

Strategic support for Canadian education to become IFI competitive.

Strategic support for institutions in their efforts to internationalize.

And finally, a strategic approach to Canada's official development assistance, realizing the target of 0.07% of GNP and fostering knowledge relationships and knowledge networks with developing countries, what Maurice Strong has called knowledge brokering to the developing world.

Thank you.

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

Now we'll go to the question and answer session. We'll have time for a ten-minute round, and we'll begin with Mr. Epp, followed by Mr. Dubé.

Mr. Ken Epp (Elk Island, Ref.): Thank you, Mr. Chairman, and thank you, all, for taking the time to come to our committee today. I appreciate all of the work that's gone into your presentations.

I have a number of different questions, wide-ranging ones actually, and I need to preface this. The other committee members who were with us before will know that I often say this: don't presume from my questions that you know in what direction I'm heading. The reason is that having been an educator for 31 years, I've learned that in order to find out what other people are thinking, you sometimes have to ask questions to draw them out. So I'm drawing you out, not you drawing me out.

The Chair: This is referred to as the Epp disclaimer.

Mr. Ken Epp: It's not really a disclaimer, it's just so that we understand each other.

I want to talk first about the aerospace industries with Mr. Smith. Why should we invest money at all in aerospace industries? We have enough troubles right here on planet Earth. We have a lot of troubles right in Canada. Why should we be spending money out in outer space?

Mr. Peter Smith: Actually it's not entirely outer space. We're basically an association that represents 250 manufacturers of aircraft and aircraft components, and this includes space, which in comparison is a relatively small percentage of the overall sales.

One of the things I think I should reinforce with you is that the aerospace industry, as I mentioned in my comments, has grown at three times the rate of the GDP in the last decade and this year alone will be generating about $16 billion in sales, of which 75% is exported.

Some of the other comments that were made I think relate to the aerospace industry in the sense that it is probably the largest employer of the knowledge-based students and graduates, who were referred to by a number of people, coming out of research institutes. By the way, it's one of the highest-paying occupations in Canada, particularly at the manufacturing level, where it is likely paying around $200 a week more than the normal manufacturing worker receives because of the demand that's required for the quality of skills in that particular occupation.

Finally, I should also state that the aerospace industry in Canada is one of the largest investors in research and development. It is one that we take considerable pride in, in that if you have followed the aerospace industry in Canada in the recent past, there has been one new product released every year by the Bombardier Corporation, from the Dash 8 400, to the Global Express to the Continental, including the Bell Textron 427 helicopter and a whole bunch of derivatives of the engines that propel these vehicles.

• 1030

The bottom line to your question is that the continuation of R and D to product release, to generate employment, to generate new dollars back to Canada in response to a very significant demand for quality product in Canada, we feel is a winner. And in order to do so, there is a heavy risk requirement that requires a partnership with the federal government.

If I might add two comments to complement some of the comments that were made by the people during their presentations, I particularly want to congratulate the government for its continued investment, and certainly the support from the chair and the committee, for continuing to invest in the aerospace industry through the program of Technology Partnerships Canada. We were encouraged by Minister Martin's comments that the government intends to sustain its commitment to providing assistance to the aerospace industry. But there are two issues with respect to completeness that I wanted to make, and it requires investment as well.

The National Research Council works in partnership with industry, and has for the last 40 years, and we find it sad that there are two initiatives that are currently ongoing. One is a Gas Turbine Environmental Research Centre and the other is the Advanced Manufacturing Technology Centre, both of which are going to be costing in the vicinity of $30 million to $35 million each. The aerospace industry in Canada has already committed $15 million to the gas turbine one and $12 million to the advanced manufacturing one, awaiting the federal government response.

Here we have an opportunity where industry is prepared to invest to provide the opportunities for the students who are coming out of the universities and to continue the product development that is also necessary to ensure our success in the future. So I would suggest to you, sir, that it's important to provide that environment for employment, for return of investment in the sense of taxes. Certainly the challenge, as was said by many of our colleagues around the table, is that it's not only the wages but the environment through which the researchers are going to be retained in Canada.

Thank you.

Mr. Ken Epp: Thank you very much. I'd love to debate with you for another half an hour, but I have some other questions as well, and in the round of things here I may not get enough time.

I'd like to go to Mr. Bryan and Ms. Cook. I'm amazed that this issue of tax deductibility of mechanics' tools keeps coming up over and over and over again. I've been a member of Parliament now for just a little over six years and it's been here ever since we've been here. One of our members had a private member's bill that went through most of the stages of Parliament and then got killed, and it keeps going over and over.

So I think I'd like to say to you that we'll continue to press for that, as far as we're concerned. We're very much on side on that. I've had presentations from people in my own riding on that issue pretty well continuously and I think it's one of the great anomalies of our tax system. I won't ask you to enlarge on it since I think you did a good job on that. I want to ask you, though, about the EI fund. You didn't mention that in your speech today, but you did talk about this thing in your presentation, and that is with respect to the EI fund.

Obviously, to the automotive industry particularly, that is a huge cost and it's an overrun. I'd like to just give you one minute to state your case for why that should be reduced.

Mr. Michael Bryan: What we were referring to here is the employer's contribution to EI, and of course this is just another thing in an industry that is wanting to employ people and has vacancies available but can't afford to do it because there is constant pressure, as in any business, from the top to maintain prices and build efficiency.

• 1035

All of these issues, similar to the tool tax, are just further costs that businesses or individuals must bear that hold them back from exploiting and expanding their business in the way they could.

Mr. Ken Epp: I have a question for you. If I were, for example, to promote, as a member of Parliament, that the rules should be changed so that the employer and the employee portions would be equal and that both should be reduced to an actuarial fairness with respect to the actual needs out of that fund, would you agree with that?

Mr. Michael Bryan: Yes.

Mr. Ken Epp: I thought so. Thank you very much.

Mr. Michael Bryan: It makes a lot of sense. Thank you.

Mr. Ken Epp: I appreciate that.

My time is rapidly running out, but I do want to ask something of Mr. St-Onge.

I want to first of all commend you for your breakfasts, your Bacon and Eggheads breakfasts. I don't know if the other members of the committee have attended those. I strongly recommend them. They've been most informative and actually very exciting. It's important for us as parliamentarians to see what is happening in the realm of research and development at our universities and in other of our research and development facilities in the country. To me, this is the seed the farmer puts into the ground in spring, hoping to get a crop in the fall. The day we quit doing this, I think we will really be in trouble. So I'd like to commend you for that.

I want you to enlarge a little bit on one of the things you said. You asked about the use of matching funds. We're talking, I think, about industry, the university, and the government. I didn't really quite understand what you meant. You also indicated that there should be some changes with respect to matching funds if the investment comes from outside our country. Could you just enlarge a little on that?

Dr. Denis St-Onge: I'll let my colleague, Professor Alper, deal with the substance of your question.

Thank you for your comments on the “breakfasts with eggheads”, as we call them. I just want to announce to everyone here that there will be one next week, dealing with weather and catastrophes, which will address one of these issues of our colleagues.

Howard.

Dr. Howard Alper (Past Chair, Partnership Group in Science and Engineering): I want to add a supplementary point that is essential to appreciate. The Bacon and Eggheads breakfasts are a partnership of PAGSE with NSERC. We really value working with NSERC on this. It's a wonderful initiative. I should tell you that I've mentioned it in other countries to people in similar positions, and they're going to try to initiate that within their parliamentary basis.

On the industry-university issue, the president of NSERC mentioned the different programs NSERC has, some of which other councils also have. One is a university-industry partnership where the corporate sector provides some funding—real cash, sometimes accompanied by in-kind—and that's matched by the granting council. That's really important leveraging. It's important for the university in terms of enhancing the support for research projects, and it's important to convince industry that their investment of, let's say, $50,000 per year really brings them $100,000 of research.

That works extremely well, and that works not only with university and industry. I should mention, for example, a program involving NSERC, NRC, and the university. I'm involved in one of them, which has led to several patents recently. That's extremely valuable, where the company contributes as well.

From a personal perspective, I can tell you from sitting on several corporate boards outside Canada—in the United States and Korea—that it would be a great advantage to the country to enable the corporate sector from outside this country to participate in matching.

• 1040

There's a proviso: the intellectual property must reside in this country. With that proviso, that really is important, because if I sit on a committee looking at spending $30 million of industry money—and that's an actual example—and I look at applications from Canada versus the United States, the U.K., etc., when everything else is equal, if I see that foreign investment matching is allowed, that's going to tip the scales. It does tip the scales. So it merits serious consideration.

Mr. Ken Epp: Thank you.

The Chair: Thank you, Mr. Epp.

[Translation]

Mr. Dubé.

Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): Many of the speakers have touched on one point in particular, namely that Canada ranks last among G7 countries in terms of research and development, which puts it on par with Italy.

Some of you have broached the taxation issue. Mr. Smith talked about the 4 per cent gap between Canada and the United States as one cause of the brain drain. Mr. St-Onge tempered these remarks somewhat by saying that there were other reasons as well, namely the working conditions of researchers and the fact that Canada lagged behind in this area.

I'd like to talk about the disparity in taxation levels. I'm a member of the Industry Committee and on Tuesday, we learned from a study conducted by Statistics Canada and industry representatives that there was indeed a gap between Canada and the United States, but also that countries like France and Germany had higher taxation rates in place than Canada. Of course in Canada, the tendency is to compare ourselves with our neighbours to the south and this factor comes into play.

The members of the Bloc Québécois support a tax break for workers earning $40,000 and over. If you have the figures, could you give us some idea of the average salary paid to workers in each sector, excluding of course, the salaries of administrators or CEOs? How much does the average worker in your industry earn?

Mr. Michael Bryan: The technicians I referred to earlier earn between $20,000 and $40,000 a year.

Mr. Antoine Dubé: And workers in other sectors?

[English]

Mr. Peter Smith: On the aerospace side, it would be between $40,000 and $60,000. As I mentioned earlier in my presentation, it's probably one of the higher-paying manufacturing-level jobs, simply because of the requirements.

But if I might simply add a comment to yours, I don't think the aerospace industry is any different from many of the other sectors you will find in front of the committee. Your comments about taxes are quite valid when you're talking about England, France, etc., but unfortunately we are neighbours to one of the largest countries in the world, and whether we like it or not, they are the customer of the majority of our exports.

For instance, in the aerospace sector, it is not commonly known that about 60% of my companies are American-owned companies operating subsidiaries here in Canada. So when you think of Pratt & Whitney Canada, which is a subsidiary of United Technologies of the United States, or when you think of a number of other companies that readily come to mind, I'm sure, in your familiarity with the aerospace industry, there is a competition between whether that person works in Canada or in the United States, primarily with the headquarters of their particular company.

We do business abroad. We are suppliers to Airbus and also to Boeing. But the attractiveness of the proximity of Canada to the United States creates the largest pressure in comparison between Canadian and U.S. rates of taxation.

• 1045

Mr. Paul Kovacs (Senior Vice-President, Policy Development, and Chief Economist, Insurance Bureau of Canada): I'd just reinforce from the insurance point of view as well that international taxation is terribly important as a determinant of where capital is placed in the world. To the extent that taxes on industry here in Canada get beyond those in France, the United States, or elsewhere, it is very difficult to attract and retain capital in this country.

Taxation as one of the many key investment decisions is increasingly important in this highly competitive world. So looking continuously at the United States but also at France, the U.K., and elsewhere is very important.

There are big differences by industry. In the insurance industry, looking at the European experience is very important. We do that continuously. There are problems right now with our overall corporate tax burden relative to a lot of the European jurisdictions and insurance. It is leading to some capital flowing out of the country, and that's not good for the country.

[Translation]

Dr. Denis St-Onge: Given the nature of the group that I'm representing here today, I really can't tell you what these workers earn on average. There are too many variables to consider. A university professor may earn on average $65,0000 whereas the salary of someone working in the field of biotechnology may be completely different. I can't give you the figures you want.

The point I was trying to make is that lower taxes are not the main reason why people are leaving Canada. The main reason is better working conditions elsewhere, better laboratories, a better environment, more students and so forth. No doubt you've also read the issue of L'Actualité in which the findings of our study on conditions in Quebec universities are reported. There is major problem in this sector. Universities are indeed losing very good researchers because working conditions are better in other provinces or in the United States.

Reducing taxes in the long term is obviously a very good move, but we mustn't think that this will help keep our researchers here in Canada. Tax cuts are not the answer. The solution to keeping our researchers and to doing productive research which will be beneficial to Canadians lies in creating better research conditions in Canada.

Mr. Antoine Dubé: If I've enough time left, I'd like to focus on another issue of interest to me. The witness mentioned international education. In your opinion, if the Canadian government had to select a priority, would it be more important to send more students abroad or should it focus on attracting more foreign students to Canada?

Mr. Jim Fox: I think that student movement in both directions is important. It's impossible to say that movement in one direction is more important. The Conference Board study found that economic gains were greater when Canadian students were encouraged to study abroad. However, in the long term, student movement in both directions is needed to forge economic ties.

Mr. Antoine Dubé: However, we mustn't forget the important issue of intellectual property.

Dr. Denis St-Onge: Indeed, that's an important consideration. If people come to this country to study and to work in our laboratories, regardless of prevailing conditions—we're hopeful that the recommendation calling for matching funds will be adopted—care must be taken to ensure that the intellectual property associated with research done in Canada remains in Canada. That goes without saying.

Mr. Antoine Dubé: Otherwise, we're investing in a leaky boat.

Dr. Denis St-Onge: It's all well and good to be generous, but....

The Chairman: Ms. Humphries.

Ms. Jennifer Humphries (Director, Membership and Corporate Services, Canadian Bureau for International Education): I'd like to add something to that.

• 1050

Movement in both directions is a priority of ours. We encourage foreign students to come to Canada because this is part of the education process of students who cannot go abroad. Those students who remain in Canada get an opportunity to rub shoulders with students from other countries.

Secondly, we have surveyed Canadian employers and found that today, they want our students to have more international education experiences, to have the ability to speak a number of languages and even to have studied and worked abroad. This study was done only a year ago.

Mr. Antoine Dubé: Who conducted the study in question?

Ms. Jennifer Humphries: We did. We surveyed approximately 20 employers, but we would like to take it even further. The environment is changing. Employers are now turning their focus increasingly to the international stage.

Mr. Antoine Dubé: I'm not a member of the finance committee, but I'd like to know if we could possibly get a copy of this study if it has already been released.

Ms. Jennifer Humphries: Yes, we have copies here, in both languages. I'd be happy to leave them with the committee.

Mr. Antoine Dubé: Thank you.

[English]

The Chair: Thank you, Mr. Dubé.

Mr. Cullen, followed by Mr. Szabo. Then we'll go to Ms. Bennett.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chairman.

I had a question for Mr. Smith and for Mr. Fox, but I'll concentrate on Mr. Smith and give my colleagues some time.

Mr. Smith, I don't know if this is a pre-budgetary item or not, but I'm curious about the status of...is it ITAR? I confuse the acronyms these days, but basically it means the measures by the U.S. to make it more difficult for the Canadian defence industry to bid on U.S. defence industry contracts. What is the status of that?

Also, in regard to TPC and the World Trade Organization, are we going to be able to reposition TPC to make it compliant, or are there other policy instruments that we should be looking at in lieu of or in addition to that?

Mr. Peter Smith: Thank you, Mr. Cullen.

Indeed, ITAR refers to the international traffic in arms regulations, which were recently changed, in April of this year. On the surface, you are right, that resulted in a disruption of the ability of Canadian companies to either work on or produce, in conjunction with U.S. counterparts, material that would have been declared sensitive technology because of national security reasons in the United States.

We have worked exceptionally hard with our members and those headquarters in the United States to resolve the problem. Indeed, it was a matter that was brought forward when Prime Minister Chrétien met with President Clinton about two weeks ago.

Currently, officials from the State Department in the United States and from our Department of Foreign Affairs and International Trade are meeting on three issues. One is the definition of technology data or technical data. There is a security issue with respect to dual citizenship. There is the necessity for Canada to harmonize its export controls to reassure those in the State Department that Canada is not what they perceive it to be: a seepage country with respect to their secure technology.

I'm optimistic that we will find a solution to it. It has been painfully slow, but it's one in which I think we will see resolution that will restore the trade.

The second issue referred to was the Technology Partnerships Canada program, which was challenged under the WTO appeal process with respect to the Embraer challenge and its use of Pro-ex. I think we all know the results: that the Pro-ex program used by the Brazilian Embraer company was found to be non-compliant, and in Canada's case, the Technology Partnerships Canada program was found to be non-compliant because it was perceived to be “export contingent”.

We in the association have worked with Industry Canada and are pleased to say that the terms and conditions of the Technology Partnerships program have been changed to remove the product-specificity part of that particular program, which should remove any assumption that the program is export contingent.

In fact, I understand that Minister Manley has agreed to table Canada's revised terms and conditions to the panel at the WTO by November 18. There are discussions ongoing with the Brazilians now, which is the normal process in WTO appeal.

• 1055

Once again, I feel that with the cooperation of government officials, and certainly with the support of the government, we have been able to find a resolution to both of those issues.

The Chair: Thank you.

Dr. Bennett.

Ms. Carolyn Bennett (St. Paul's, Lib.): Thank you, Mr. Chair.

I think all the presentations were fantastic and pretty straightforward.

I just had a quick question for Mr. Fox on the two-way street of international education. I assume that a lot of it is in the actual exchange of culture and learning languages and the comfort that people then have in other countries. Certainly, we saw first-hand the international youth internship program that you remarked on. On our recent trip to China, it was extraordinary to see these young trilingual people who could get a job anywhere in the world, I think, just because of their knowledge of all of the cultures.

What I want to know is what your organization does about distance learning and online education. Does that end up competing with what you're trying to do? Is there a way that Canadian universities could be doing more of that just as a revenue source?

Also, as we've seen with the decreased admissions to universities, obviously some Canadian students are upset that there has been marketing for foreign students at higher tuitions. It may reduce the number of Canadian students who get in, though.

So I'd just like you to help me with (a) the online education business and how that fits with your organization, and (b) how we make sure we can promote what you're trying to do without any political resistance.

Mr. Jim Fox: First of all, we're a membership organization of colleges, universities, school boards, and other interested educational organizations in Canada. Consequently, our view of international education is quite comprehensive. The medium of delivery of education is very much of interest to us, and the opportunity is significant for multimedia delivery of our education, not only at the post-secondary level but at all levels. To make that happen is an enormous challenge.

We are undertaking a certain amount of international education activity at a distance and in multimedia, but far too little. At present, as far as I know, we cannot offer internationally a complete program at a distance. This compares with Australia, which is delivering full-time programs to over 30,000 students. That is approximately how many we have studying here in Canada.

There's much work to be done. It's something that our organization fully endorses. In travelling the world, we see that there is a tremendous appetite for Canadian education, both at a distance and in Canada. There's recognition that our education is of a very special quality, I should think. We're viewed as second to none when it comes to providing education, whether it be at a distance or in Canada. We simply aren't meeting the potential—or even beginning to meet it.

The Chair: Are there any further questions, Dr. Bennett?

Ms. Carolyn Bennett: No, thanks.

The Chair: Mr. Szabo.

Mr. Paul Szabo (Mississauga South, Lib.): Thank you.

Mr. Anderson, in part of your brief, you mentioned your view that basically there should be “broad-based tax cuts”. Can you elaborate on what constitute broad-based tax cuts?

Mr. George Anderson: Yes. I think tax cuts should be both.... On the personal income tax side, I think that is a priority. Polls are beginning to show now that Canadians, notwithstanding that governments may claim to have reduced taxes, see no gain whatsoever in their personal disposable incomes. Their sense of confidence about the future—and about the future of the economy in particular, I think—depends upon giving them a real sense that there is now some disposable income to invest in all of those things that families find important, including taking care of and educating their children, which is very important to Canadians.

Mr. Paul Szabo: If you had to write a report that recommended broad-based tax cuts, what specific cuts would you be suggesting?

Mr. George Anderson: I think we'd start with personal income tax cuts. We'd start with looking at the question of bracket creep and dealing with that. Secondly, on the corporate side, we'd look at payroll tax cuts, because they're killers of jobs.

• 1100

Mr. Paul Szabo: Okay. There are 14 million income tax payers in Canada. If every one of them got $100 in their pocket it would cost $1.4 billion.

Mr. George Anderson: Yes.

Mr. Paul Szabo: Have you any suggestions for the committee as to how many hundreds of dollars would constitute the equivalent of broad-based tax cuts that would make a change to the extent you think Canadians need?

Mr. George Anderson: No. I can't give you a specific number.

Mr. Paul Szabo: Would it be $1,000? Would that make a difference?

Mr. George Anderson: Well, of course it would. Any amount of money would make a difference. The higher it is, the better it is.

My point is that if we embark on this course of action—and I think it's clear that the government is going to—we do it in a way that people find substantial and meaningful, that at the end of the day they don't get told by commentators this is worth $35 in your pocket at the end of the year. That's not meaningful.

Often the cuts that are entertained by government in effect are amounts in that order of magnitude, and worse, they're then clawed back through some other means, so the net effect is not a decrease at all but in fact a net increase. So I would say any amount of money that is substantial is going to be appreciated by Canadians.

Mr. Paul Szabo: What constitutes substantial? We're not sure.

Mr. George Anderson: Quite frankly, that is as much a political judgment as it is an economic one.

Mr. Paul Szabo: Okay. I have one brief question for Mr. Smith.

I'm glad you raised corporate tax. Generally in the discussions that have been held it seems to have been relegated to a spot behind individual income taxation in terms of relief.

In comparing Canada to the U.S. in terms of the rates, are you aware of any changes or provisions within either tax regime or regulatory regime that should also be taken into account in terms of comparing one rate to the other?

Mr. Peter Smith: Well, certainly Canada has a very favourable research tax credit system, much more favourable than you would find in the United States. But in actual fact, although I raise the disparity between the corporate tax of Canada and the United States—Canada's is obviously higher, as I mentioned—I was delighted with Minister Martin's comment in his statement two days ago saying he was prepared to look at it in the sense of internationally competitive rates.

It's not a large amount, but it's still significant enough to make the difference in the sense of margins of 5% and 7%. When people are doing the numbers as to whether they want to invest, 5% or 7% makes a significant difference.

But to answer your question, yes, I think the Canadian corporations that are involved in research and development, as Canada's aerospace industry is, have a very attractive environment in which to work because of the research tax credits. We have expressed our opinion in that regard, that certainly it's one of those elements that the government has created and sustained and one that is attractive for investment to Canada

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

I'd like to make some comments and perhaps ask a question in relation to the whole issue of tax cuts. Mr. Szabo correctly points out that a $100 tax cut isn't really going to make much of a difference—that is, if the argument on tax cuts is solely one of getting more money into people's pockets.

I think the debate on tax cuts goes beyond the issue of how much money is actually going into people's pockets. The tax cut issue also speaks to the issue of incentive to work, save...these are economic issues that are extremely important if we want to have a healthy economic system. So I think while it is important in the sense of letting people understand they can get to keep more of their money, it's also what happens with that money that is equally important.

• 1105

If we want to create a competitive tax regime, there's no question in my mind that taxes must come down to have an impact. Particularly, I think while much of the debate has been going on in relation to the issue of personal income tax, the whole issue of corporate taxation in Canada has to be given a higher profile. Judging from what I have read and the impact of a reduction in corporate taxation, the spin-offs are quite dramatic.

People are, as Mr. Smith correctly pointed out, sitting down and analysing where they are going to place their business. Is it going to be in Canada, is it going to be in the United States? Also, places like Ireland are attracting a lot of business. If you look at the immigration patterns from United States to Ireland, they actually have more people going back to Ireland than going to the United States from Ireland. That is strictly driven by the economic benefits of a competitive tax regime.

Now, Dr. St-Onge, you said taxes are not necessarily the reason people leave; it's because of the environment they find. But can I ask you, do you think maybe taxes are the reason why those environments exist?

Dr. Denis St-Onge: I honestly cannot answer that question. I don't know enough about the economics of other countries. You know, why does somebody move to Boston, or to San Diego? There are probably two reasons—the labs are bigger and better, and the weather is better in the winter as well.

I cannot answer your question, although I have searched. That's why the information I gave was incidental. I don't have any hard data for this. But I know of no study, by any organization, that would support the argument that people leave because of taxes. That is simply a non-starter; it doesn't exist. But they go to better labs.

The Chair: Yes, Howard.

Dr. Howard Alper: Can I just add a point? I don't think it's simply taxes. Yes, it's partly corporate taxes. If company X starts to set up in Ireland, what also attracts them is the cost, for example, of doing research and development, I think, and this is an important selling point for this country. The cost of doing the identical research in Canada compared to the cost of doing it in the United States, say in the pharmaceutical industry, is about 40% less here—40%—and that should be used as a way of attracting business to this country.

So yes, your corporate tax has to be at a level that's going to induce corporations to set up here, but it's not just tax, it's the cost of doing R and D, the annual cost per individual. For example, in the particular area I'm familiar with it's $210,000 per year in the United States, U.S. dollars, and in Canada $140,000 Canadian dollars, which is basically half the cost.

The Chair: I don't want to mislead anybody. I want to be very clear. I also don't think it's just taxes. If it were just tax, then the Cayman Islands would be the centre of the universe, right? It can't be just that. But I think the tax issue shouldn't be taken lightly in that sense. I think it's perhaps more important than we may believe.

Dr. Brzustowski.

Dr. Thomas Brzustowski: Mr. Chairman, I'll just add to Professor Alper's comment. It's the cost of doing research, but also the availability of highly skilled people in large numbers, and that's coming out in the microelectronics industry right now. Where that's a limiting factor, I don't think anybody would move. But if we can provide the cost of doing research that we have now, and also highly qualified people, that becomes a magnet.

The Chair: Mr. Smith.

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Mr. Peter Smith: I had responded to a question earlier on about the comparison between Canada and the United States on the personal income tax side. I simply wanted to reinforce that in the Canadian aerospace industry, we currently sell into about 48 countries. When you sell an aircraft, you have warranties, repairs, and other things, and when you have such a mobile workforce, they often have an opportunity to go to wherever to work on an aircraft because of the warranties. So they make comparisons from a personal income tax perspective.

On the other hand, when you take a look at a company like Bombardier, who have opened up facilities through acquisition in Ireland and the United States, where they purchased Learjet, and who have service centres in various countries, they too, then, have an opportunity to see how you operate corporately in a different country.

So I think it was at least encouraging, from your comments and those of the Minister of Finance, that an international comparison is required for both the corporate and the personal. Canadians are much more informed than they've ever been because of the nature of the work they're doing. The travel that didn't exist even a decade ago and that is available to them today is phenomenal. So people do make those comparisons, and do make choices. Of course, in our case, as an integral part of the knowledge-based economy, our people know their skills are portable.

This is the challenge both government and industry have in Canada—to make it an appropriate place to work, and to give them, as you said, the incentives required to continue to remain in Canada. I'm encouraged by some of the comments this past week and by what this committee has been exploring in both of those areas.

The Chair: Thank you.

Mr. Kovacs.

Mr. Paul Kovacs: The effort to regain control over the country's finances has been a very challenging exercise. It has required an awful lot of sacrifice. We've done the job and now have control over the finances again, but it took a number of years and some very difficult decisions.

I think over that period there was an expectation built up within the country that when we would be in the circumstances in which we are now, there would be a return. I think it's very appropriate, as the government has set out, that there's a balance to that return. It comes in a variety of forms, tax being one, and some investment in key areas. We're spending a lot of time talking about research and universities, etc., where we are investing quite appropriately. There's also a balance of other areas.

Taxes are a critical part. The public will be looking at this area over the next few years. It will take time to give this meaningful return. Now, $35 or $100 may not sound like much in a particular year, but over the next five years or so there's a potential to make a very large return on the personal income tax side. Those are the kinds of things Canadians are expecting and we're now capable of delivering.

I think in the business community there is a belief, certainly among the people I'm working with, that our priority right now is on the personal income tax side. That should likely be something that's addressed soon, and very aggressively.

On the corporate income tax side, there is a real sense that our tax system is not in line with those of other countries. This is affecting the overall business environment. It is affecting the attractiveness of creating jobs, the good jobs that we want here in this country.

I hope the time will not be too far away that we can move to being able to also think about the corporate income tax differences, and make a meaningful effort to narrow those. They are large enough that it is affecting the kinds of jobs and the kinds of futures people will have in the country. There is probably some time, but not a lot of time, before we have to turn and aggressively deal with those.

My overall message is that we took on a very difficult challenge to get our financial house back in order, and we did that job very well. It is time to return that, because the finances allow that again. Taxes are one part of how that gets returned. Personal income taxes are probably the first priority. I think that's an appropriate judgment. I think over a number of years there will be a way to do that in a very aggressive form. Corporate income tax is probably not too far down in terms of issues to come onto the agenda.

The Chair: Ms. Cook.

Ms. Beverlie Cook (Vice-President, Automotive Industries Association of Canada): Thank you very much, Mr. Chairman.

In our brief, our association spoke to the need for both personal and corporate tax relief, but I would like to speak to the need for relief in the sector of small to medium-size enterprises. In our sector we're talking about some 27,000 primarily small business people.

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I guess what we would like to see is an opportunity for these companies to reinvest, what we would call “strategic reinvestment”. In our case, in the repair and service industry, we see the need for these companies to take advantage of certain opportunities that are represented in the new economy, such as making use of e-commerce.

It was interesting to hear the question earlier about making use of distance education. It's certainly an area where we feel we must make strides forward. These small corporations must feel there is a benefit to them, and we hope for assistance to them to start reinvesting so that we can continue to grow the small businesses that will continue to look after the ever-increasing number of vehicles on the road.

Thank you.

The Chair: Thank you very much.

On behalf of the committee, I would like to thank the panellists. Certainly this panel always adds value to the debate. Essentially, that's what it's really all about, to add value to our country.

The challenges we face are indeed challenging, but I must say, I think we're well positioned as a nation. I feel we finally have some breathing room, as Mr. Kovacs clearly pointed out, to make those smart decisions.

As you probably know, in every decision we make there are trade-offs. In many ways, I think getting up to a balanced budget was a lot easier from a decision-making point of view than doing what we're doing now. So we're going to continue to look to you to give us the wise advice you've given us throughout the years as we attempt to both build a better country and ultimately improve the standard of living for Canadians.

Again, thank you very much.

The meeting is suspended until 11.30 a.m.

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The Chair: I'd like to call the meeting to order and welcome everybody back for this session. We have representatives from the Canadian Consortium for Research, the Social Sciences and Humanities Research Council of Canada, the Humanities and Social Sciences Federation, the National Research Council of Canada, the Association of Consulting Engineers of Canada, and the Canadian Academy of Engineering.

Every year this is a very interesting round table, so I'm sure it's going to be the same this year. It's the sort of round table that really re-energizes the committee because it speaks about the future and the choices we have to make to build a brighter future for Canada.

So without further ado, we'll begin with the Canadian Consortium for Research. Dr. Don McDiarmid and Francine Ford, welcome.

Ms. Francine Ford (Canadian Consortium for Research): Thank you. Good morning, Mr. Chair and the honourable members of this committee. My name is Francine Ford. I'm the executive director for the Canadian Association of Physicists. I and my colleague Don McDiarmid are here representing the Canadian Consortium for Research.

The consortium comprises 22 research organizations that represent over 55,000 researchers in Canada across various disciplines—physicists, chemists, biologists, economists, historians, university teachers, and graduate students, among others.

To start, I'd like to express the gratitude of the research community to this committee for your support of research in Canada. We're very encouraged by the investments the government has made over the last three years in research. It's clear these investments are making and will continue to make a significant impact on anyone considering a future in research, particularly the granting councils investments, the CFI, the Canadian Institutes for Health Research, and the new chairs that have been announced in the government's speech.

I'm aware of two graduates who have come back. This increased funding made it attractive for them to come back to Canada. One is a plasma physicist who spent one year in France and three years in the States and came back last year to work at one of the Ontario centres for excellence. The other, an engineering physicist from the University of Saskatchewan, was just announced as the John Polanyi prize winner. He spent three years working at Stanford, returned last year, and is now working at the Ottawa Regional Cancer Centre. You receive that prize as being the best young scientist in Ontario, so we see these people, and others like them, as individuals who contribute significantly to the future health of the Canadian economy.

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The consortium has identified specific areas that we see as the priorities in research over the next few years. They can be categorized into three areas: core funding for universities, continued support for basic research through the granting councils, and government science and related national facilities. As Canada continues its transition from a resource-based economy to one based on knowledge and technology, it's critical to have a strong and vibrant scientific community to keep Canada's knowledge base world competitive and to provide expertise and the brightest young Canadians to industry.

For this to be achieved, Canada must maintain strong support across the entire spectrum of research, from the most basic through to technology transfer to private industry. Without such support, effective high-tech growth cannot be sustained over the long term, and this spectrum, as you know, includes research undertaken by the universities, the private sector, and government agencies and departments.

The advisory council on science and technology recently urged the government to build further on the measures taken over the last three years, increasing basic research funding. Since the opportunities of significant promise often arise from basic research, the consortium is encouraging the government to continue its investments in the base budgets of the granting councils. This is particularly important if we are to maintain our improved position relative to our international competitors, who have significantly increased their funding for basic research or have made commitments to do so.

The underfunding in Canada is greatest in the social sciences and humanities area. They represent 54% of students and faculty in Canadian universities, yet they only have 15% of government expenditures in research. So the consortium is urging the government to redress this underfunding situation by doubling SSHRC's budget over the next three years. We also ask the government to specifically increase NSERC's base budget by $80 million next year to allow it to respond to the programs that have been approved by the CFI and to address the increased activities in universities, with respect specifically to things like computer science programs. We also would like the government to consider a policy of moving toward allocating 1% of the national health budget toward the Canadian Institutes for Health Research.

While the initiatives recently have focused primarily on the university research sector—necessarily so—the other pillar of the science spectrum, that of government science, has taken a back seat. We feel the time is now right for the government to turn its attention to research in government to ensure that the balance of the research spectrum is maintained in Canada.

The purpose for science activity within the government could fall under three broad mandates. One is research that falls in the gap between basic research conducted by the universities and applied research in industry—bridging the gap—the second is to inform policy development, and the third is to improve government services. We welcome the efforts of the Council of Science and Technology Advisors in examining the role of the federal government and government research; however, we also recognize that this report will take time to finalize and to implement. So we're urging this committee and the government to consider the significant immediate needs of government agencies and departments that serve the national priorities, and allocate sufficient funds now to ensure their continued contribution to the health of Canada's research enterprise.

An extension of government science funding is the national facilities. These facilities are critically important to the Canadian science and technology communities across many disciplines and many sectors. They also open up Canadian facilities to foreign scientists on the basis of merit, and that allows Canadians to obtain the rights to use similar facilities elsewhere on the same basis. This arrangement is obviously of immediate and immense benefit to Canada and contributes greatly to Canada's stature in the international science and technology world.

We are aware of two such initiatives currently under consideration within the government. One is the renewed funding of the TRIUMF facility, and the second is a proposal for a new facility called the Canadian Neutron Facility. This facility underpins one of Canada's recognized important research areas, that of material science.

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The consortium urges that, where pressing, deserving proposals be funded immediately. Delaying could mean the loss of significant critical expertise in these areas as the researchers move to where they can conduct and pursue their research interest.

In recent years core funding of Canada's post-secondary educational institutions has declined significantly. Universities, for example, have experienced a 23% loss in operating funds over a recent five-year period. One consequence of this diminished core funding has been a dramatic increase in university tuition fees. Student debt has increased, and accessibility has started to decrease. Another consequence has been the decay of university infrastructure. The number of faculty members has been reduced, library resources are diminished, maintenance is deferred, and technical support for research has decreased.

As a mother of two young children who are just now entering the educational system, it concerns me that at a time when post-secondary education is becoming more important to them and to the country, the university system in Canada will either be prohibitively expensive or else inadequately resourced.

Does this mean that the government's contributions to the RESP are going to become ineffective? Am I going to have to consider education outside of Canada? In the Speech from the Throne it was stated that the government will ensure a modern and effective research and science capacity to promote the health, safety, and economic well-being of Canadians. This is a welcomed statement, which the consortium hopes signifies the government's intention to take a national leadership role in ensuring the future health of the post-secondary education sector, much in the same way as it did last year in the health sector.

In summary, the consortium recommends that the government strategically invest in the post-secondary education sector; that it continue its investments through increased funding to all the granting councils, with particular emphasis on SSHRC; and that it determine the role of government science and adequately fund the necessary government agencies, departments, and national facilities.

Thank you.

The Chair: Thank you, Ms. Ford.

We'll now hear from the Social Sciences and Humanities Research Council of Canada, Dr. Marc Renaud and Tim Brodhead. Welcome.

[Translation]

Dr. Marc Renaud (President, Social Sciences and Humanities Research Council of Canada): Thank you very much, Mr. Chairman, and good morning to everyone.

I'm the President of the Social Sciences and Humanities Research Council of Canada. With me is Time Brodhead, the Chief Executive Officer of the McConnell Family Foundation, the largest of its kind in Canada.

[English]

We've promised each other that we would stick to our times and talk four minutes each, not more, so we're going to talk quickly.

The Chair: Take five minutes and talk slower.

Some hon. members: Oh, oh!

[Translation]

Dr. Marc Renaud: In the press release we received on October 18 last, the Committee sought our input on five questions.

[English]

In fact, the people we're financing at SSHRC have something to say on each of those five questions. For example, SSHRC's board decided last week that we would make a national priority of researching productivity in order to understand what the heck is happening to us on that front and how we can enlarge the measures of productivity. We've also launched a targeted team on the knowledge-based economy in order to try to figure out what the heck is happening to us because of this change in the economy. So we have things to say on almost all of those points.

[Translation]

In our brief to the committee, we tried to address all of these areas.

Today, I'd like to focus in particular on two issues, namely social infrastructure and social research. Globalization and the information revolution have brought about absolutely extraordinary changes, unlike anything seen in this millennium and probably as profound as the changes brought about by the Industrial Revolution or by invention of the printing press or the steam engine.

These changes have given rise to all kinds of questions. Society is changing, the economy is changing, the research environment is changing. We find ourselves asking questions like: Where are we? Who are we? Where are we going?

I'd like to take a few minutes to share with you what researchers in the social sciences and humanities field are trying to do to help Canada. The face of research in this and other fields is undergoing a radical transformation. Increasingly interdisciplinary research is being conducted by teams of researchers because the problems confronting us must be viewed from different perspectives. Increasingly, people are tied to their environment and to their community.

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[English]

We're now witnessing a return to the social indicator movement President Kennedy launched in the U.S. in the sixties. We're seeing social sciences and humanities develop collective tools for research that did not exist before. For instance, SSHRC was the host of 18 countries two weeks ago on the theme of social sciences for a digital earth. This conference was trying to read into the future as to what will be happening to all of us. It's incredible what's going to be coming up. So these are some of the great tendencies in the world of research.

What we're doing quite humbly at SSHRC is basically trying to help those tendencies evolve correctly. Tim is going to address some of this. We've launched a program of better alliances with communities, which works incredibly well; a social statistics project where all the universities of the country are mobilizing; and a knowledge-brokering operation, which everybody is looking after.

This government is the first in a very long time actually to have a science policy. This government has invested in the CFI; the Canadian Institutes for Health Research, which will literally metamorphose health research in the next 20 years; and the millennium fund. As mentioned in the Prime Minister's last throne speech, it has invested in chairs. It has increased the budget of the granting councils. This government, maybe without realising it, is perhaps the first since just after the Second World War to really try to harness knowledge for Canadians' future.

My point, basically—and I won't elaborate on it much—is that at least one piece of the puzzle is missing. We're really underfinanced in the human sciences, and we need your help. We're asking to double our budget. It's not that much; it's a $40 million increase per year for the next three years. If we don't do this, I think the country will suffer.

I'm not saying this to attack the NSERC people, but it gives you a basis for comparison. If our budget were the equivalent on a per capita basis of NSERC's budget, our budget would not be $120 million, it would be $1 billion. We don't need $1 billion, and we don't need the equipment they need in natural sciences, but I can tell you that we cannot deliver what we can deliver with only $120 million.

I'll now turn it over to Tim.

The Chair: Mr. Brodhead.

Mr. Tim Brodhead (Chief Executive Officer, J.W. McConnell Family Foundation; Social Sciences and Humanities Research Council of Canada): I'm going to present the yin to Marc's yang, because he's talked about some of these large trends and challenges facing Canadian society.

I work for a private family foundation in Montreal, as he mentioned, and our mandate is to help Canadians understand and adapt to change. What that means is that we work at the community level. We're working with people who are concerned about issues of family violence, youth dropping out of school, and the building up of community organizations in order to play a larger role in health care. All of these are issues that are affecting Canadians across the country. The role of our foundation is to help people devise ways of responding to these challenges.

These are complicated challenges, and we don't have easy answers. The foundation doesn't fund research, so we rely on organizations, including the granting councils and particularly SSHRC, to help these community groups begin to explore the ways in which one can come to grips with some of these large social issues.

I think North American society is so driven by technological change that we tend to think our problems are technical in nature and the solutions are technical. I think that in fact more often than not the issues are social, not scientific.

If you take an issue of any newspaper, you can look at some of the things that are drawing our attention. Obviously science has something to contribute to how we manage fish stocks, for example, but I would think that at least as large a role is going to be played in how we understand better the management of conflicting demands on limited resources. That's an area where the social sciences have something to contribute.

The knowledge economy is wonderful. We talk about globalization and its impact on our lives, but equally the issue of social cohesion, how we can maintain a certain quality of life and a certain sense of participation in the life of the community, is as important as understanding the impact of globalization.

In the area of health, we know that obviously biomedical sciences have an enormous amount to contribute, but we also know that people's attitudes toward lifestyle issues, such as the choice of smoking or the problem of drugs, may contribution as much or greater to the well-being of a healthy society.

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So these are all challenges we confront in the community and at the level of people across the country, for which the solutions are as likely to be found in social science research as in other forms of research. That's the level the foundation works at.

As a member of the board of SSHRC, I see the importance of taking this macro view of the challenges facing Canadian society, whether it be in the area of cultural values and health, as Marc said earlier, or the challenges and opportunities of a knowledge-based economy, or the issue of social cohesion. These are all areas where the board of SSHRC, after a lot of discussion and reflection, have said we have to direct resources. We have to increase the capacity of Canadian researchers to work in these areas because they're crucial to our future.

There are other issues. Marc mentioned productivity and understanding better what it means, how we measure it and how we improve it. That's an area where we would like to devote more resources if they become available.

The issue of biotechnology is currently in the news. The council has said we would like to put more resources into research in this area, but of course it depends on having a larger budget.

I want to finish by simply saying that we almost take this area of social science research for granted because we don't often think of our problems as being problems of social organization management and what have you; we think of them as technical issues. Certainly sitting on the board of SSHRC, I became aware of the extraordinary range and excitement of the activity going on within the social science and humanities community across the country, but also the tremendous gap between the needs and the amount of funding.

We just heard from Francine that we're talking about 15% of the possible research actually being funded because of the resources that are available. So as somebody who's not a researcher or an academic, I would very strongly support Marc's plea for a doubling of SSHRC's budget over the next three years. I think we would see the results very quickly in terms of some of the key challenges we face as a society.

We are probably the only non-governmental source of funding for SSHRC. We're not quite capable of putting up the whole extra $30 million a year he said is needed. Nevertheless, I think it is an indication that we recognize very much the contribution to be made there.

The Chair: Thank you very much. I'm glad you both agree.

We'll hear now from the Humanities and Social Sciences Federation, Louise Robert and Garth Williams. Welcome.

[Translation]

Ms. Louise Robert (Executive Director, Humanities and Social Sciences Federation of Canada): Thank you. My name is Louise Robert and I'm the Executive Director of the Humanities and Social Sciences Federation of Canada.

The Federation is a non-profit organization representing 24,000 Canadian scholars active in the humanities and social sciences. We also represent 68 learned societies and 69 Canadian universities in these disciplines.

Today, I'd like to discuss with you the social sciences and humanities. I agree with the comments and views expressed by Mr. Renaud, Mr. Brodhead and Ms. Ford, but I would like to focus a little more on the importance of these disciplines from an individual standpoint, that is their importance to every Canadian. Robert Young, the President of Red Hat Linux, a technology company that is currently challenging Microsoft, recently said something that I find most interesting.

[English]

This particular company may give Microsoft its biggest challenge yet. The CEO recently spoke at the University of Toronto, which is his alma mater, at a conference on leadership and on the leadership skills needed in the 21st century. He declared that what had trained him the best to become a successful entrepreneur was his degree in art history—a humanities degree—for one of the most up and coming high-tech companies in the world.

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He gave two reasons why a degree in the social sciences and humanities could help somebody like him not only cope and survive but flourish in this type of economy. He says the first thing a degree like this gives is the ability to learn and the willingness to learn and keep learning. The second thing he says is that such a degree gives an individual courage to make decisions in changing, unstable, and uncertain times, when there are no clear answers and everything is not black and white. That's what that kind of degree gives to Canadians: the ability to manage change and to function in difficult circumstances.

I think you know all about this. This is what the chair of the committee was saying.

The decisions you have to make to disperse the moneys are getting more difficult because it's a far more complex world. So the social sciences and humanities, at a very individual level, help individuals deal with that. This is what we're talking about right now. We talk about a world in transition and the transition to a knowledge-based economy. We talk about social changes that rival the industrial revolution, and we know that changes on that scale don't happen overnight. We know that changes on that scale demand enormous energy from individuals and bring periods of uncertainty and challenge.

We say that given these kinds of circumstances, it becomes very important for Canadians to have the skill to deal with those kinds of changes and challenges. It's very important that they have technical skills, but they should also have the opportunity and the willingness to learn new skills if the ones they have become obsolete. They should have the ability to deal in different environments and cultures, with different languages and people skills. They must have problem-solving and analytical skills.

Canadians need to feel they're personally in control of their future. To do that, they must have the ability to be critical thinkers and decipher what is best for them from the multiplicity of information they get. They must have analytical skills so they can judge for themselves. They should have good problem-solving skills and good interpersonal skills. All those skills are at the core of a liberal arts education.

So to prosper, Canadians should be given the opportunity to develop all their skills and aptitudes.

[Translation]

The opportunities afforded by the social sciences and humanities are even more tremendous. Mr. Renaud spoke eloquently about research and I'd like to add to what he said. Research in the social sciences and humanities affords an opportunity to identify the consequences and implications of the changes I mentioned. For example, it can help heighten people's understanding of the widening gulf between rich and poor nations, between urban and rural communities and between various social groups. It can suggest remedial action and new measures, as well as new ways of behaving. It can inform decision-makers, that is politicians like yourselves who are called upon to legislate new behaviours and new situations. It can also inform people and allow them to analyse their choices when the time comes for them to decide whether or not to adopt new ways of doing things.

A society that values itself is a society intent on ensuring that all of its members have every tool they need to succeed. We believe that the funding of the social sciences and humanities is one of the keys to Canadian prosperity and achievement.

[English]

How do we equip Canadians with the skills and aptitude to survive and prosper in the new century? We say facilitate access to the greatest number of Canadians by reintroducing core funding for post-secondary education. We also say double SSHRC's budget, so researchers in the humanities and social sciences have the same occasion and opportunities as others. We also say devise a research infrastructure initiative for the humanities and social sciences that can complement those of the CFI and the CIHR.

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Thank you.

The Chair: Thank you.

Mr. Garth Williams (Manager, Public Affairs, Humanities and Social Sciences Federation of Canada): Mr. Chairman and members of the committee, I'd like to add just a few words. In addition to working for the Humanities and Social Sciences Federation, I'm also a graduate student in history at the University of Ottawa. It's really as a graduate student that I want to speak to you today.

A couple of years ago I went back to university because I wanted to better understand some of the changes affecting my own community and find a better way of dealing with them. I found two things that I want to share with you.

The first was just an unbelievable group of graduate students doing some tremendous research, working with students in a variety of different departments. One of them just finished his thesis the other day. It's a study of how communities in Canada and the United States reacted to major plant closings during the 1970s and 1980s. He discovered that the determining factor in how successful they were at adapting to this change, brought on really by restructuring from globalization, had to do with their sense of community and their sense of nationalism, which were both quite different in Canada and the United States.

I met another student at the archives just the other day from the University of British Columbia. He's doing work on the level of violence in society. He's asking such questions as: Does the level of violence change over time? Does it increase or decrease, and why? His research should give us some answers to help us learn from the past, so we can see how better to reduce violence today.

These graduate students are answering questions and struggling with these questions we read about in the newspaper all the time. Those are some of the reasons why I went back to school.

The second thing I found was there were a great many graduate students very much like me. They were people who could afford perhaps to go back to university for a year or two, and then really had to continue their research part-time because they had to go back to work full-time. The reason for that was that they couldn't get research funding.

The Social Sciences and Humanities Research Council does the best job it can, but it can only afford to fund about 5% of all the PhD students in the humanities and social sciences. It's a big reason why less than half of PhD students don't complete their degrees.

The students themselves are going to survive. They go out with BAs or MAs, and it's very possible to get good jobs and create new jobs for themselves, and that's what they do. But the people who lose are really the people of Canada. We lose the benefits of the research they would do and the knowledge they could contribute to our society and our economy. That's why I think it's really important to fund research in those areas.

The Chair: Thank you, Mr. Williams. Merci, Madame Robert.

We are now going to hear from the National Research Council of Canada, Dr. Arthur Carty. Welcome.

[Translation]

Mr. Arthur J. Carty (President, National Research Council of Canada): Mr. Chairman, members of the committee, good morning and thank you for inviting me to join you today.

[English]

I'd like to start by sincerely thanking the committee for the support they expressed in last year's report for science in general and, in particular, for the National Research Council of Canada.

The paper we've tabled has laid out what we see as the relationships between research, innovation and productivity. I'd like to keep it simple at this session and make a few points about some of the relationships.

Canadians are justifiably proud of a strong economy, a secure society, and a standard of living that's ranked amongst the highest in the world. However, as we approach the 21st century, there is a new economy based on global markets and increasingly reliant on knowledge and innovation as the critical factors in productivity, growth and competitive strength.

As many of you will have seen in the press in the last few months, some analysts have argued that during the last decade Canada has slipped in its productivity, growth and performance, in comparison with the United States. Underpinning these differences are the following facts. These are not all the differences, but they are substantial.

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The United States has consistently sustained a high level of investment in research and development. It has also been a world leader, though, in the management of the innovation process, and extremely adept at utilizing local, regional strengths—we call them community innovation systems—to develop technology clusters as bases of technological intensity in places such as Silicon Valley, Greater Boston, and Austin, Texas, as well as in a number of other cities.

In contrast, Canada as a country has not invested enough in R and D and has what the OECD has described as an innovation gap, in that while we are very good at creating ideas, we've not kept pace with other nations in applying them to the development of new products and services.

The innovation gap in Canada is shown on this slide, and it's due to two principal factors: first of all, the failure to translate ideas produced via the research base into developed products for the marketplace; and secondly, the lack of medium and large enterprises that invest heavily in medium- to long-term strategic research and development at the interface between basic research and development.

Over the last three budgets, as some members here today have already mentioned, the government has invested significantly at both ends of the R and D spectrum. However, there is critical ground in between in the innovation gap that still desperately needs support.

On this slide you see basic research, which is done mainly in the universities, and development work, of course, which is mainly the regime of industry. It's in between those that we have an innovation gap and there's a need for further investment.

I believe the best organization in Canada to build the partnerships that can bridge that innovation gap successfully at this point in time is the National Research Council of Canada. One of the ways in which we address that innovation gap is by focusing not only on the creation and application of ideas, but particularly on the transfer of technology and knowledge.

NRC is both a listener and a facilitator in the dialogue between basic research interests and industry. We partner with and have developed strong relationships with small and large companies and with universities and governments. Indeed, I think it's true to say that a major strength of NRC is in building partnerships that encourage ongoing interaction between the two sides. In effect, we translate the language of science into the language of business, and in that sense, we play a very special role central to innovation, one that is critical to the Canadian economy.

As I mentioned earlier, Canada is also weak in the development of powerful technology clusters that we see in other countries such as the U.S., in Europe, and in some countries in Southeast Asia.

The National Research Council is the federal government's principal agent in the innovation system, the principal research and development agency of the federal government, and we play a vital role in community and regional innovation across the country. Given new resources, we believe we can do much more.

NRC's partnerships—and I stress that these partnerships are with universities, businesses and other research institutions—have already accelerated the innovation found in many Canadian cities. On the strength of our R and D facilities across the country, technology clusters have grown in communities where our institutes are located, such as in Saskatoon—many of you will know that example—and in Montreal and Winnipeg.

To illustrate, I've put in your set of overheads some information about our significant contribution from the Biotechnology Research Institute in Montreal to a regional innovation in the Greater Montreal area. Here is a quotation from the director of molecular biology of Astra Pharma, commenting on the Biotechnology Research Institute in Montreal. I won't read it; you can see it for yourselves.

But I want to stress that NRC has the capacity, both in our people and our programs, to make an even greater impact on innovation and enhancement of productivity across Canada. We can play that major role in closing the innovation gap and helping Canadian businesses take advantage of the investments the government has already made in the creation of knowledge, in the skills of our people, and in a dynamic business environment.

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I think we now need to look at where we will make strategic investments in the future. NRC is a key player in innovation right across the country, and with the resources we're requesting, we can lead in building technology clusters through regional and community innovation. In our minds, this is vital to increased productivity and to a robust and competitive knowledge-based economy in Canada.

Thank you.

The Chair: Thank you, Dr. Carty.

We'll now hear from the Association of Consulting Engineers of Canada, Mr. Timothy Page, president. With him is Mr. Jim Miller.

[Translation]

Mr. Timothy Page (President, Association of Consulting Engineers of Canada): Good morning, Mr. Chairman, members of the committee. I'm very pleased to be here today to speak to you on behalf of my association about an important and basic issue, namely social infrastructure.

I represent a 600-member association and an industry that employs 41,000 professional engineers, technicians and other knowledge-based sector employees. Our industry does over $5 billion annually in business.

[English]

I'm joined today by Mr. Jim Miller, director of engineering for the region of Ottawa-Carleton.

[Translation]

The two of us will try to paint you a picture of our national infrastructure which is in the process of being destroyed.

[English]

First of all, we'd like to recognize publicly the Speech from the Throne and the Prime Minister's response to the Speech from the Throne, where both the Governor General and the Prime Minister have recognized the need for a new long-term, five-year national infrastructure program and, in our view, in so doing, have recognized the important connection between productivity, competitiveness, health and safe communities, and a strong environment. Those are all hallmarks of this federal government's public policy stance, and so we're delighted that the infrastructure commitment in the Speech from the Throne and the Prime Minister's remarks confirm the relationship between those.

Why are we speaking up? As professional engineers whose overriding responsibility is to protect the public's health and safety, we are concerned about the state of our national infrastructure. Mr. Miller, who is a user and a manager of infrastructure at the local level, will provide us with some vivid evidence of that fact in the Ottawa-Carleton region.

You've received a copy of our brief.

[Translation]

I believe everyone has had time to at least glance at it. We are also tabling today a two-page document which summarizes our policy and the rationale behind it.

[English]

We have made a number of suggestions in our submission. First was the need to invest now to address the $60-billion deficit that current exists in the national highway system and the municipal infrastructure system.

Secondly, we need to introduce measures to better manage our national infrastructure. It is an asset. Just like your home and my home are assets that we need to manage, so too is our national infrastructure. We've suggested that if we were to put the value of our national infrastructure on the balance sheet of governments in this country, we'd have a better sense of what that true value is and how that value depreciates over time.

We also speak in favour of the development of what we euphemistically refer to as a diagnostic tool. Like an auto mechanic who says that at 20,000 kilometres you should have this or that checked on your car, we believe work being done at the National Research Council to develop standards with respect to infrastructure will go a long way to helping governments be better managers of infrastructure in this country.

We also believe investments in infrastructure today will result in new technology and new innovative ways of managing and developing infrastructure. The business of consulting engineering is currently fourth in the world in the generation of revenues from the international arena, and we have some good stories to tell of what we're now able to do internationally from what we first learned to do domestically.

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Finally, we've argued for the creation of a long-term strategy for sustainable infrastructure. I know Jim wants to speak to that very quickly. In that respect I think it's important for decision-makers to consider alternate forms of financing, and to consider over the longer term a more integrated approach to managing our infrastructure needs.

If I could, I'd invite Jim to make his remarks.

The Chair: Thank you, Mr. Page.

Mr. Miller.

Mr. Jim Miller (Association of Consulting Engineers of Canada): Thank you very much. I'm pleased to have the opportunity to provide input into your discussions today. I believe the views that I bring are shared by many municipalities across the country.

As you are aware, Ottawa-Carleton is a major provider of urban infrastructure, be it water systems, sewage systems, roads, transits or landfill systems. We have not participated directly in development of the ACEC brief; however, we do support the principles that are enunciated by it.

One point I would like to stress is that there is no doubt the infrastructure gap for municipalities is widening. Two years ago in Ottawa-Carleton over $70 million was removed from our ten-year capital program because of affordability issues. This will result in more congestion and lowering of our service levels. Our year 2000 capital budget will have no funds provided for growth-related transportation or transit projects. To protect the assets we have, council this year had to make a decision and had to allocate additional funding for our resurfacing program because our data was showing conclusively that it was rapidly reaching a state of failure.

Since 1988 our capital transportation program has been propped up from ad hoc funding programs. These are funding programs like the core programs, the Canada infrastructures program one and two, and provincial programs. And we're very thankful for those programs. Don't let me tell you anything different. But I do want to suggest they could be more effective.

To be effective, funding for municipal infrastructure must be predictable, sustainable, and stable. Peaks and valleys in ad hoc funding programs are not efficient. Ad hoc funding programs can promote overbuilding in some cases. And they are not an effective way to use your human resources, whether it's the municipalities or whether it's the private sector that supports these programs. It means ramping up, it means training people, and it means rapidly ramping down.

I would also make the point that these ad hoc funding programs frequently put the municipality in the position, when they are searching to bring the projects on stream, of doing so in a buoyant time, and thus we're paying top dollars for our projects. Infrastructure funding should not be a fringe issue when funds are available. So why should predictable, stable funding be instituted as soon as possible? Basically it will save Canadians money. The inefficiencies of the peaks and valleys system would be eliminated. Efficient municipal infrastructure systems would allow our industries to grow, prosper, and generate more economic activity for the community.

I bring an example to illustrate that from Ottawa-Carleton. Eight years ago the business community made representations to improve the road infrastructure to our west end in the municipality of Kanata. Consequently a project was undertaken on March Road, and that project has been a catalyst for hundreds of millions of dollars of development and economic activity in that area.

A 1997 report in Australia, as reported by the Canadian Society of Civil Engineering, states that 15% of all business costs are infrastructure related. I think it's reasonable to assume those types of numbers are similar in Canada. We have a similar type of population and large distances to deal with. Poor infrastructure will drive up the cost of business and hits the bottom line. We believe that money invested in infrastructure will generate economic wealth for Canadians and consequently provide more funding for other sources and needs of the community.

Thank you very much.

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The Chair: Thank you.

Mr. Timothy Page: In closing, Mr. Chair, we'd like to reiterate those last words by Mr. Miller. Infrastructure needs to be seen as an investment, as a way to properly manage an asset that contributes to the health and welfare of Canadians and contributes to an improved environment and improved productivity. Inattention to appropriate levels of investment in infrastructure raises the danger of additional health costs, adversely affects our environment, is a down-thrust on our productivity, and is a disincentive to new economic growth.

Investing in infrastructure has positive signs on all those fronts, and we are pleased to see the Speech from the Throne understand this and confirm that point. We're encouraging your committee to encourage the finance minister to look very favourably at the strongest possible support for this at the earliest possible moment.

Thank you.

The Chair: Thank you, Mr. Page, Mr. Miller.

Now we'll proceed to the Canadian Academy of Engineering, Dr. Philip Cockshutt, executive director. Welcome.

Dr. Philip Cockshutt (Executive Director, Canadian Academy of Engineering): Thank you very much, Mr. Chairman.

We greatly appreciate this opportunity to interact with members of the committee on behalf of the engineering community in Canada. Although the Canadian Academy of Engineering comprises only slightly more than 200 outstanding engineers, I believe they can be considered as representatives of the 160,000 professional engineers practising in Canada.

Our brief remarks today will focus on two interrelated issues, which, incidentally, I don't believe have been touched on by any of the previous speakers. Those issues are how to foster technological entrepreneurship and how to commercialize university research.

We recently completed a study entitled Wealth Through Technological Entrepreneurship: Challenges and Opportunities for Canadians, and it addresses an important gap in Canada's business culture. To ensure wealth generation and creation of employment in a knowledge-based economy such as we live in today, the country requires an ever-increasing number of technological entrepreneurs to initiate and nurture such new enterprises. Such individuals constitute a very rare commodity in Canada.

Relative to financing of technology-based start-ups, we do not recommend direct involvement of governments in picking or subsidizing winners. However, fiscal policies should minimize the negative aspects of taxation in the initial years of a technological start-up, and instead they should stimulate spending on product development and marketing and facilitate further investment in growth and employment. We thus see a direct link between reducing the tax burden and fostering entrepreneurship in Canada.

The academy recently participated in a consultation process relative to the report of the expert panel on commercialization of university research, and their report was entitled Public Investments in University Research: Reaping the Benefits. Several others around this table today I believe also responded to that study document.

This important study did recommend a number of measures to improve the return to the Canadian taxpayer on the very significant investment made via the granting councils to university research in this country. We would emphasize that our remarks concern specifically the applied science portion of the university research scene. Our academy therefore supports the recommendation that the federal government provide additional support to the university research community via a notional 5% increase in grants specifically for commercialization of the applied research conducted within those institutions. We point out ways of leveraging such support and involving additional participants in such commercialization.

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The academy equally supports the panel recommendation that there be a wholesale review of Canadian tax policy to ensure that it does not impede, and where possible that it supports, research-based innovation.

Numerous of our academy members have expressed concern that the present high rates of personal and corporate tax are inhibiting innovation in Canada, because they encourage the emigration of precisely those highly trained professionals who are so essential to the development of our knowledge-based industries.

In conclusion, we appreciate this chance to share our views with the committee, given the importance of your agenda and the breadth of our mission. We do not favour focusing solely on debt reduction or solely on tax reform or solely on program spending. All three need to be part of a total, balanced approach. However, we would underscore that there is increasingly among the engineering community a conviction that tax disincentives are leading to a major decrease in Canada's capacity to innovate. Long-term effects on the economy are likely to be very negative if corrective action is not taken soon.

Thank you.

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

Now we'll enter the question and answer session. We're going to have enough time for a seven-minute round, beginning with Mr. Epp.

Mr. Ken Epp: Thank you, Mr. Chairman, and again, I thank all of the presenters.

It's interesting listening to all of your different points of view on how we should be collecting money from Canadian taxpayers and how we should be spending it or redistributing it.

I have questions for all of you, but I'm going to have to pick and choose here.

I have a question for Ms. Ford, first of all. She indicated at one stage that there was consideration that perhaps her children would have to go to a different country in order to go to university. What I hear out of the States, for example, is that tuitions there are really out of this world compared to the cost in Canada. I was wondering what other country she was thinking of where a quality university education could be achieved at a comparable cost.

Ms. Francine Ford: My comment was not specifically addressed to the cost of education, if Canada becomes as expensive as I expect it will be if it's not addressed.

My concern lies more in the resources of the university itself—the infrastructure, the equipment, the building structure, and all the things that underpin or underlie the research facility there. Given a choice, at some point you have to look very critically at what Canada has to offer in the post-secondary education system, in terms of research and how much research has kept Canada up to speed on where they are internationally in education.

Research feeds back into what you learn. So if we keep up to date there—if our equipment is up to date and if our research capabilities are up to date—we can keep our university education up to date. It's a balancing act.

My preference obviously is not to go outside of Canada. I believe in the Canadian structure. I believe in the education system. But I have seen a dramatic increase in a very short period of time in tuition fees, because of these reductions in the infrastructure support, the core funding of universities. And you can only surmise that it's going to continue unless something is done to stop it.

Mr. Ken Epp: So your suggestion is that the federal government should increase its core funding to universities and other post-secondary institutes across the country?

Ms. Francine Ford: Yes.

Mr. Ken Epp: And thereby reduce tuition?

Ms. Francine Ford: Yes.

Mr. Ken Epp: Okay.

You also indicated a concern about the high student debt. Would you increase the grants to the students in order to avoid that? How would you solve the problem of increased student debt?

Ms. Francine Ford: I'm not sure I have a specific answer. The initiatives being taken will have an impact all the way around. If the infrastructure is up, the tuition goes down; that obviously has one impact there.

If there's increased support for the research funding beyond the bachelor's degree, additional grants are allowed to the different individuals. That again has an impact on people who go beyond the bachelor's degree in post-secondary education. That's an area where you tend to hit that barrier, and you have to consider very seriously if you're going to go on for your masters or your PhD, because the debt load becomes significant if you can't get funding for your research project.

Those are two factors.

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Mr. Ken Epp: We could go on, but I want to ask some other questions.

I'm going to go to the engineers now. I'm really interested in this idea of infrastructure. I've had occasion to travel in different parts of this country, and I tend to agree with you when it comes to things like highways.

In some of the cities I've been in, frankly, I've questioned their water supply. It looks as if bottled water is a new industry in this country, and I find that absolutely amazing. It seems to happen because of the demands on our engineering projects with respect to the local infrastructure providing water, and things like that.

I have a question for you, a broad question that again is related to budget; this is a pre-budget consultation. I've heard various criticisms of the infrastructure programs that were brought in by the federal government in the last two mandates. There was good stuff too; I'm not totally negative here. One of the greatest criticisms in the different areas was from municipal government people, and that was that they were actually forced to spend money at that time because otherwise they wouldn't get the money.

Basically what happened, it being a three-way split, is that the local community would lose their money if they didn't take the one-third from the province and the one-third from the federal government. In a couple of communities I know of, they invented a project that was really not yet necessary. In other areas, they complained because they didn't have enough money to do what really needed to be done and to do it right. I'm thinking of one town that had a major sewer problem. The sewers were originally designed much under capacity for the degree to which the community grew, so they really had to rebuild the whole thing. There wasn't enough money to do it properly.

I'm just wondering to what degree you think the federal government should be taxing citizens across the country and then be involved in distributing this money to the communities from whence that taxpayer money came, thereby putting an artificial stricture on the decisions that are made with respect to which infrastructure is upgraded and with respect to the long-term planning and all of those considerations.

Maybe several of you want to respond to that and share your experiences and your knowledge in that area.

The Chair: Thank you, Mr. Epp.

Mr. Page.

Mr. Timothy Page: If I may start, I think the greatest thing about the last national infrastructure program was that there was a national infrastructure program. It was a multi-year program, with 75% of all of the moneys committed to that last program committed to areas that we, as a group of professional engineers, believe were properly allocated: to water and water systems and to roads and highways. That is the area in which we are currently labouring under a $60 billion deficit. The costs of repairing that dilapidated infrastructure will only climb over time, through inactivity.

Specifically in answer to your question, Mr. Epp, the next program would do well to ensure that there is adequate flexibility in how it is managed and how the projects are developed, but I think the key here, recognized in the Speech from the Throne and by the Prime Minister, is the underlying importance to our economic competitiveness of a sound and safe public infrastructure.

Mr. Jim Miller: I'd like to make a few comments. I've heard some of those comments too. The last programs had an extremely tight delivery period. That made it somewhat difficult; if you didn't have a project in the hopper you were at a bit of a disadvantage. Our regional council had given us a list of projects, and very much part of those projects was protecting the assets you already had. We were fortunate enough to have a number of projects that we could deal with in that case, an overlay program being an example.

I think programs should recognize good management. It shouldn't be just the squeaky wheel that gets the grease, that gets the money. I think programs should recognize the asset management principles that we are aware of, like depreciations, like life-cycle costing.

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You mentioned the water situation. That one is very critical. It's one in which, by good principles, the program should be designed on user pay, on water metering. There's nothing more effective for getting the right delivery system than paying for the amount you use. That should be extended into all of the other municipal infrastructures and into the waste-water side and the transportation side.

The Chair: Are there any further comments from any of you?

Thanks, Mr. Epp.

Let's move to Mr. Cullen.

Mr. Roy Cullen: Thank you, Mr. Chair.

Thank you, panellists, for your presentations. I'm sorry I missed some of the earlier comments.

Maybe I missed it, but in terms of the humanities and social sciences, if someone were here asking for a doubling of the research funding...do you have a sense of the pressing social science research questions of today and why they should be a priority for this government? Could you paint a picture of what those might be and why it might be useful to get more information in those areas?

Dr. Marc Renaud: This is a theme that we're very regularly discussing at the board of SSHRC. What are the key questions? Where do we have to build knowledge?

Tim addressed the issue of social cohesion. Because globalization is occurring, there's a phenomenon in which our communities are sort of losing their strength, and we have to look at how to rebuild social cohesion, how to help the communities stick together despite the fact that they have a bunch of Wal-Marts as opposed to small commerce. This is a priority.

The question of a knowledge-based economy is an enormous challenge to all of us, but we don't know exactly what it means. All institutions will have to adapt. Nobody could have predicted e-commerce 10 years ago, yet e-commerce will change the way we do business. Exactly what does that mean? Our people doing research on these questions are capable of bringing substance to the choices we have to make.

Let me give you another example. Canada is getting into a new negotiation around the World Trade Organization to rebuild the architecture of finance throughout the world. Our people are capable of debating this, of bringing knowledge to this.

So there are all kinds of areas where knowledge is needed—and also in the humanities.

I've just visited York University. There I visited a research team working on the slave trade from the Nigeria hinterland in the 19th century. That seems to be very remote, yet there were 15 African female and male students there who really emotioned me, because they explained that studying the slave trade was a way for them to understand how to adapt as Canadian migrants. It helped them understand the roots of racism. It helped them understand what's happening with refugees throughout the world now.

We do have priorities. We're saying that productivity is a priority. Social cohesion is a priority. Health is a priority. Children are a priority. But it's also important for us to support the base of research. All these interests....

If you have a chance, we're going to host another of our research showcases on November 21 or 22 here in Parliament. We're asking that the 20 biggest social science and humanities projects in Canada come to Ottawa and present, with posters. The best students of each of those themes are going to do this. If you have a chance to come and visit this, do come and give a fair hearing to what we're learning through the humanities and the social sciences in Canada. It's extraordinary.

Mr. Roy Cullen: Could I have one more question?

The Chair: Yes.

Mr. Roy Cullen: Thank you.

I'll switch gears. In terms of the process, I'd like to know more about the process of setting priorities. Does that bubble up from researchers or does that bubble down from granting councils?

Maybe I'll throw another question into the hopper as well, for anyone. This may not be the right group, but I'm sure you have some views on it. Do you feel that in Canada we have the right mix of people going through the university system versus those going through the college system or the community colleges in the more technical or technological orientations? I have a gut feeling that we're sending more people to the universities than we need to and not enough to the technical colleges. That's a very general statement, but I'm just wondering if you have any thoughts on that or if you've done any research on it. Are we getting the right mix?

If you look at Scandinavia and other countries in Europe, there's no stigma attached to sending Sally or John to a technical school, but we have this thing that it's important for the children go to university. As for some of them, I'm not qualified to say, but my impression is that they would be better placed—for themselves and for Canada as a whole—in a technical college. But we push them to opt for university.

Is that a fair comment? Do you have any views at all on it?

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The Chair: Is there a good mix, or are we mixed up? Or is the questioner mixed up?

Dr. Marc Renaud: On the setting of priorities, very quickly, it comes in all kinds of ways.

For example, the social cohesion question came to use through the clerk of the Canadian government. She came to us and she had the feeling we were sitting on a time bomb here, and she asked for help. Yet there are other questions that are coming from the researchers. For example, people in the humanities wonder what the future of the humanities is. We're beginning to think we should prioritize this as a team. So it's really coming from all over the place.

On the business of where our sons and daughters should go to study, there's a big debate around this, but there are also a lot of myths. For example, there's a belief that people who study in arts, the humanities and social sciences don't get jobs. You get a PhD in sociology and you end up as a waiter. StatsCan has provided the researchers with data on this, and it's absolutely false. The unemployment rate in social sciences for graduate students is lower than it is in engineering, and it's a little bit bigger in humanities.

What's now becoming very clear is that the people we need probably the most in the world are people who are computer literate and are very technically skilled, yet who have profound arts training—une tête bien faite, as we say in French. This struck me the other day when I was visiting a software company. This software company is making games for computers. You know what? They hire more literature people than they hire technical people. Why? Because when you're trying to put a game together and market it, you need to have a mix. You have to have colour, you need the imagination to build up a game, and this is done by people in the humanities.

So I think we have to bring facts to this debate. That's important. I don't have anything against technical training. I think we need technical training. But it's very dangerous to use this as an argument against university training.

The Chair: Anyone else?

Mr. Garth Williams: Just to add something quickly, I know there has been a little bit of research done on this. A study done by Dr. Robert Allen at UBC suggested that by the time graduates reach their peak earning years, graduates in the social sciences and the humanities are right up there at the top with engineers and people in commerce. The initial earning salary in the first couple of years out of school may be lower. Over time, though, it seems the economy values the contribution that those people make perhaps a little bit more than people with the technical skills who have to continually adapt to change in technology. So it's not that we don't need both, but there is definitely a considerable gain in value added to the economy for investing in humanities and social science.

The Chair: Mr. Carty.

Dr. Arthur Carty: When you recognize that we're in a global economy, one that is changing rapidly in terms of communications, telecommunications and information technology are extremely important. The change is producing some dramatic demands, and not just in the areas of the Internet and telecommunications. We know there is a dramatic need for people in that industry, in those areas. You just have to look at the newspapers to see the demand. But the revolution that's occurring is actually also creating demands in related areas. In biotechnology, for example, we're beginning to see a shortage of people in molecular biology and in chemistry. There are areas of engineering and manufacturing in which it's very difficult to find a person who has the skills to integrate the hard manufacturing capabilities with the soft skills that you need to be at that interface.

I think what we need in our educational system is a little bit more flexibility. We need flexibility because change is with us and we're going to have to adjust to market demands. That means things such as re-skilling will become extremely important, such as re-skilling scientists and engineers who are in the wrong area at the wrong time in order to move them into another area. It will also require re-skilling of social scientists and humanists to take advantage of opportunities that are being created. I think flexibility in re-skilling is crucially important.

The Chair: Thanks, Mr. Cullen.

[Translation]

Mr. Dubé.

Mr. Antoine Dubé: I'll begin with a comment. My sentiments are somewhat similar to those of Mr. Carty.

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When I myself was a student at university, I observed that there was about as much distance between the federalists and the sovereigntists as there was between students in the soft sciences and those in hard sciences. The chasm was so wide that there was no communication between the two groups. I'm pleased to see that we have brought together here this morning people from various disciplines: engineers, scientists, social scientists and humanists and so forth. In essence, you're all calling for the same thing. You want more funding from the government for research and infrastructures. You want more funding and have presented well- reasoned arguments.

There's one thing, however, about which you haven't said very much. You agree with the groups who appeared before the committee this morning calling for changes in taxation provisions. I sense some opposition, however. Earlier in the testimony, mention was made of very advanced sciences, techniques, new technologies and the new economy, but studies have shown that some groups are being overlooked - maybe not the people doing doctoral studies, but nevertheless, there are those who cannot keep pace with the knowledge-based economy. In Quebec—I don't have statistics for other provinces—40 per cent of adolescent males experience problems and fail to graduate from high school. Consider if you will this gap that is growing ever wider.

I've tried to understand why this is happening. Some of the reasons are well known. According to Toffler, for example, the competitive environment in Japan was a leading cause of suicide. When I see some people succeeding in life and others falling by the wayside, I get concerned. An alarming increase has been noted in the suicide rate in Quebec, not only in native communities, but also in the general population. Personally I've known some university students who, when confronted with high-level failure, have thrown themselves from.... The situation is frightening and we mustn't lose sight of it.

I'm in favour of the knowledge-based economy and of increased competition. However, the fact is that we are facing increased global competition. Some caution is in order, because some people are being left behind. Maybe we need to deal with these people. I don't know whether anyone wants to respond to this, but I'm looking forward to November 20 and 21. You talk about concrete study projects. Often, the humanities are a harder sell because basic research is involved. There are persons who manage to complete their doctoral studies, but how many of them end up not doing what they dream of doing, namely research? How can a philosopher do research if he's not a university professor?

One success story I can think of is Pierre Péladeau. He started out as a student of philosophy and went on to found Quebecor, one of the most prominent and well-known companies in Quebec.

I'm concerned about this, but I also think that politicians are mere reflections of society. Politicians, just like the members of the general public, need to be shown the very concrete benefits of the social sciences and humanities and the challenges these disciplines present.

The Chairman: Mr. Renaud.

Dr. Marc Renaud: Regarding the problem of adolescents dropping out of a school, a problem that exists in Quebec and elsewhere, I'd like to take this opportunity to invite you to attend the research martketplace scheduled for the end of this month and to take a closer look at one research project carried out by the team of Richard Tremblay from the University of Montreal. This project recently made the headlines in the Globe and Mail.

For the past 20 years, Mr. Tremblay has been following children in the Montreal school board. He can tell you whether a six-year old is likely to go on to graduate from high school. Armed with that knowledge, he set out to develop a program to try and reverse this trend. The results are incredible. Children entering his program don't become dropouts later on, despite experiencing unfavourable conditions such as poverty, a broken home and so forth.

Again, this demonstrate how knowledge can lead to action. I invite you to come and meet this team because its research findings are truly remarkable.

Mr. Antoine Dubé: Thank you.

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[English]

The Chair: Are there any further comments?

[Translation]

Ms. Robert.

Ms. Louise Robert: The important thing, in my view, is making sure our education system is flexible. We mustn't contrast technical abilities with intellectual abilities. Human beings are much more complex than that. Our education system needs to be far more flexible so that students and young persons are exposed to a range of options. This is vital in a knowledge-based society which will present to us challenges as yet unimagined.

[English]

The Chair: Thank you.

Mr. Brodhead.

Mr. Tim Brodhead: Yes, thank you.

Just as a very practical example, we were approached by a number of organizations that were concerned about violence in schools. They had a range of approaches that they were suggesting, such as kids working with teachers, etc. There was such a range of different ways of dealing with this issue that we quickly understood that people didn't really understand what violence in schools was really all about.

We did engage a couple of researchers, including some from the University of Montreal. What became clear to us, and what they discovered through the course of their research, was that violence in schools is really a symptom of a problem. It's not the problem, so to focus programs on trying to deal directly with violence was ineffective.

You have to ask yourself why it is that kids in schools behave in this particular fashion when it doesn't happen in other schools. It's not because the schools are in wealthy neighbourhoods, and it's not because of the family backgrounds. It has to do with the extent to which young people feel engaged, feel as though they are citizens of the school, in a sense, as opposed to simply being passive students who have no say, no responsibility, and no sense of ownership over what happens. In schools in which the principal or the school board...or something about the environment is such that students feel it's their school and they have a responsibility, you don't have graffiti, you don't have violence, and you don't have various forms of acting out.

So this is an area in which we could easily have gone on funding a whole set of solutions that people thought they had, when the understanding of the issue was actually quite incomplete.

The Chair: Philip Cockshutt.

Dr. Philip Cockshutt: As a very brief intervention, I would just like to leave the concept of life-long learning as a partial answer to the question that was raised. This is increasingly being used for people with a university degree, and in many cases those with post-graduate training. The realization has been that these people may have to re-equip themselves two, three or four times during their working careers. I believe the concept of life-long learning is important not only to highly trained professionals, but it will filter down the system. Perhaps our secondary schools need to work very hard at that bit of agenda.

The Chair: Thank you, Monsieur Dubé.

We'll now move to Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC): Thank you, Mr. Chairman.

I enjoyed your interventions this morning. I guess you could say this session has been a combination of left-brain and right-brain representations. For those of us in the political centre, that's very appropriate.

Mr. Roy Cullen: Is that something new?

Mr. Scott Brison: I guess you could say centre-right.

A voice: Just remember, it takes two wings to fly.

Mr. Scott Brison: That's a topic for another day.

In any case, I really appreciated your interventions.

As my first comment on the humanities and arts side, I often tell people I don't have an education, but that I was trained, because I have a business degree. I've encouraged all my nieces and nephews to pursue an arts education, for which their parents will never forgive me. The fact is that I place a great deal of importance on the humanities and on arts education. In fact, over the past several years, investment banks have increasingly found that some of their best people on the finance side actually emanate from arts programs and humanities programs, so I think it's very important to recognize their importance.

The first question is on the provincial side. Are provincial governments supportive of the humanities and arts side? I heard something recently, and I was almost shocked. I don't necessarily believe it, but I just want to get this confirmed.

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Some provinces separate types of post-secondary education into two categories—namely, relevant and non-relevant. I would like to confirm whether or not that is the case, because if it is, I would find that a little off-putting. That's my first question.

Secondly, Dr. Cockshutt was raising the tax issue. Specifically, would the capital gains tax be one area that is particularly important relative to the start-ups or the high-tech sector, that type of thing? I'd like him to comment, and anyone else, on the degree to which capital gains taxation plays a role, particularly in terms of brain drain to the U.S.

The Chair: It's your business training coming through. You're not asking questions about self-actualization.

Voices: Oh, oh!

Mr. Scott Brison: That's right. Well, it helps if you're making enough money to stay in Canada. That is a self-actualization goal I think a lot of Canadians have.

The Chair: That's true.

Mr. Scott Brison: Third, with regard to the technology clusters and the role the NRC can play in that, I'd be interested to know what cooperative efforts have taken place relative to Atlantic Canada. I know UCCB has a program that has been somewhat successful in Cape Breton, for instance, but I'd be interested to know what engagements, if any, have occurred along those lines.

There are three questions there. I hope we'll have time for more.

Ms. Louise Robert: I think this idea of relevant versus non-relevant is an important point. It's one that exemplifies a little bit putting technical versus university degrees together. There are provincial governments who look at university research in terms of what is perceived as useful, immediately useful, or not useful. Usually, “useful” means a product or service that can be readily seen.

So when you look at humanities and social sciences in terms of whether this is useful to society, it's difficult, because it is usually one step removed. Absolutely it's useful to society, but you don't have a pencil to show it directly.

I think those criteria were devised in an era of cutbacks and limited resources, when people went to the most useful thing. They didn't look at the widest possible sense of the word “useful”. I think there's a danger in that, certainly when it helps people priorize how funds will be allocated. So this is something we should be aware of.

With regard to the tax issue, the federal government has a scientific tax credit, but the social sciences and humanities are not eligible to apply. There is almost a double standard as to what constitutes science. If tax credits and tax cuts are important, I think it should be fair game for all. Social sciences and humanities research is research to the same degree as natural science or biomedical science research.

The Chair: Dr. Renaud.

Dr. Marc Renaud: Provinces support the arts and humanities, but they often don't know it. Do you know why? We are 55% of the universities, students and professors, and universities are financed by provincial governments. Therefore, since the feds don't put much money into the arts, into social sciences and humanities, the provinces are actually picking up the real tab for all of this.

That being said, provinces are not organized the same way. I'm particularly impressed with Quebec, Alberta, and British Columbia, who have granting councils acting complementarily with federal granting councils.

This is not the case in Ontario, for example. It's true that Premier Harris has several times made the declaration that people are stupid to go and study the arts, because they won't get jobs. First of all, he's factually wrong. Second, I think he has changed his mind. Do you know he has commissioned a review of literature and children? The report, just out, is called Reversing the Real Brain Drain: Early Years Study.

All of this is social sciences research. To know what to do for children now, you need social science knowledge. So even Premier Harris, who had the normal reaction against social sciences and humanities, I think is changing his mind.

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The Chair: Dr. McDiarmid.

Dr. Don McDiarmid (Canadian Consortium for Research): I'd just like to add a comment about the brain drain and taxes. I think one solution doesn't fit all. There are certain needs for entrepreneurs, but among people who particularly do basic research, it is our feeling from comments that we get back that it's not the after-tax income that is the key thing that entices them away, it's opportunities—the funding for research.

In fact, I have here a recent issue from Science Magazine, and it quotes Dr. Richard Taylor, who did his first degree in physics at the University of Alberta, then went to the U.S. to do his graduate work, stayed there, and eventually got the Nobel Prize. He was referring to these sorts of researchers, and he said “It's not greed that drives people to the U.S., it's ambition”. That's another way of saying what I just said. It's not the personal income that really drives them there, it's the ability to achieve their role.

Thank you.

Mr. Scott Brison: Mr. Chair, if I could just—

The Chair: Sure, if you want to add something.

Mr. Scott Brison: I had one thought on that—and I understand the argument. In fact, I agree it's not purely after-tax income on a personal level, but I would argue that corporate taxes do play a role in terms of creating an environment, for instance, whereby companies can pay more, and there can be a more dynamic private sector environment where the opportunities can exist. So while it's not solely a personal tax issue, it may be personal and corporate taxes as well. But I appreciate that.

Dr. Don McDiarmid: That's what I meant by saying one solution doesn't fit all.

The Chair: Dr. Carty.

Dr. Arthur Carty: Perhaps I can answer the question about the National Research Council. As you may have noticed from the last overhead that was put up there, we have identified 10 community innovation initiatives across the country. Five of those we have started with minimal resources and they have already had considerable success. If you know this area, you'll recognize that Saskatoon these days is a great success as a high-tech city, focusing on agricultural biotechnology. We developed with the local players in Saskatoon a blueprint for innovation and we helped things grow there by having a physical presence, by drawing companies and growing companies. In terms of Atlantic Canada, there are several targets that we have there. We've already opened discussions in St. John's, Halifax, Cape Breton, and New Brunswick.

The whole thrust of this is that we can work with the community to define how their economy can be grown in a specific way by an emphasis on technology. And we bring our resources to the table to collaborate with the partners in the region or community to make it happen. This does require resources, though, and we have been extremely stretched at NRC in the last two years. We simply can't undertake those new initiatives unless we get some additional base funding.

The Chair: Thank you, Dr. Carty.

The final questioner is Mr. Pillitteri.

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you, Mr. Chairman.

My question is specific to Ms. Ford. You're worried about the cost factor in education, for children, and eventually in post-secondary education. Since that is a provincial jurisdiction and since the government transfers only in bulk in the social transfer, have you taken much effort to go the provincial government to see if the money that's transferred from the federal government goes into post-secondary education? Or can you suggest any other way that this committee could suggest to the government, in order to...? Should we have strings attached, as we did in the past? Under the social transfer, the federal government is reinstating the cuts that were made, so I don't know why they're raising tuitions.

The Chair: Ms. Ford.

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Ms. Francine Ford: Thank you.

We work in collaboration with a number of other groups, so I know there are organizations that are considering this question. I don't think it's my place necessarily to tell how these things can be done. I felt it was important to put the issue on the table and recognize that this is becoming an important factor that has to be addressed.

I'm very cognizant of the fact that there's a provincial-federal jurisdictional issue, and I remain hopeful that somehow we can work around that and come up with creative solutions as a group. I know there are a number of opportunities, if the federal transfers.... Yes, they used to exist when it was first...and there was a component in there for post-secondary education specifically. When the social transfer came and the CHST was embodied, that sort of went by the wayside.

I have heard grumblings...I shouldn't say grumblings. Positive messages have been forthcoming at the provincial level. I know at the western premiers conference they specifically came out and said they would be amenable to some sort of arrangement at the federal-provincial level to target money specifically for post-secondary education.

So perhaps the climate is now moving into that area where this can be negotiated in the same way as health was, and the transfer can be perhaps more targeted back to post-secondary education. I would like to see some effort made that way, and if not, then some creative solution, for example, the model from the U.S., where the grants carry with them some component of overhead costs.

I believe there are a lot of potential solutions and something can be developed. And yes, we are talking at the provincial level. We have been making presentations to the premiers' councils on this specific issue. So I think that's where the climate change is perhaps coming forth. I wouldn't say every province is there, but there might be enough impetus to start that way.

The Chair: Thank you. Are there any further questions?

Dr. Don McDiarmid: Can I add something?

The Chair: You sure can.

Dr. Don McDiarmid: It seems to me that with the shift toward a knowledge-based economy, the health of the post-secondary education system becomes of concern to the federal government in terms of ultimate health of the economy. So we raise this as a problem that needs somehow to be addressed, and it has an impact, it seems to us, not only on provincial responsibilities but also on federal responsibilities.

The Chair: On behalf of the committee, I'd like to thank.... This is, as I said earlier, always a very interesting round table.

I think today we do have choices, finally. We have some funds available to make some intelligent choices, I hope.

This discussion about humanities and science is very interesting, because I sense that in the new economy we'll have a convergence of these disciplines, and I can cite one example. I visited IBM on an internship, and they have these call centres now, for client relationships, that handle problems. Now, the individual who works there must have technical know-how, but must also have what I would refer to as a very human approach to dealing with clients.

Something I've found in dealing with people who have studied humanities is that they have a sense of the entire picture. They have a greater awareness of cultural differences, for example. And you have to remember that today call centres take calls from all over the world. So enhancing that type of awareness is crucial in a society like ours that wants to play with global trade, for example.

So if I take anything away from this, it would be that in fact these areas are very important in a changing world that requires greater understanding of human dynamics.

You might even see that point of view reflected in the report.

Dr. Marc Renaud: I would just like to reinforce what you just said. If you ask people who are responsible for co-op programs—universities that have strong co-op programs, such as Waterloo and Simon Fraser—they will tell you that the best success stories are the computer-literate philosophers. That's the Pierre Péladeau story.

The Chair: There are such people.

Thank you very much.

The meeting is adjourned.