INDY Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 25, 1999

• 0905

[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I'm going to call the meeting to order, pursuant to Standing Order 108(2), for a study on a document entitled Sustaining Canada as an Innovative Society: An Action Agenda.

We are very pleased to welcome our witnesses back again. They were with us when we first began this initiative about a year and a half ago, and we're very pleased to have them back again. We have Dr. Thomas Brzustowski, the president of the Natural Sciences and Engineering Research Council of Canada. We have Marcel Lauzière, the director of the corporate innovation and liaison division from the Social Sciences and Humanities Research Council of Canada, and Mr. Marc LePage, director of business development from the Medical Research Council of Canada. I'm very pleased to welcome all three of you.

I propose we hear all opening statements and then move to questions. Unless you have a different arrangement amongst yourselves—and maybe you do—I propose we start with Dr. Brzustowski.

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

Ladies and gentlemen, members of the committee, I'm very grateful for not just your invitation, but for the timing of this presentation. This will allow me to present to you a number of facts that deal with an important current situation. Through that, I hope to show you the connection between university-based research, innovation, and the highly skilled people in our workforce.

[Translation]

This is an opportunity for me to present you with a set of facts that I find very important.

[English]

Let me begin with this statement. You've seen stories coming out of the United States—and there have been many; I'm not going to quote any specific one—that enrolment in computer science and electrical engineering is steadily declining in the United States, and has been for a number of years, at the same time as the American industry claims it has a huge demand for such people. It's a fact that enrolment is declining. It's declining in France and Germany. It is not declining in Canada.

Let me present to you some numbers for the last decade, because I think this is important. In 1986-87 the total number of students in the natural sciences and engineering—that is in engineering, mathematics, and science—in Canadian universities was 93,000, about 23.8% of the total university enrolment. In 1996-97 that number was 110,000 at 23.6% of the university enrolment.

Our university enrolment is rising, the percentage of students in the natural sciences and engineering is keeping steady, and the numbers are increasing. They are increasing most rapidly in the biological sciences and agriculture; they are keeping pretty steady in mathematics and the physical sciences; and they are increasing modestly in engineering.

Against that background, we have had recent demands from our own Canadian information technology and computing industry, which you're well aware of, for a greater number of graduates in the field. You know that some provinces, for example Ontario, have agreed to support a doubling of enrolment in computer science and electrical engineering.

The students are there. Universities like the University of Toronto and the University of Waterloo will have no difficulty doubling the enrolment. Madam Chairman, I'd like to put in front of you an amazing fact: they are not having trouble hiring the faculty to teach these people.

• 0910

So what we have is a situation in a key industry, a transformative technology, where enrolment is falling in the countries with which we're competing. We have decided, in response to industry, to double enrolment in Canada in a number of key provinces. The student base is there and is growing, and the universities have succeeded in hiring the faculty to teach these people.

Why am I saying this? I want you to know that this situation, which is very healthy for Canada, is causing pressure on NSERC. Why is that? It's because these new people who are coming to teach these students will all be doing research in computer science and electrical engineering. To do research, they need research grants and equipment. Now we come to the question of why university research is important in this very innovative industry.

It's very important because the research will keep the professors up to date. Not only will they contribute new results that industry can use, but their students will be able to graduate and use the state of the art. They will know what it is.

Some of these people are quite senior. We are fortunate, I must underline, in attracting not just entry-level faculty in these fields; as a country, we are able to attract some senior faculty. We have to provide them sufficient grants to start at a high level of research activity, comparable to what they had where they came from.

This brings me to the point of making the connection between basic research and innovation and creation of wealth in the country. Those who study this relationship have been doing so for decades, particularly the Science Policy Research Unit at the University of Sussex in Britain. The conclusion is that there are six major impacts of basic research on the innovation capacity of a country.

Let me read the six, and I'll make a brief comment about each of them.

The first is increasing the stock of useful knowledge.

[Translation]

Obviously, these are the results of research done by others, which can be used in industry.

[English]

It is also our ability to access all the knowledge we don't produce. We produce about 3% to 4% of the research knowledge in the world. We must have access to the other 96% or 97%. The key to that access is to produce our own.

Second is the training of skilled graduates. That perhaps is the only return on the investment in basic research that is available and immediately visible in the short term. When people graduate, you know they've graduated. This is a short-term visible return on the investment, and these people then enhance the capacity of the highly skilled workforce.

Another one is creating new scientific instrumentation. This is happening all the time in our labs. Forming networks and social interaction is a very important result. Let me just underline that research was an international activity long before people started talking about a global economy.

Increasing the capacity for scientific and technological problem solving is a very important capability, bearing on the competence of society.

Creating new firms is the sixth impact. NSERC has documented records of a sample of 108 companies that we can trace back to investments in basic university research made 10, 20, or sometimes even 30 years ago.

We have a little brochure that is available. The title is Bringing Discovery and Innovation to Life, La découverte et l'innovation au présent. It is simply an attempt to illustrate to the public the ways in which some research results have translated into commercial activity, giving people jobs.

• 0915

We've also presented, for your information, a little brochure called Le CRSNG en bref, NSERC at a Glance, which gives in a memorable way a clear idea of the scale of our operation. And finally, we have: Basic Research: The Foundation for Prosperity, which was put together by all of the research councils.

So, Madam Chair, let me conclude with this. The connections between basic research in the universities—the goal of basic research being discovery, discovering new understanding, perhaps even discovering new uses—and innovation, bringing new goods and services to market, is well established, and part of that connection is the ability of the federal government, through the granting councils, to provide research funds to those people who teach the students who are in such demand from industry.

Let me conclude with the words that the situation in Canada is not the same as in the remaining G-7 countries. For reasons we are very proud of but don't quite understand, our enrolments in science and engineering are not declining in comparison with those in the other countries.

Thank you very much. I'll be very happy to answer any questions later.

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

I'm now going to turn it over to Mr. Marcel Lauzière, from the Social Sciences and Humanities Research Council of Canada.

Mr. Marcel Lauzière (Director, Corporate Innovation and Liaison Division, Social Sciences and Humanities Research Council of Canada): Thank you.

SSHRC welcomes this opportunity to submit to the standing committee its views on innovation in Canada, especially the contributions that social sciences and humanities have already made and can make to the process. SSHRC is the key instrument to support university research and training in the social sciences and humanities, and it also charts directions for the Canadian research effort in these fields.

SSHRC supports a very wide, broad range of disciplines, ranging from economics and business to history, literature, and psychology, but I think more importantly it supports research on critical issues for Canadians—issues of health, Canadian culture and heritage, education and training, social policy, immigration, environmental ethics, etc. In addition, SSHRC develops policy-relevant knowledge on targeted issues of national importance, the training of the next generation of highly qualified personnel, and the broad dissemination of knowledge in its fields for the benefit of Canadian society.

What I'd like to talk to you about today briefly is innovation.

Since the document Sustaining Canada as an Innovative Society: An Action Agenda came out two years ago, a lot has happened on the innovation front. Just before that document came out, the CFI had already been announced and the NCEs had been made permanent by this government. Since that document, the government has increased the budget of the granting councils, announced the creation of the new Institutes for Health Research, and also renewed the funding for the NCEs. So a lot has been done, and I think a lot has been done for the good of the community.

The concept of innovation in this context is being refined, and I think all funding agencies have used this opportunity to rethink their contribution to innovation. Innovation, the humanities, and social sciences take many forms and many shapes.

For instance, we are funding a major research project looking at ways to better foster entrepreneurship and innovation in SMEs, particularly among young Canadians. Other projects are looking at new options for social policy at the end of the 1990s.

In the brief time allotted to me, I'd like to shed some light on the somewhat neglected dimension of innovation in our disciplines, the impact that discoveries in the humanities and social sciences have on new technology.

I think it is often assumed that researchers in our disciplines simply passively accept technological advances, or even conceptual advances, made in other disciplines. I think, on the contrary, what often happens is the social sciences and humanities researchers will be stimulated by these developments and try to use them for their own purposes and their own research. In doing so, they will often end up pushing these developments even further.

Let me give just one striking example of what can happen when new technologies cross paths with innovative researchers in the social sciences and humanities.

As we all know, the information technology revolution has dramatically altered the way in which governments, corporations, organizations, and individuals communicate and carry out their daily activities. This is something, of course, that is increasing in this new information age. But this revolution has also brought some unforeseen problems, among them the long-term preservation of records created in electronic systems. SSHRC researchers are doing something about this.

SSHRC recently awarded a grant to an international team of researchers called INTERPARES or International Research Team on Permanent Authentic Records in Electronic Systems. The team director, Dr. Luciana Duranti, is a world-renowned researcher and archivist from the University of British Columbia. She heads the project.

• 0920

The preliminary research results are quite fascinating. They suggest that the most effective way of preserving electronic records may well be to translate into formal rules the concepts and methods first developed in the 17th and 18th century by a discipline called diplomatics, a very sophisticated system of ideas about the nature of records, their genesis, their authentification, etc. I think it's interesting to note that this UBC team has been working with the U.S. Department of Defense records management task force looking at some of the challenges they have. Their expertise is really unique in the world.

The nature of innovation here involves adaptation and transposition of centuries-old precepts into a computer-friendly set of rules, and hence, the development of new software and commercialization. As we move further into the age of information, such innovations will be key to our success as a country.

Just over the horizon, to talk more generally, we can already see the shape of future innovations sparked by the convergence of technology and the human sciences. For instance, the emergence of the Internet is already inspiring social scientists and humanists to reinvent new forms of survey instruments and new pieces of software to manage them, and to develop new means of sharing databases across borders.

Next fall an international conference, sponsored by SSHRC, the OECD, and the Natural Science Foundation in the U.S. will be held in Ottawa to look at these new tools and new infrastructure needs for the human sciences. These are the tools we will need to continue to be innovative and to push innovation here in Canada. Here too, the same pattern seems to be emerging throughout. Technological innovation feeds the imagination of social scientists and humanists to the point where they invent new applications and new tools to push things even further.

[Translation]

I'd now like to say a few words about social innovation because this is also an important question for the country. I think it's important to note it here, before this committee.

Of course, the SSHRC is also concerned about another problem raised in the text of this study: the transfer of knowledge or, to use terms we prefer, the sharing of knowledge. This is now an unavoidable issue for researchers if we want to talk about social innovation. We think we're on the right track.

Increasingly, the SSHRC supports the development of innovative social practices that have concrete effects on the lives of Canadians. Here are two examples. First there is the new University- Community Research Alliance program. This program is the embodiment of an idea already present in the document before you. It is designed to use the expertise of university researchers to serve the needs of the community by promoting the creation of genuine partnerships between the universities and the local community, whether community groups, private businesses, municipalities, or whatever. Researchers and members of the community define the research program jointly, as well as training and dissemination activities. For instance, there might be a group of seniors in Thunder Bay that would join forces with gerontology researchers at Lakehead University to assess seniors' housing needs in the region.

The program we have just launched will foster this sort of combined effort across the country. What is really surprising and extremely gratifying for us is to see the extent to which the demand for this new partnership program is strong. We have received twice as many requests as we expected. I think the social sciences community is more interested in this type of partnership.

Likewise, the projects proposed under the new strategic theme of the health of Canadians funded by the SSHRC will be judged in part on the quality of the partnerships established with the community. This is not a public relations exercise; on the contrary, more and more researchers recognize that getting closer to the community has a positive effect on the quality of their work and the renewal of methodologies.

Can we really talk about social innovation? Absolutely, since it's not simply a matter of multiplying links between the university and society, even if that is a praiseworthy goal in itself. It's a matter of creating new links between the university and society. The participation of members of the community in defining the research project changes the traditional dynamic, which establishes a very clear distinction between those who do research and those who are the subject of research.

Obviously, it is neither desirable nor necessary for all research to adopt this model, but we think that there is still plenty of room for progress in this area. In this regard, we think that the SSHRC will make a major contribution to innovation in Canada.

• 0925

I'll stop here, but I sincerely hope that we can explore together the various facets of innovation in our disciplines which unfortunately often go unnoticed. Thank you.

[English]

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

I'm now going to turn it over Mr. Marc LePage, who is with the Medical Research Council of Canada.

[Translation]

Mr. Marc LePage (Director, Partnerships and Business Development, Medical Research Council of Canada): Thank you, Madam Chair, members of the committee, ladies and gentlemen:

[English]

I'm very pleased and honoured to be with you this morning to share a few early thoughts on positive changes that have occurred since the budget, in our case through the creation of the Canadian Institutes for Health Research. It's by far, for us, the most important change in health research since the creation of the MRC 40 years ago. So it's very fundamental.

Our world is very different from what it was when we last appeared here a few months ago. The environment for research is different, and I think the mood in the community is quite different. Things are changing. We're still in transition, but our young researchers are starting to see the impact of this and I think the whole mentality is shifting. Optimism, which is such a precious commodity, is starting to reappear as we go forward.

But let me first extend my sincere apology from the president of the Medical Research Council, Dr. Friesen, who couldn't be with us this morning. He has always been so well received by this committee. He's now in front of your colleagues at the health committee justifying the MRC budget, so depending on the intensity of the grilling, we may see him a bit later. But our sincere apologies; we're not doing any cloning of individuals, of presidents, at this time.

The most important message, though, from Dr. Friesen and from our colleagues in research, in fact, for the committee is to thank you fundamentally for the creation of CIHR. In all of our presentations to this committee and our individual encounters with MPs, we have always been so warmly received—all parties, all regions. There has been an excitement in this project, and you should know that our researchers have seen this and it's part of their enthusiasm. They feel that Parliament is engaged in this project and it gives them great confidence going forward.

So once again, my profound appreciation for your support.

Now, this morning I've brought a discussion document, which I think you may have, and I'll go over it. I'll just pick out some of the highlights that I might draw to your attention.

There's the commercialization strategy. I'll set aside the social and health issues that tie into CIHR and focus on the industrial part, the commercialization elements, and maybe pull out key messages from there.

The first one I would draw your attention to is on page 3, which is the mandate of CIHR, taken verbatim out of the budget document. There's a very fundamental change here in how we approach health research.

Already in the first line you would see:

promote the creation of new knowledge and its translation into approved health for Canadians, more effective health services and economic development.

That economic mission was never part of the MRC mandate. We were quite happy to take that on, but now in CIHR we start with that as a fundamental and legitimate piece of what we do.

It's important in sending a signal to researchers, to university administrators, to our colleagues, various stakeholders in the health research enterprise, that it's not an afterthought but an important and legitimate central pursuit of this new initiative. It may come as a surprise to some members of this committee, but there are still some who oppose efforts to promote partnerships with industry. It's surprising in this day and age, but there still is an undercurrent of resistance, and I think by starting off with this in the charter, we will go to great lengths in reducing that resistance. I should think this committee would be very helpful in keeping us on track in that core objective.

Dr. Brzustowski, I think, has experienced much of this in his work on the Advisory Committee on Science and Technology Statistics, and even in his participation in the interim governing council he may have further comments.

The second part of my remarks would be to give you a quick snapshot of where we are today in the health industries, broadly sketched, and that's, if you want, on pages 5 to 9.

The key message is that this is already a large sector. There are approximately 80,000 Canadians working in this field. It's somewhat larger than aerospace, which has really done such a wonderful job in carving out a niche in the international markets. The growth rates are quite high and sustained. But we're only starting. We've become very good in the commercialization of research. As you've seen from our earlier presentations, there has been an explosion in venture capital investments in the life sciences.

• 0930

Our ability to transform basic science into products, into companies, has changed dramatically from just five years ago, 1994. As perhaps a little proxy for that, I might mention that for every dollar that was invested in the MRC last year, there was $1.60 of venture capital investments, basically in science projects, taken forward. If we do that same picture in the United States, which is, in a sense, the technology leader in biotechnology, and the Internet, for every dollar that went into our equivalent, the National Institutes of Health, 20¢ went into venture capital. So our ability to do this is quite remarkable now. We're back to the basics. Our job now is to produce the basic science that fuels this engine, and that's why CIHR is so important at this time.

The other element of, you might say, the health sector that this committee is quite familiar with is the pharmaceutical industry. The subsequent bill to Bill C-22, Bill C-91... As you know, the industry has remarkably, dramatically, increased its research activity in the country. One of the tangible results, you might say, of that increased activity has been the MRC/PMAC health program. This is a program whereby we co-funded peer-reviewed research. We started in 1994, and over the initial five years of this program we've covered about 1,000 projects in which the industry invested close to $200 million. We're now renewing that program. We're looking ahead at the next five years. With the new environment created by CIHR we would hope to have a much larger program going forward. And again, the encouragement of this committee to keep in that track would be very appreciated.

I might like to paraphrase Rod Bryden in this big discussion, the broad discussion of the health industries. It's very clear that because of the aging of the Canadian population and the technology explosion throughout the world, we are going to buy a lot more health products. We're going to buy more pharmaceuticals. We're going to buy more devices, more services. It's going to come through us from the States and we won't be able to close off the border. Mr. Bryden is perhaps known more as the hockey manager, but to us he's known as the chairman of World Heart, a wonderful, new, one could say biotech start-up. He has a very simple way of stating it. For him, the issue for us as a country is to decide whether we pay others to produce these products or whether we take the steps to produce some of them ourselves and create the wealth and the tax base to sustain medicare and our other social programs. And that's, in a simple sense, what's at stake here.

Let me move then from where we are today, and if I take you to page 9, this is where we want to be five years from now. These are objectives that are under discussion. They're not quite finalized right now, but directionally I think they'll give you a sense of where we want to go. And many of them are stretched targets. They're hard to see right now from where we are, whether we can reach them. But I'll pull out just a few to draw to your attention.

The first is that we think there are potentially 50,000 new jobs to be created in this sector over the next five years. That's a very significant growth rate. The second one that I might draw out is the idea that we're number two in the field of biotechnology. Biotechnology is still in its infancy—18, 20 years old—coming into adulthood. We're looking at very productive years for this industry going forward. All the major countries are making major efforts. We're tied with the U.K. for number two. The U.K. is perhaps pulling ahead a little bit, but we're in a very... If you take the GE motto, or the Jack Walsh motto...you should try to be number one, number two, number three in the field you enter. Right now we're tied for number two, and our objective is to solidify that position.

• 0935

The third item is that we have a trade deficit of $2 billion currently in health care products. Can we see ourselves turning that into a $2 billion surplus over the next five years? I think so.

In regard to pharmaceutical research mandates, Merck Frosst has a wonderful institution in Montreal. Astra has moved in over the last few years, as well as Connaught, and Boehringer Mannheim, but we only have a few. Securing these large world mandates, securing five over the next five years, would be a great victory, both in terms of jobs and in the enrichment of the science base that comes along with the talents those companies bring to our country.

I've spoken about venture capital investments. A few years ago in this field, $40 million to $50 million a year was a good year. Last year it was $400 million. Our five-year target is to try to create conditions that would lead us to generate something in the order of $3 billion for the sector over the next five years.

Finally, I might mention start-ups. It's feasible to think that we might create 200 new successful start-ups. It's one thing to create start-ups, but we want them to succeed.

[Translation]

These are a few ways, a few examples of goals that could be pursued in coming years. They are difficult to achieve, but they are feasible. If the committee agrees on the direction taken, we would like to have the members' comments and encouragement. We would be pleased to come back every year to report to the committee and indicate the progress we've made towards achieving our objectives. Are we on the right track? Are we going to achieve our objectives? Are we behind schedule and, if so, why? Being accountable is one of the important elements of what we want to do with health research institutes.

[English]

In closing, let me thank you for your generous support of the Canadian Institutes for Health Research. The research community has been given a major vote of confidence. It will be a big challenge to get it off the ground and to achieve some of these targets. We believe we will be able to get there, and we hope to be able to report on that in the years to come. Thank you.

The Chair: Thank you very much, Mr. LePage. We're now going to turn to questions. We're going to begin with Mr. Jaffer.

Mr. Rahim Jaffer (Edmonton—Strathcona, Ref.): Thank you, Madam Chair. I came in a bit late, but I was listening to the last presentation and I was looking over some of the notes here. One of the things that was brought to my attention last week in Edmonton, where I'm from, is that Biomira, which is involved obviously in biomedical research based out of Edmonton, said that there's very little commercial activity in biomedical research going on. Their feeling, I guess, or the sense I get, is that even though I believe the doctor mentioned there are a fair number of students involved in this sort of research, the failure seems to be an economic one.

Why would you believe that the private sector is less active in R and D? I caught you mentioning that there's still a reluctance in the sense that research institutions are not looking to maybe get out there. I know the University of Alberta is doing a fair amount to innovate on that level. Why is there that lack of R and D funding from commercial interests, a heavier commercial interest? What could we do to try to get more of that activity going and move it toward the private sector? I'd just like to hear your comments on that.

Dr. Thomas Brzustowski: Is that from any of us?

Mr. Rahim Jaffer: Yes, actually because I missed some of it.

The Chair: Dr. Brzustowski.

Dr. Thomas Brzustowski: Madam Chair, thank you. Let me put two facts on the table. One is that if you look at the percentage of university research sponsored by industry, Canada leads among the OECD countries at a number approaching 12% now.

If you look at the percentage of industrial research done in the universities, Canada also leads at about 4.8%. It's quite remarkable how much research is being done in the universities that is sponsored by industry. In a number of fields, what limits the investment is the fact that we don't have home-based large companies, that in fact we have to attract foreign direct investment, and sometimes we do that through our R and D capacities in the universities.

• 0940

Secondly, our market is considered small, and that may in fact be the reason there are not larger facilities for the universities. But in terms of the understandings, the arrangements, we already do more than the countries we compete with, and perhaps a little later in the discussion, Madam Chair, I could come back to talking about what I think is the right balance between these activities.

The Chair: Mr. Lauzière.

Mr. Marcel Lauzière: I'd just like to take this opportunity to say that I think the social sciences, and the humanities also, maybe to a lesser extent, are increasingly looking at all kinds of partnerships for the humanities and social sciences. But with industry, social science is increasingly interested in doing this type of research. One thing that has hindered it over the years is the fact that there is no R and D credit for social sciences and humanities research. I mean, it's specifically excluded. I think this is a rule that was developed in another era. Things have changed. Things are changing increasingly. So it's maybe something this committee would want to look at eventually—the issue of accessibility to the R and D tax credit to encourage industry to fund and partner with social science researchers.

The Chair: Mr. LePage.

Mr. Marc LePage: What I might say in the case of Biomira is that they suffer to a certain extent from being a pioneer. They're one of the first generation of biotech companies and they're maturing. While we're doing very well at the early stage, the seed, the start-up, and even mid-stage companies, we're not perfect all along the spectrum. I think in later-stage companies where the investments are massive, it is still a problem area, and Biomira is right in there. That's part of their discomfort.

In regard to the second part, I would go back to my earlier comment on securing pharmaceutical research mandates. Part of what Biomira needs is an environment that supplies skilled pharmaceutical executives and experience, and by and large we have to go out and get those in the United States or Europe. There's a small industry growing in Canada, but the kinds of research-management skills that they need are in short supply in Canada. So again, it's a bit lonely where they are.

They have a bit of company. BioChem Pharma in Montreal has succeeded. It has billion-dollar products for AIDS and now for hepatitis B going out. QLT in Vancouver is almost there, and I think when they go out there will be a little bit more company. But they're at the part, I guess, that it's still a work in progress. We certainly hope they get through that difficult period.

The Chair: Mr. Jaffer, do you have another question?

Mr. Rahim Jaffer: I think they generally addressed some of the concerns I had. During the discussion, I know the doctor mentioned that he might in his summary or at some point discuss some of the other things that he would suggest.

Some of the other concerns that have been brought to my attention that you may want to comment on at some point are the various disincentives that might be out there currently when it comes to high-tech research or bio-research such as this, for instance, intellectual property protection on something that's still developing, the lack of venture capital to some extent when it comes to intellectual property development, and obviously the long-term vision and lack of tax incentives that you mentioned already. Those are just some of the things I've been hearing, and if you have comments at some point on them, that would be fine.

The Chair: Thank you, Mr. Jaffer.

Mr. Peric.

Mr. Janko Peric (Cambridge, Lib.): Mr. LePage, you mentioned in this paper that the Canadian Medical Discoveries Fund was inspired by MRC. Can you talk a little bit about the Canadian Medical Discoveries Fund, where the money is coming from and who is making the decision to give grants to applicants? Is the doctor still there by himself, or is there a committee?

Mr. Marc LePage: There's a board and a management structure. I'll just give you a quick snapshot of the history. The Canadian Medical Discoveries Fund started in the boardroom of the MRC in 1994. We were looking back at those days...it's really not that far away. But there was really a terrible shortage of early-stage venture capital in Canada and we were very conscious of many of our scientists moving to San Diego, Boston, or San Francisco. The reason they were going there was that they had ideas, they had great potential, there was the excitement of the discovery, and they just couldn't raise that money in Canada. We were trying to do something with that problem.

So early-stage venture capital... Dr. Stiller was on our team at that point, and had been a member of council. We put together a group, recruited a professional manager, recruited a bank, a union partner, and in a sense launched the idea, and away it went. In order to, in a sense, make it happen and make it legally feasible, we in fact pulled out. It's not our business—we're not venture capitalists—but we needed to work closely with an early-stage venture capital fund.

• 0945

It went away and raised funds on the stock market. Today it has about 70,000 shareholders across the country; it's a national fund. It's a labour-sponsored venture capital corporation, which I think is a very important element of, I would say, the Canadian toolbox for the new economy. The labour-sponsored funds have made a tremendous contribution to venture capital. The medical area has transformed it, but in other disciplines they also play a major role.

So these shareholders, as with any other corporation, own the Canadian Medical Discoveries Fund. The investment decisions are made by Doctor Stiller and his management team. There's an investment committee; there's a whole process, as with any other professional venture capital fund.

The last thing I would say is from a start of zero in 1994 to date, it has assets of about $250 million, which puts it in probably the top ten worldwide.

The Chair: Thank you.

[Translation]

Ms. Lalonde, please.

Ms. Francine Lalonde (Mercier, BQ): Good morning to our three witnesses.

The last time he appeared, Mr. Brzustowski was concerned about the effect of the weak dollar on the costs of imported equipment, and the conversion of indirect costs into direct costs by university administrations, which meant it was harder to support research teams. He was much less optimistic than this morning. I'd like to know what sort of miracle occurred. As far as I know, the value of the Canadian dollar has not increased considerably.

Furthermore, on page 14 of the document about consolidating assets, a report on federal activities in science and technology, the federal government admits that Canadian expenditures on research and development dropped from 33% in 1981 to 22% in 1998, and that even if these expenditures are closer to the international average, among the G-7 countries, Canada is just ahead of Italy. How do we reconcile your optimism with these figures?

Mr. Thomas Brzustowski: Thank you for your question. Obviously, the value of the Canadian dollar continues to pose problems when we purchase equipment and instruments. We nevertheless recognize that in the past two years, the NSERC budget has been increased by somewhat more than $100 million, which makes a big difference for university research. My mandate is actually limited to such university research.

It must be confessed, however, that some problems remain. Indirect costs continue to pose serious problems for the universities. They account for about 40% of direct costs, before teaching salaries. There's a big difference between our system and the American system, in which direct costs are included in grants.

There's something here that's a problem for me, but that is a good thing for the country: it's the increase in the number of professors who arrive and are ready to do university research. I'm delighted to see that the Canadian situation, as far as the number of students in key fields is concerned, is better than elsewhere. This is the optimism I was sharing with the committee this morning.

• 0950

Ms. Francine Lalonde: Thank you. We'll come back to our differences about figures later.

I think that all our witnesses support Mr. Brzustowski's affirmation that useful knowledge must be increased. Although we may agree with this affirmation, we may be extremely concerned because it's hard to say today what tomorrow's useful knowledge is. We know that it's basic research that provides tomorrow's useful knowledge. Limiting ourselves today to useful knowledge would be an extremely blind approach. Instead of leading the pack, we might end up doing just the opposite.

Don't we have to identify a balance between knowledge that can be applied or marketed, and basic research? If we don't support basic research, we're going to kill the goose with the golden eggs, and it won't be long.

[English]

The Chair: I think all three wish to respond.

[Translation]

Mr. Lauzière.

Mr. Marcel Lauzière: This is an interesting question. At the SSHRC, we're very aware of this problem and we try to find this balance. We have developed what we call our innovation scenario, whereby we try to consolidate our basic research capacity because it's the foundation of all the rest. But at the same time, we're working on an aspect where we've experienced some weaknesses, namely strategic research on such basic questions as health, productivity, social cohesion, etc. It's a constant question of balance.

We realize we can't put all our eggs in one basket and we have to take the long-term view. That's why I was stressing the importance of tax credits for the strategic research we do in some areas, in partnership with the private sector. That being said, our basic research pool is essential and we're doing everything necessary to make sure it remains strong in coming years. It's a matter of balance.

The Chair: Mr. LePage.

Mr. Marc LePage: You're quite right. In applied research, which is very important, progress is often made from an already established basis. Improvements are made on knowledge already acquired. It's a type of research that must be done and which has a role to play.

Generally speaking, the MRC to date has limited its partnership activities to about 10%, while 90% of its activities are concerned with open research and basic research. It's very hard to make the distinction between the two types of research. It's important to fund good research, good individuals, peer review and excellence, whether in industry or more open areas. That's very clear.

When young company owners are asked if they thought that five years ago, when they undertook their project, they'd just launched a company, 90% of them say no. These people at some point made a knowledge leap and took a lead of two, three or four years, a lead so significant that capital was invested in them so that they could take an even greater lead. A six-month lead couldn't support a company, because of such things as the competition it has to deal with. Basic research enables us to make these knowledge leaps. What's already established is skipped over and the next stage is reached. A balance has to be maintained. In our case, thanks to the sharing I mentioned, we haven't encountered any serious difficulties.

[English]

The Chair: Thank you.

Dr. Brzustowski.

[Translation]

Mr. Thomas Brzustowski: It really is a matter of balance. The NSERC dedicates about 55% of its budget to basic research, and about 22% or 23% to research projects it carries out with universities and industries. To my mind, this is a fair balance. Our partnerships with current industries will enable us to increase our productivity and improve our products. Nevertheless, as you said so well, we also have to think about partnerships with future industries that don't yet exist. The radical innovations we'd like to make today and tomorrow will require a solid basic research foundation.

• 0955

[English]

We think in fact we have the right balance, because something like three-quarters of our budget at NSERC is spent on supporting basic research and individuals through scholarships and fellowships. A quarter of it, a quarter of our budget, is spent on supporting university-industry partnerships with existing companies. The latter involves innovations that are process innovations and product improvements, essentially based on existing activity, and that's very important.

But when I referred to 108 companies that were started up, that's our sample of 108 that were started up with investments made in basic research over the last 20 or 30 years. Those were the ones that created industries that couldn't be partners then because they didn't exist then.

So, for example, if you look at a company like Ad Opt in Montreal, this is a company that can be traced to investments that NSERC made 20 and 30 years ago in a very refined branch of mathematics called combinatorics and optimization. Today that's a company that employs something close to 100 Ph.D.s in Montreal, and exports scheduling software for transportation systems all around the world. Japanese trains, systems in Sydney, and so on are run on schedules created by that Montreal company. It didn't exist 30 years ago when we invested in that basic research. One couldn't have formed a partnership with it then. It does exist today, and there will be many new activities that will come out of the ideas that are coming out of today's basic research.

The balance has to be there. We think we have the right balance.

The Chair: Thank you.

Mr. Lastewka, please.

Mr. Walt Lastewka (St. Catharines, Lib.): Thank you, Madam Chair. I'd like to thank the witnesses also for coming before us again.

I want to just go back to some earlier comments the doctor made concerning the enrolments being down in the other countries. You talked about those statistics, and I'm always concerned not to assume things. On a per capita basis, where are we in the standings with other countries concerning the electronics and engineering areas you mentioned?

Dr. Thomas Brzustowski: I'm glad you asked that question. You've actually pushed one of my hot buttons on that one.

In this country we have a very small number of engineers per capita of general population. The city of Calgary, which has 20 engineers per thousand of general population, is at four times the national average. Our national average is about five. The city of Calgary, if you look at what's been happening to it, has managed to wean itself of the cyclical variations in the oil and gas industry, by developing industries—wireless telecom is there, all sorts of advanced manufacturing, biotechnology software. All of those correlate with the large number of engineers in the community.

I wear an engineering ring, and I'm going to say that it's cause and effect. There would be people who will say I can't prove it. I can't, but I believe it.

We do not have enough engineers. The country of 30 million people has 150,000 registered professional engineers. Now, there are many more employee engineers in industries who are not registered professional engineers. But compared to the other countries in the G-7, the percentage of university graduates in Canada in engineering, mathematics, and science is low; it's the lowest. It is on par with the United States, which is also the lowest. What is highest among the percentage of graduates in Canada is social sciences and humanities. In the United States they're a little lower in social sciences and humanities and higher on legal and commerce. But those two countries have the lowest percentage of graduates in engineering, mathematics, and science of all the countries that we compare ourselves with—and by far the lowest.

• 1000

Now, you know the United States is able to attract a lot of people by immigration. We feel we have some sort of a balance there, depending on whom you talk to. But I think it's a very serious consideration.

But the good news is that even though we're starting low, we're not declining like the others are. We seem to be growing. When industry calls for more, and provincial governments support the universities for more, and the universities find the faculty, then the federal government has to provide the research grants to support that growth. I think it's good for the country that this should happen and we should be seeing it in more fields.

Mr. Walt Lastewka: Mr. LePage, you brought up my favourite subject, about private industry doing more investment in Canada, and you mentioned the resistance of some... Could you tell us a little more about that resistance and what is causing it?

Mr. Marc LePage: Yes. Rather than resistance in industry, I think there's still some resistance in our academic environment, and I think it's perhaps more pronounced in the health and engineering faculties, which is a longer tradition of this.

It's fairly new to Canada. Ten years ago we did very, very little. So we've had very rapid change, and by and large people have taken to it very well. These spin-offs I think are a manifestation of that. But there is still a discomfort level that is problematical and often ties us up in issues of “Should we be doing this?” rather than “How should we be doing this?” It's a bit distracting of the agenda at hand.

I think over time it will fade away, but it's still there. It doesn't prevent us from doing the things we have to do, but it's a bit of a break at times. I can't quantify it or give you any detail, but it's there.

Mr. Walt Lastewka: I know we must do basic research and feel very free to go where no one else has gone and then to be able to do partnership with industry in a more focused way. I think the doctor mentioned having to have this balance of basic research and so forth and then focusing in... I know we've had some instances where companies have invested, but then they want to direct the whole thing, and that of course doesn't... Is that where the problem is?

Mr. Marc LePage: No. I think that in managing university-industry collaborations there are always expectations of both partners, and then companies may try to push harder than they should. But I think places like the University of Alberta and Queen's—very good licensing organizations—are very strict on what they accept, and then there are rights to publish and a whole bunch of things that are part of the academic life that are safeguarded by these organizations. That can be managed.

Mr. Walt Lastewka: The more experience we get, I guess—

Mr. Marc LePage: Yes, there's a factor of experience.

Mr. Walt Lastewka: I want to talk about the area of commercializing research and getting it through that last step of development and into the marketplace. I know that some universities have some great commercializing units to help the research people get over that bridge to commercialize. Have we really made progress in that area across the country, from your standpoint?

The Chair: Dr. Brzustowski.

Dr. Thomas Brzustowski: Madam Chair, on Monday of next week the report of the Expert Panel on the Commercialization of University Research will be made public. I was a member of that panel and of course I'm not free to divulge details, but I can talk about some of the elements that were in the paper that was made widely available across the country as a first draft for consultation.

We are learning how to do this. We are comparing ourselves against the United States. We're far better than our European trading partners in this. The league is the United States and Canada.

• 1005

We are learning, but we're finding that we have a major problem in this area, and the problem is people. It's not the people who do research, it's not the people in industry, it's not venture capitalists; it's the people who will help a researcher recognize that a discovery or an invention has the potential to succeed in the market, who will then guide this process all the way through—knowing the financial implications, knowing the legalities, and knowing the market, to start with—and take it from the lab to the market. There is an enormous shortage of such people. They have to know the science. They have to know the market. They have to know who's involved in financing and all the stages of taking an innovation to market. They have to know all the legal steps that are involved. And they also have to be good case managers.

These people are very rare. We don't seem to be educating them; they learn on the job, and when they learn on the job and get good at it, they are lured away by much higher salaries generally into the private sector. Now, it's good to have them in the private sector. Obviously they increase the knowledge on that side. But they are missing from the universities in that case.

It was already recommended in the draft report that the universities be given help in finding such people, training them, and supporting them adequately. What we're looking for in taking a university discovery or invention to a successful innovation in the market is a private investment, which may be many times greater than the cost of the research that went into it.

So there has to be, as Mr. Jaffer mentioned, adequate knowledge about intellectual property protection. There has to be knowledge of what are the exit strategies and how will the investors at various stages make a profit. There has to be knowledge of how to manage intellectual property, how to add value to it, whether by building prototypes or bundling intellectual property from various sources to have a strategic package to protect a corner of a technology. We're learning how to do all these things, but the key element will be to have more of the people who will be expert at that.

I would hope that our business schools could contribute, but I must say that I haven't encountered many program descriptions of MBA, even if they have the label of science and technology in business schools, that have courses on innovation or courses on intellectual property. I think those have to come. I'm not saying this because of who's at the table today, but the example one can look to today as the best office where commercialization is done in the country is the University of Alberta. They are the best at it.

Mr. Walt Lastewka: That's the one I was familiar with.

The Chair: Last question, Mr. Lastewka.

Mr. Walt Lastewka: I'll go on the second round.

The Chair: Thank you, Mr. Lastewka.

Mr. Jaffer, please.

Mr. Rahim Jaffer: I just have a quick question specifically to Mr. LePage. It has to do with pharmaceutical development and research. During the time I've been taking a look at especially the Patented Medicine Prices Review Board, there has been some criticism about that organization and obviously the fact that the way it sets prices might actually keep pharmaceutical research and development spending down.

I'm looking at it a little bit closer, and what I'd like your comments on is if in fact you see that this is the trend because of the way they set prices, and if there's a real need for that particular organization or should we be looking for something else within the market to obviously encourage R and D spending. Because it has been brought to my attention, I'd just like to hear your comments, if you have any, particularly on this.

Mr. Marc LePage: I think the overall investment climate, whether for pharmaceuticals or any industry, is a combination of all the factors that come in. Research is a piece, access to market is another piece, and there is the regulatory environment and all of that. So in that context it is a factor. But I would say that in the pharmaceutical industry, particularly in the research end, increasingly people are seeking the best human resources, wherever they are. If the best pain researcher or pain research team is in Canada, our sense is that eventually, even if there are issues with PMPRB or whatever other regulatory system, we can overcome those. The fundamental issue is that those human resources, if they're here, over time will come. They might not come this year; there might be a bumpier road than you'd want otherwise, but they can come.

• 1010

I guess there's a sense internationally that prices in Canada are lower, but there's an understanding of how we came to this. They're lower than those in the United States. Are they lower than those in Europe? We're kind of in the average. There's an understanding of how this came about and I think—

Mr. Rahim Jaffer: Do you see that link, though? Is there that sort of link because there's a lack of, say, R and D spending in pharmaceutical research? There's not that much of an increase in spending—

Mr. Marc LePage: If you looked at the numbers, if you looked at the changes that have come since Bill C-22 and Bill C-91, you would see the pharmaceutical R and D levels going from $150 million ten years ago to $800 million now, and they've announced—and I think they're quite confident they can get this—over $1 billion very shortly. In our little paper, we said let's get it up to $1.6 billion over five years, so that's in the environment that we have presently. We see another doubling.

So it has gone up. If you look at their growth curve, you'll see it's a very sharp incline. Could it be sharper, I guess, is the question. I don't know. It's pretty good. We have to be very pleased as a country with what has happened there.

The Chairman: Thank you, Mr. Jaffer.

Mr. Bellemare, please.

[Translation]

Mr. Eugène Bellemare (Carleton—Gloucester, Lib.): Mr. Brzustowski, you say that enrolment in American universities is falling off in high technology and some sciences. Why is this? If enrolment is decreasing, there must be an increase in some other area, for example, in business.

Mr. Thomas Brzustowski: There's talk of a loss of interest among young people in science and technology. I don't know why. They say maybe it's a reaction based on environmental concerns or the fact that these subjects are harder. Really, I don't know. Maybe the reasons are as simple as that. This visible loss of interest and support for science and technology seems to be as prevalent among young Americans as among young French people, young Germans and young English people.

Mr. Eugène Bellemare: They must be interested in another area, whether promotion, business or the economy. When young people witness the prosperity enjoyed by countries like the US and France, they imagine a future in which they're going to build castles, with several cars, and so on. Maybe that's why they go into areas in which they're doing industrial promotion, economic promotion and business promotion, in short, marketing.

Maybe that's the key to the great success of the US, France and England, which know how to market their discoveries. Is this an area your organizations should be leaning towards in order to contribute to marketing and promotion of research? You might open up another area in which people would become promoters of the discoveries you make in the various agencies you represent.

[English]

Dr. Thomas Brzustowski: That's wise advice. I operate with very little information in this area, but I know one or two things. In the United States and to some extent in this country, if you look at what people are paid as salaries, you will find that for a young mathematician who has the choice of working in a university environment and doing research or applying the mathematical skills in the financial services, trading derivatives, in the financial services that person will earn four times more. The people who make the most in industry are not the engineers; they're the people in marketing and head office management, accountants, and so on.

• 1015

Society directs the choices of young people in many ways, and one of them is the economic prospects young people see when they consider a future. The people who choose to teach in universities don't do it for the money. They do it in spite of the money.

I've heard of one very important finding from the director of the National Science Foundation in the United States, which I find to be very interesting. It says there's one fact that correlates better than any other with success in an industry job, success in a university position, and a measure of success in science in making a discovery, and that is an exposure to research as an undergraduate student. People who become senior professors, senior executives, and senior technical people in industry, people who are the major successes have had some undergraduate exposure to research during the four years they were there. I'm very happy that the last two budgets have allowed us to increase the number of students to whom we can offer that exposure in this country from about 600 to four times that. If we can find the money, we'll double that number next year.

This may be an element in answering your question. It may be that there's an element of marketing in that, an element of attracting those who have the talent and the aptitude to an activity they might otherwise know nothing about. But let's not lose sight of where society pays people the most to put their efforts.

The Chair: Mr. Lauzière.

Mr. Marcel Lauzière: Let me just add that SSHRC is the organization that supports studies in management, legal studies, those types of issues. We're funding some important projects on entrepreneurship and SMEs, as I was saying earlier on, innovation, etc., and we're seeing a lot of interest in those areas. We're seeing a lot of innovation and a lot of energy when we do visits to universities. We see a lot happening in those faculties. I'm saying that because I think it's linked to some of the things you were saying. There's a real interest in those issues.

The Chair: Mr. Bellemare, be brief, please.

Mr. Eugène Bellemare: You're giving me the same answers. You appear to be practical idealists. You're granting funds for the development but not for the promotion. You look at the United States and they are marketers. There is a void in Canada, it would appear from the discussion this morning.

Since you're only giving grants and you depend on the federal government and possibly other areas, such as the provinces and some industries, should you not get into that field of management promotion and marketing where you'd have an adjunct and could develop a community that is perhaps more materialistic than what you are now? You are idealists, and perhaps you need a bit of a dose of materialism in order to have the returns to be able to continue your worthy idealism in development.

The Chair: Mr. LePage.

[Translation]

Mr. Marc LePage: As Mr. Brzustowski said, a bottleneck occurs when it comes to transferring technology, for example, when the technology or discovery moves from the university to risk capital. Using their example to some extent, we're actually studying the possibility of offering accelerated training on the transfer of technology. This way we could train people by assigning them to university offices, risk capital companies, the pharmaceutical industry, and any other areas where intellectual property is transacted. On account of the development they're experiencing at present, companies are seeking out all our best elements. In a way, this is one of the ironic effects of success: all our people are picked up by these companies that offer them big salaries. So we have to get other people into the system in order to meet growing needs.

• 1020

Once this is done, entrepreneurship will be visible. In the health field, the marketing university, if I may use this term, is developing in the pharmaceutical industry and among manufacturers of health products. This is why pharmaceutical company recruitment in Canada is so important. These companies are becoming our pool of managers, where we can go and get the experts who will help us market our technologies. In a way, they are a sort of unofficial university for training in marketing.

[English]

The Chair: Thank you, Mr. Bellemare.

[Translation]

Ms. Lalonde, please.

Ms. Francine Lalonde: I have already studied this extremely interesting question, but I wish to raise another question which mustn't be neglected. It arises from an article in Maclean's about Dr. Olivieri, who was dismissed from the Hospital for Sick Children in Toronto. I don't know whether everyone knows her story. She was treating patients suffering from a serious blood disorder. As part of her research program, she was testing a drug on behalf of a company. On discovering that this drug was harmful to some of her patients, she notified the company that she was going to warn her patients, which, in my opinion, was essential in ethical terms. The vice-president then threatened her with legal action on the pretext that, by doing so, she was breaching the confidentiality clause in the contract she'd signed with the company.

In the health field, in particular, questions of this sort may be asked. Some wonder about the universal appropriateness of turning to partnerships with private enterprise. It seems to me they're just being cautious. I address this question to the three of you.

The Chair: Mr. LePage.

Mr. Marc LePage: Yes, the case of Dr. Olivieri was a very hard one. It may be an example...

Ms. Francine Lalonde: It's a typical case, we could say.

Mr. Marc LePage: Yes, a typical case from which a lesson may be fairly drawn. Dr. Olivieri had concluded a private agreement with the company in question. It was agreed that the contract would include confidentiality clauses that would not have been acceptable in a partnership if they had been reviewed by peers or submitted to the administration of a university or hospital. The conditions contained in it were not acceptable. But since the connection had been made directly, the individuals were exposed to that whole debate.

The first phase of this program provides that, when we cofund a project with a company, our partnership agreements include an ethical protection framework. As soon as a problem arises, the matter is assigned to an independent committee, which must judge whether the patients must be notified or some sort of action taken. This example shows that it would be a good idea to place more research activities under the agencies to ensure respect for a firmer ethical framework.

The Chair: Mr. Lauzière.

Mr. Marcel Lauzière: Further to Mr. LePage's remarks, I'd just like to point out that there is at present an ethical policy statement governing our three granting agencies that are concerned with research into social issues. This statement deals with this sort of issue. When such research takes place under the agencies, there's some protection.

Ms. Francine Lalonde: Could we get a copy of this statement?

Mr. Marcel Lauzière: Yes, I'll send you one.

Ms. Francine Lalonde: I'd appreciate it. Thanks.

[English]

The Chair: Last question, Madame Lalonde.

[Translation]

Ms. Francine Lalonde: There may be different ways of making sure discoveries don't end up gathering dust on university shelves when they could serve humanity. Businesses would like that to happen.

I think that, in Quebec, Inno-centre has developed a model used by the National Scientific Research Centre. I'm not familiar with the Alberta model, but I'm going to find out about it. This model struck me as being interesting because, to start with, scientists are not necessarily businesspeople and perhaps don't feel like becoming businesspeople.

• 1025

Without depriving the researcher of his property or without depriving the university, how can we be sure of building a business? Inno-centre is an interesting concept because in a way it's a sort of turn-key project that's delivered after a year or two.

The Chair: Mr. Brzustowski.

Mr. Thomas Brzustowski: I agree that this is a good model that has been well thought out and designed.

Ms. Francine Lalonde: So there are different models.

Mr. Thomas Brzustowski: Yes, there are different models. There's not just one model.

[English]

The Chair: Merci, Madame Lalonde. I have—

[Translation]

Ms. Francine Lalonde: Mr. LePage would like to add something.

Mr. Marc LePage: As Mr. Brzustowski pointed out, there are numerous models, and we're just beginning when it comes to new technologies and the new economy. Although we're always looking for the next good model, there are already several good models. I think that's often the key element behind all that. In fact, it comes back to the individuals who are behind that. If we transposed those who created the University of Alberta success to another model in another city, I'm sure they would have the same success, at least, in large measure.

Ms. Francine Lalonde: Thank you.

The Chair: Thank you, Ms. Lalonde.

[English]

I have Mr. Shepherd and Mr. Lastewka on my list, and I just want to let the members know that we're running out of time.

Mr. Shepherd, please.

Mr. Alex Shepherd (Durham, Lib.): Mr. Brzustowski, you've told us that enrolments are down in the United States, and yet people are constantly telling us that our graduates are being bought away from us. In fact, it was only this last week that I had a long conversation with some people from Nortel who were saying we simply can't keep our engineers and scientists here in Canada.

Basically what you're asking us to do is to increase funding for research in Canada. I look back at my constituents and say, is this a good investment? Are we simply investing in these institutions to turn around and subsidize a transfer of knowledge to the United States? How would you address that issue?

The Chair: Dr. Brzustowski.

Dr. Thomas Brzustowski: With difficulty. Obviously, the fact that the enrolments are declining in the United States when they foresee a growth in the industry means they will be looking for people all around, and we are convenient. We are close. We speak the same language, drive the same cars, and chew the same gum.

But we are succeeding in increasing the enrolments here in response to our own Canadian industry. I don't think we have any choice but to provide the research funding to those faculty members who have arrived to teach those students. If we don't, they'll leave, and the students will leave. Whatever the pickings, whatever the share of those increased enrolments our industry would have gotten, they're not going to get.

The world is a place where people are very mobile these days. It's interesting that we are starting to see examples of good people being recruited into Canadian industry and Canadian universities from other places in the world, even at senior levels and even from the United States, if one provides the conditions for them. For university researchers and professors, the conditions are determined not so much by salary or marginal tax rates but by the opportunity to work with good people in a good lab and to get the work done for which they will become famous or well known. I'm quite sure that all of these people are as sensitive to salaries as maybe some others are, but they are vastly more sensitive to the opportunity to do good things.

I think we must do the same as other countries around the world that educate foreign graduate students, some of whom stay and some of whom leave. If we make conditions attractive enough, if we have companies where people will feel they are doing very modern work that will bring them right to the cutting edge of the market, then our industries will do better in attracting them.

Mr. Alex Shepherd: I don't know if you have any empirical information. We talked about wages and salaries. Obviously, if there's a skill shortage going on in the United States, those wages are going to adjust upwards. With regard to some of your dissertations, I could say the same thing about somebody who wants to go and work for Microsoft. He's going to work in a nice lab in San Francisco, or wherever it is, with great people, with great facilities, and he's also going to make 25% or 30% more money. Do you think his professional integrity is going to simply keep him here in Canada? How are we going to deal with this issue?

• 1030

Dr. Thomas Brzustowski: I don't think it's professional integrity. I think it's finding attractive work in Canada, finding an attractive life in Canada, and finding an environment that is supportive in many ways. There is nothing new about brain drain from this country. I'm told that if you go to the Los Angeles area, you will find tens of thousands, if not more, of Canadians who are very active screenwriters, composers, performers, actors, what have you.

I just came from a meeting of the Canadian Institute for Advanced Research in which a number of our country's best researchers, the very best, presented research results. A number of them were immigrants from the United States. The flow is not just in one direction.

Mr. Alex Shepherd: I have a quick question.

The Chair: Last question, Mr. Shepherd, please.

Mr. Alex Shepherd: As legislators, it would be nice if we had some more empirical information, because we're led to believe that this flow is all one way and it's becoming very significant such that we have to change our tax laws and so forth to try to compensate for it.

Dr. Thomas Brzustowski: It may be in sectors with which I'm not familiar, but I do know that quite apart from tax laws the opportunity to do good research with good equipment, good colleagues, and good facilities on important areas is a very big factor for university researchers and graduate students.

The Chair: Thank you.

Lastly, Mr. Lastewka.

Mr. Walt Lastewka: Thank you, Madam Chair. I'll try to be brief. I have two short questions. One is to Mr. Lauzière.

We've always talked about SMEs being the engines of growth and so forth. We always find out in some areas of the country we have the proper attitude and cooperation amongst various groups and so forth, and there's a system in place for that developing of SMEs. Has your organization done studies on the infrastructure and systems in place for SMEs to have a better model?

Mr. Marcel Lauzière: Yes. I can send you some information on at least two or three quite exciting projects. One is in B.C. and one in Quebec, but there are some elsewhere also. They're looking at where things work, where they don't work; looking at why some SMEs seem to be getting off and being successful and others not; at how innovation is different with SMEs from what it is in larger corporation, etc. And there are some interesting findings.

I was saying earlier that there's a lot of interest around these issues, and there really is. In fact, these projects are attracting a lot of students who are interested in these issues. I can send you some concrete information on this.

Mr. Walt Lastewka: I'm also interested in community systems or infrastructures.

Mr. Marcel Lauzière: Okay. I can do that.

Mr. Walt Lastewka: I have one last question to you, Dr. Brzustowski, and I want to bounce something off you. It concerns continuous development of our electronics, our microchip industry in Canada. We're always trying to move or begin a major microchip manufacture here in Canada but we always seem to lose out, because when it gets down to the bottom line, the company wants free land, the company wants ten years tax free, and many other incentives.

My question to you is, could we not get the best and brightest in Canada in various companies and develop our own microchip research and manufacturing in Canada where the benefits are thousands of people and many researchers? I think the last microchip manufacturer I have been dealing with...over a five-year program it would increase to about 6,000 jobs—very high paying, with lab research. If we can't win contracts like this, why don't we put our best and brightest together and make it happen in Canada rather than always being a bridesmaid?

The Chair: Dr. Brzustowski.

Dr. Thomas Brzustowski: I think part of the answer is the huge investment it takes to produce a competitive chip fabrication facility. The fact is that to compete in the market, to actually sell the product—a product that is quite mature now—you have to buy the equipment that will do it economically. You have to talk about investing billions of dollars in the facilities. We have all sorts of ideas. Our best and brightest I think will be capable of starting entirely new things, which others aren't doing yet, and that's why I think we have to support basic research, because we have to make these radical innovations.

• 1035

But to come as a player to a field in which some say there is already an oversupply in the market and others say it takes only a few months for an innovation to become a commodity, where you're competing on cutthroat price cutting, to do that without having the money to buy the latest equipment and the suite of patents that allows you to protect your corner...I don't see how it could possibly succeed.

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

I want to thank the three of you for joining us this morning. It's been very interesting. We appreciate not only the update but the new information we've received. We look forward to meeting with you again sometime in the future.

I want to inform the committee that we're going to suspend for two minutes while our witnesses change places. We have the Association of Universities and Colleges joining us.

Thank you again for being with us. We're going to suspend for two minutes.

• 1036

• 1042

The Chair: I'm going to call the meeting back to order. We're very pleased to welcome our next group of witnesses from the Association of Universities and Colleges of Canada. We're very pleased to have Dr. Robert Giroux, president; Dr. John Service, president of the Canadian Consortium for Research; Louise Robert, executive director, Humanities and Social Sciences Federation of Canada; and Rubina Ramji, the chairperson, Canadian Graduate Council.

We'll begin with opening statements, and I'll turn it over to Dr. Giroux.

[Translation]

Mr. Robert J. Giroux (President, Association of Universities and Colleges of Canada): Thank you, Madam Chair.

First allow me to thank the members of the Industry Committee for the interest they have show concerning the challenges they have identified in the document Sustaining Canada as an Innovative Society: An Action Agenda, which we submitted to the federal government in September 1997. We've kept a close eye on the highly interesting hearings you've been holding in your exploration of the conditions necessary for innovation.

The time also seems very right for assessing the progress made in recent years and for exploring the major issues before us.

The opening statement which my colleague Rubina Ramji will present is designed to clarify the current situation and reveal today's issues.

Rubina, over to you.

[English]

Ms. Rubina Ramji (Chairperson, Canadian Graduate Council, Association of Universities and Colleges of Canada): Thank you.

The actions the federal government has taken in recent budgets indicate it has made knowledge and innovation a key priority. In our view, the government is on the right track in creating the conditions to sustain innovation and improve the quality of life for all Canadians. With the Canada Foundation for Innovation the government contributes to the modernization of our research infrastructure. The assistance of the CFI has enabled Canadian universities to recruit 222 young leading researchers by providing them with state-of-the-art equipment.

With the Canada opportunities strategy the federal government has taken a series of initiatives designed to ensure that Canadians have an opportunity to acquire the education and the skills required to thrive in a knowledge-based global economy.

Recent federal budgets have addressed the downward trend in federal support of university research by restoring granting council support to previous levels. The creation of the Canadian Institutes for Health Research in the February 1999 budget is transformative not only in its integrative approach to health research but also in its promise to provide researchers with internationally competitive levels of support.

Madam Chairman, there is no doubt that the key investments made in the last three budgets in support of research, students, and research facilities will go a long way to shoring up Canada's national infrastructure for innovation. They are encouraging signs that our country is again willing to pay attention to the fundamental elements of a successful knowledge society, which we outlined in our 1997 brief: people, research, and education. We are not alone in underlining the importance of these factors.

• 1045

In order to foster innovation, it is important to identify those areas of our national system of innovation that need improvements. It is on the basis of such a diagnosis of the bottleneck in our innovation infrastructure that paths for actions can be found and solutions can be devised.

Our work shows that innovation must be enabled. Human talent must be available, as well as a healthy knowledge infrastructure that fosters and links innovators in all segments of society. Next come the regulatory, legal, and financial conditions to frame change and make possible the transition from the conceptual to the real, in ways that contribute to social well-being.

The final and increasingly important factors in our increasingly globalized economy are the access to international markets and the protection of intellectual property, which enable innovators to secure the returns of their investments. These elements are essential parts of the process of innovation and are all intimately linked. Weakness in any one of these elements and innovation enablers becomes innovation barriers. The entire innovation platform can only be as strong as its weakest component.

Those observations are not groundbreaking and they are very consistent with the findings of the Conference Board of Canada, the Conseil de la science et de la technologie du Québec, the Council on Competitiveness, and countless others. In many ways, what is so revealing about them is there are no miracle recipes or magic keys on which to build a strong innovation infrastructure, other than investing decisively in the fundamentals of people, education, and research.

Allow me to briefly illustrate this by turning to three stress areas that we have identified and outlining for you some of the challenges that lie ahead.

First, innovation is still too narrowly construed. A knowledge society is a society that must be able to innovate in all spheres. If we accept that innovation is at the heart of the new economy, the spirit of innovation must permeate all of our undertakings. In fact, it is now very clear that even technological innovation necessitates the contribution of specialists from many fields.

For example, breakthroughs in digital and computer technologies have undoubtedly made possible a new industry, but today's thriving multimedia industry would not be a reality without the varied contributions of artists, writers, lawyers, managers, designers, marketing experts, etc.

Increasingly, our society finds itself challenged by the rapid pace of scientific and technological progress. The spectacular advances in genetic engineering are considerably pushing the envelope, in terms of ethics, law, environmental regulations, and other public policies. Here again, we must look beyond the sciences for guidance.

Furthermore, many of our biggest societal challenges are outside the realm of science and technology. Reinventing health care and the delivery of social services, dealing with profound changes in the workplace and problems of child poverty, to name but a few, simply cannot be accomplished without sound contributions from our social sciences, scientists, and our humanities scholars. However, historical underfunding of research in social sciences and humanities seriously hampers this contribution.

It is time to unleash innovation. A narrow view of innovation is severely limiting the scope of our actions. It prevents us from taking full advantage of our resources and many of the mechanisms already available to us. In short, it is quickly becoming an impediment to innovation itself. If innovation is social and organizational as well as technological, public policies must squarely reflect this broader view.

The second stress area focused on is the fact that innovation is about the availability and use of personnel. It would seem a truism to say there is no innovation without people to create, apply, and exploit new ideas, yet until recently, cost and availability of capital were identified as the major barriers to innovation, particularly in the private sector. At a time seemingly buoyant with innovative opportunity, it is now the availability, quality, and diversity of the national labour force that is becoming a leading concern.

Secondly—and perhaps this is more worrisome—this emphasis on skill shortages, however important, masks a deeper challenge: the manner in which society uses its talent pool. It is at the meeting point of people and institutions that innovation occurs, not in isolation. Encouraging the mobility of individuals, be they researchers, students or office workers, multiplies those meeting points.

Until now, exchanges have been promoted through fairly limited intersectoral mobility, or by encouraging multidisciplinarity. To fully capitalize on well-trained and highly skilled people, we need to rethink mobility in broader terms.

• 1050

We must continue to develop the mechanisms that will serve to enhance the symbiosis between labour market and education, increase the innovative capacity of small and medium-sized businesses, and extend the growth of collaborative endeavours to include all partners in innovation in its broadest sense, in both the public and private sectors. If innovation is about moving ideas, it follows that it also has to be about moving people. This must also be a truism.

The third major stressed area is the fact that weak partners become barriers to effective partnerships and synergies. We must strive to achieve a better meshing of government, private, and academic sectors. In the past few years, collaboration between universities and the private sector has continued to develop. Researchers between the two sectors collaborate more than ever before, and private funding of research has increased steadily over the last 20 years.

In response, Canadian universities are fully engaged in the process of commercialization of the knowledge they generate. However, universities are still suffering from under-investment in certain key areas that are preventing them from adequately fulfilling their mandate to provide quality, accessible education to an increasing number of Canadians, and to realize their full research potential. This is due to declining core support for universities.

The comparatively weak support provided for the total cost of research in Canadian universities is also a key factor. Reductions in the core budgets of post-secondary institutions have been tracked to the decline in federal transfer payments to provincial governments in support of post-secondary education. The appended graph illustrates the dramatic decline in public support of university education in Canada. What is especially troubling is that the gap between the levels of public funding in Canada and the United States is extremely wide and growing wider.

Similarly, science and technology within government is severely challenged in making its necessary contributions to the innovation system, owing to actions taken to eliminate the deficit. There needs to be a selective reinvestment in this area to ensure that government can make these contributions. To be effective partners in a society based on innovation, a balance must exist between all partners. A healthy knowledge infrastructure is the cornerstone of such a successful society.

[Translation]

Mr. Robert Giroux: The success of a society based on innovation does not depend on a few miracle formulas. In fact, and I quote:

If innovation were simply a matter of inspired genius occasionally fertilized with government assistance, the challenge of building an innovation infrastructure would be relatively simple and obvious.

We know that's not the case. Innovation is the transformation of knowledge into new products, new procedures, new services. To be able to apprehend the universe and rethink it, you have to go back to the foundation, to basics. For us, this means investing first and foremost in education and training, as well as research.

Members of the committee, we can only harvest what we sow. Thank you.

[English]

The Chair: Thank you very much, Dr. Giroux and Ms. Ramji. We will now turn to questions, beginning with Mr. Jaffer.

Mr. Rahim Jaffer: Thanks, Madam Chair. Thank you to the presenters for being here this morning. I'd like to start by asking Monsieur Giroux a question. I know Rubina spoke a little about the innovation that's happening in the universities and the fact that there's more effort to try to link industry and innovation with universities.

In the universities you're representing, is that becoming more of a trend? For instance, at the University of Alberta, which we spoke about with the other group, there's been a lot of innovation. They have an industry liaison department and it's become a very big focus for the university. Is that something you see being set up with other universities and colleges across the country? Is there a real effort to try to look at those sorts of sources for revenues?

Mr. Robert Giroux: There is definitely an increasing trend in universities to develop industry liaison offices or try to find ways and means to commercialize their findings. I don't know if the committee will recall, but when we came to you in 1997, we identified knowledge transfer as being one of the big challenges, in the brief we presented to you. We still think this is a major challenge because it's not happening evenly across the country. There are different ways of doing it. The previous expert witnesses before you pointed to that. We think it's going to be extremely important.

• 1055

I'd like to emphasize the importance of having the necessary skills and abilities in terms of people to, first, identify the product of basic research. It all starts with basic research and an ability to understand the potential of the basic research to eventually be marketed. But it's more than understanding the potential. It's being able to do it, being able to know where to go, how to do it. There are a number of ways. There are patents. There are companies that are being spun off. There are arrangements that can be made with private sector firms.

There again, in Canada, we have a very large number of small and medium-sized enterprises that don't necessarily have in their own staffs the capacity to take that invention and develop it further. So we have weak links in the system, and this is what we've tried to point out today. We are also looking forward to this report of the Expert Panel on the Commercialization of Research that Mr. Brzustowski mentioned, because we think it might offer some strong solutions to the problem.

The draft report that was put before the public for consultation a month and a half or two months ago also pointed out, in addition to looking at the place where the universities transfer the knowledge, two other things. It will be interesting to see whether they're in the final report. One of them was the importance of indirect costs of research as being a necessary impediment, and secondly, the capacity of the private sector to absorb the research and develop it. So we're looking forward to that report.

But you're quite right. It is moving along. But we think it can move at a much more rapid pace. We're still very much behind the United States, and we think we can build a lot on our ability to commercialize.

Mr. Rahim Jaffer: Okay. I have one more question, just a follow-up for you, and then a last question for Rubina.

What do you think some of those impediments are that are not encouraging that? You mentioned the cost and the availability of capital. Are there some other things that maybe organizations have identified that maybe still restrict the relationship with industry somewhat? What sorts of things should the government be looking at or that even this committee should maybe study when it comes to trying to encourage that relationship to really develop?

Mr. Robert Giroux: To me, the major impediments are the ability of the universities—and it is uneven, some universities have more resources than others—to have the necessary capacity to identify, as I said previously, the potential for a research product, and being able to move that product to the marketplace. That's one major impediment, and it requires resources. It requires the right kind of people. It requires a good knowledge of the market potential.

The second major impediment is the ability of the firms themselves, the private sector firms, to receive that research and commercialize it themselves. That's why so many spin-off companies are in fact taking place, because that's the only solution for doing it. There is no receptor out there that's able to do it. That's another major impediment.

The question of resources, in our view, is that the base budgets of our institutions have to be stronger so that they can put more attention and more resources toward that end.

The Chair: Dr. Service, do you also wish to reply?

Dr. John C. Service (President, Canadian Consortium for Research, Association of Universities and Colleges of Canada): I think another impediment is that we often think of this process only in terms of the natural sciences. We don't think of it in terms of the social sciences.

I'll just give you two very brief examples. One is that at the most recent conference of the Canadian Psychological Association we had a panel on neurological testing of all athletes. The NFL—you may be aware of that. That's a partnership with industry that moves neuroscience through neuropsychology into the marketplace. It's very important.

Another is that there's a small company in southern Ontario now that does all of the training for two American states in terms of their prison staff, with tremendous downstream positives. It's those kinds of social science-industry partnerships that can be very effective as well.

Mr. Rahim Jaffer: Thank you. My last question is to Rubina. I know you mentioned issues of innovation, and obviously the focus should be people, education, and research. One of the things that I know Reform's always been criticized for is talking about tax relief. But something was music to my ears recently when I was talking to the dean of sciences at the University of Alberta. He was addressing the issue of brain drain, and some of the problems that obviously you have all mentioned, but one of the things he mentioned that I was surprised to hear from the academic community was about trying to get more competitive tax rates also.

• 1100

Obviously they're attracting graduate students or research students to the institutions. They're saying that usually the average is quite a few of them...they can only keep them for about two years. Then they start looking at balance sheets of what they would be getting in the U.S. and what they're getting here. Unfortunately, they're losing a lot of these people to the U.S. or elsewhere.

Being a graduate student yourself and going to school with some of them...I don't know if this is an issue or if you can maybe clarify if this comes up a fair amount. Tax relief obviously is something people are starting to talk about more seriously. The fact that the academic community mentioned it was something that surprised me. Maybe you'd like to comment on that as being one of the impediments. I don't know.

Ms. Rubina Ramji: In terms of graduate students, it's not really tax relief that's at issue. It's that a lot of people, by the time they've gotten to graduate school and are graduating, have a hefty loan. So anything to try to help them with the loan really makes a difference. We had a 17% tax credit on interest paid on student loans. This made students happy because they're walking around with a $30,000, $40,000 student loan when they finish graduate studies. But what we're finding is there's just not enough money to keep us going into graduate studies.

Once you graduate, the problem too is trying to find a job. I hopefully want to graduate by September. I want to become a doctor, like these people over here. I'm not sure why. But I'll try to look for a job in Canada. As a researcher, as a professor, honestly I couldn't find anything. I've had three job opportunities come up in the United States—in Miami, in San Francisco, and in Ohio.

So it's a question of trying to support research within the university system to get the graduates in, but also supporting them so they can hire them to do the research after the fact, and create larger research projects so that it can be used in society after the fact. That's really what's needed.

The Chair: Ms. Robert.

Ms. Louise Robert (Executive Director, Humanities and Social Sciences Federation of Canada, Association of Universities and Colleges of Canada): I just want to take up a point that Marcel Lauzière made previously on tax breaks. One of the points we're trying to make with this presentation is that innovation is not reserved for the science and technological part. To have a society that fosters innovation in its widest sense, we must include the social sciences and the humanities. One thing that the social sciences and humanities have looked for, for a long time—this is an issue that has been taken up for at least 10 years that I know of—is to allow for tax breaks in the case of research in the social sciences. That's not allowed.

What that would allow industry to do is to involve more researchers in their research, and more complex research in their research. Perhaps it would also ensure that something Madame Lalonde was talking about earlier, the case in Toronto, would not happen. Including, let's say, ethicists at the very beginning of these projects would preclude the fact that they're now developing into lawsuits, and so on. So tax breaks are not just for science and technology. Tax breaks should also include this widest definition of science innovation.

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

[Translation]

Mr. Bellemare, please.

Mr. Eugène Bellemare: Mr. Giroux, you who have worked in so many departments, with success—you've served the country well—, do you think that a unilateral tax cut would be an advantage for agencies like yours or that a targeted tax cut would be better for promoting agencies like yours?

Mr. Robert Giroux: First of all, personally, I don't think the solution lies in tax cuts. It's a simple approach, and I know we discussed this at a previous session, but we did a study in 1997 to determine the reason why so many of our university teachers and researchers—they have a dual role—had left the country to go and work primarily in the south, in the US. We had a sample of 1,000 persons, of whom about 50% had left the university to take early retirement; in other words, they left early because they'd been encouraged to do so. We also asked the other 50% why they'd left. We wanted to know why they'd gone to the US, for example.

• 1105

We were told that one of the main reasons was the research atmosphere, in other words, the university research environment. What does that mean? First, it means the grants available to do research; second, these grants enable them to encourage students to work with them; and third, these grants enable them to do teamwork, to do multidisciplinary research. Less and less do we see someone alone doing research in their laboratory; they have to be able to go and get all the information available. This research atmosphere was a very important factor. Furthermore, the US understood this because it's much more generous with regard to grants.

They also talked about personal income tax levels, for example, being a major factor. When these researchers are told that, by going to work in the US, they'll have three or fours times as many grants, the best equipment in the world and, on top, a better salary than in Canada and that tax levels are lower... You know, you have to be balanced in all that.

In response to your question, I can't stand here and say that reducing income tax is not an important factor. We maintain that there has to be a very good balance and that the government won't find the solution simply by reducing income tax. The governments have to make an investment, both the federal government and the provincial governments in the case of universities' basic budgets, for instance, which are very large and at present most inadequate.

Mr. Eugène Bellemare: This is what I was getting at by raising the question of targeted income tax cuts, as opposed to a universal tax cut. Well-off people spend six months of the year in the US and spend all their wealth. In short, in their case, an income tax reduction means an increase in their spending outside the country. Couldn't we rather target certain groups, certain agencies with cuts? You mentioned a report about the

[English]

brain drain. My question would be addressed to Ms. Ramji.

Would student loans be a factor for leaving the country? An example would be a student who is heavily in debt who sees an opportunity of making more money, and not only that, but wiping out their debt, because now they're gone.

Ms. Rubina Ramji: As a grad student who has a large debt, I would say no. Really what most of us want once we finish graduate studies is a job in our field, and a good job in our field, something we can really give back to. Most people who go to graduate studies are doing it because they have a love of research. You're talking about 8 to 10 years just to get the degree to become a doctor. So it's really not something they're trying to avoid.

I would find that most graduate students leave because they just can't find a job in Canada. We know that once we get a job, even if we do find it in Canada, we're guaranteed a good income. We know that the amount of money we put into a student loan will pay itself off when we do get the job. It's a question of being able to find a job in Canada that's become the difficult thing, especially in the area you've researched.

I'm a religious studies major and I can't find a job in my field, even though I know there are a lot of things in private industry that would need my expertise.

Mr. Eugène Bellemare: If students have a heavy load of debt, if we gave them, say, 10% or 15% off their loans if they worked in their own field in Canada for at least a five-year period, would that help? Or is the answer no because what they're looking for are the notices on the wall that say “job offer”?

Ms. Rubina Ramji: It's a dual problem. First of all, with the student loans program, there's a cap on how much money you can receive at the student loan level. Usually by the time you've finished your undergrad and made it into your master's, you've actually used up all of the loans you can get. So in order to get through the rest of your master's and your Ph.D., you actually need to find funding from somewhere else. You can't get a loan for it. So in order to get into your Ph.D., you need to try to find a scholarship or you work.

So by saying we will give you money off your loan if you get a job in your field...they may not be able to finish their Ph.D. because they haven't received a loan or a grant to do their Ph.D. That's because they've used up all their loans just to get their undergraduate degree.

• 1110

Mr. Eugène Bellemare: Some municipalities are very good at economic development. Usually, it's by having properties zoned in a way and costs at a level so that industry comes to them. That's good for the building aspect and some industries, but in the research field, what kinds of mechanism could the country, the provinces, or groups use to attract development in the same way cities do?

Ms. Rubina Ramji: Do you mean in terms of attracting students or researchers?

Mr. Eugène Bellemare: I'm referring to researchers or research organizations.

Ms. Rubina Ramji: I brought up the point of having a broader view of what innovation is, and I think if we started using this broader view, you would be able to use more researchers in a particular field than we do now.

We talk about multimedia. We hire only the people who have computer science under their belts, but we forget that under multimedia there have to be other things. There perhaps has to be as well the artist and the economics major who knows how to run a business and to do higher management. We tend not to look at trying to get all these people into a sector. We only create one sector for the sciences and technologies and say, we'll fund this but we won't fund anybody from all the other sectors, who could be really beneficial in those areas and could help to develop them.

The Chair: Thank you, Mr. Bellemare.

[Translation]

Ms. Lalonde, please.

Ms. Francine Lalonde: Hello to you all. Mr. Giroux, you won't be cross with me if I say to you straight off that if we meet again on this committee, I'd like your entire text to be in English and French. If I wish to quote the central part of your text, I'll have to translate it or ask the clerk to do so. Since several members of the committee are French-speaking...

Mr. Robert Giroux: Certainly.

Ms. Francine Lalonde: Thank you. Especially since you say Àhelloä and Àthank youä to us in French.

In this Àthank youä, I'm going to refer to a sentence which, in my opinion, conveys the full measure of the difficulty of the current situation for colleges and universities. You say:

Innovation is the transformation of knowledge into new products, new procedures, new services. To be able to apprehend the universe and rethink it, [...]

You go beyond new procedures, new products and new services.

[...] you have to go back to the foundation, to basics. For us, that means investing first and foremost in education and training, as well as research.

Aren't you saying, ultimately, that universities and colleges are affected by the surrounding society, a very materialistic society, for which growth is the rule to be followed at any cost? You are caught between this environment and the basic role of the university. The university has always been a place of free learning and thought. Research, intellectual curiosity must first of all be free, and all students who end up with enormous debts show they adhere to that and believe that the university is such a place, but they also want to be able to work afterwards. Talk to us about this conflict I sense at present in universities.

Mr. Robert Giroux: First, we're going to make sure—such was our intention—to give you a text entirely in French and in English. I'm sorry it's not available this morning, but you'll get it as soon as possible.

The second thing I'd like to mention is that by occupying the position which is mine today, I can tell you that you have put your finger on one of the major challenges facing the university institutions I represent. On the one hand, as you say, they are pushed by society, by employers and often by governments—it must be admitted—to become added-value institutions. What is your added value? they're asked. Unfortunately, this added value is measured in business terms. They say graduates have to be marketed and produced in such and such a discipline because that's what employers want. In all that, how do we preserve what is very fundamental to institutions, to universities? The university has to remain this meeting place where people are trained to become thinking citizens who won't hesitate to ask basic questions...

• 1115

Ms. Francine Lalonde: Annoying questions.

Mr. Robert Giroux: ... and sometimes annoying for governments and society in general and questions which, over the years, have been the source of major developments in our history.

To do that, you have to give. How can we then rationalize so that these institutions can do that and at the same time produce graduates who, incidentally, are becoming more and more interesting for employers? I see that there is a turnaround in the situation of those who studied arts and humanities and those who studied more technological things, engineering, natural sciences, and so on. Employers want to have a better balance in their companies between people with this sort of training and those with more technical training.

How can we prove that the only way to maintain and strengthen this capacity of universities to be centres of questioning, knowledge, and so on is to increase their basic budgets?

For the past three or four years, governments have been saying, and you gave a good example, that research infrastructures have to be consolidated. The Canadian Foundation for Innovation was created; this is very good and very important. As research in universities must be increased, the budgets of granting agencies are increased, but it is forgotten that these budgets only cover direct costs, and not indirect ones.

A lot of other initiatives have been taken. The government should be congratulated because it has understood that it was very important, but someone forgot to supply the basic budgets of universities. The graphs you've been shown clearly demonstrate the extent to which our institutions are inadequate, especially when they're compared to American institutions.

What is very important this year—and I think I'm also speaking for our partners—, is that the federal government has to make a major effort by increasing transfer payments and that provincial governments have to restore and feed the basic budgets of post- secondary institutions. There's been a lot of talk of balance this morning. Balance is what must be maintained.

The universities have three major missions: a training mission, to produce thinkers, persons who are capable of contributing to society; a research mission, which is very important; and a community mission, because universities have a very important role to play in the community by helping it to cope with its own challenges and its own problems.

The Chair: One last question, please.

Ms. Francine Lalonde: Thank you for your answer. It's what I expected.

To pick up where you left off, if the university is to fulfil its missions, the basic budgets must be improved. I understand you, particularly since I read the working document Public Investment in University Research: Reaping the Benefits, several elements of which concerned me.

What would worry me more would be if the only way of refinancing universities were to allow them to seek more money through marketing; I think that would be a trap. The university must be able to do that without placing all its eggs in this basket.

Mr. Robert Giroux: Yes, and I'll tell you that the universities see marketing as a benefit for the community and the economy, more than for the internal funding of the universities.

• 1120

When we look at what this gives the university, we see that some revenue is generated, but that it doesn't meet all needs. That's where we see the role and the importance of government, which must continue to fund the basic budgets of universities to maintain this balance and allow the university to continue contributing to the economy. I'm in full agreement with you on this point.

The Chair: Thank you.

[English]

Mr. Lastewka.

Mr. Walt Lastewka: Thank you, Madam Chair.

I want to ask a couple of questions. First of all, I think most of you were here during the appearance of the previous witnesses when we talked about the commercial liaison office in the University of Alberta in Edmonton and the lack of people who could do the things a good commercial liaison office needs to do. I also understand that office includes individuals who used to be at the University of British Columbia and who at that time used to say that they had the best liaison office. Just by moving one or two individuals, now the University of Alberta in Edmonton is experiencing success. The last time I was there they were increasing their staff by 15% to 20% because of the successes.

Why aren't we developing this pool of people who can work in the scientific and research areas and the commercial field, right to having information coming back to researchers about other fields for research? To me, there's a lack of talented people who are able to do that type of work. Why do we have this gap?

A witness: Do you want to tackle this, John?

Dr. John Service: I can start. I don't have all the answers, but I have a couple of them. One is that graduate programs that would address those specific issues are developing in Canada, but they have developed in the United States.

I'll give you a very personal example. My son is going to be going to the southern Illinois university, and he's going to be in the graduate program called applied experimental psychology. That's basically talking about those social factors that are related to the issues you're talking about, that is, how do you move ideas and products from business into the community? What are the social factors, the human factors, involved in the marketing, the uptake, and consumer adhesion to products? It's a brand-new field that's opening up, and one of the problems in Canada has been that without the infusion of moneys into programs like that, we don't have a talent pool in that area coming out of universities.

One of the other things, which I think Dr. Brzustowski mentioned, is that we're just now developing that capacity outside of universities, but people are really used to this kind of interaction.

So those are a couple of the answers. I think we are too dependent on, as you said, a group of very talented people, and we need to broaden that.

The Chair: Ms. Robert.

Ms. Louise Robert: I want to add also that economic development is not confined to certain industries or to science and technology. For instance, a small research grant in archaeology at Louisbourg spawned an entire industry of tourism, job creation, and artistic development. Economic benefits and long-term job creation from a small grant in archaeology, let's say, has the potential for perhaps long-term benefits, and it is as important for the local economy of that region as is technology. It is very possible that if we aim to develop the capacity to bring it to market in too narrow a way, we will in fact

[Translation]

deprive us of the ability to develop projects and products for all Canadians.

[English]

Just to come back to the presentation we made together, let's look at innovation in a very rich and complex way so that we look at job creation and economic development for Canadians in the most enriching way.

Mr. Walt Lastewka: I would agree with you, but we do have a gap, which is very specific and understood. We didn't move people from the University of British Columbia to the University of Alberta for just any reason. We moved them because they had a secret. They had a system in place that was helping their researchers. They were helping to get funds and to commercialize. We have that gap.

• 1125

We saw it at the University of British Columbia; we've seen it at the University of Alberta. When you go to other universities you see a sprinkling, with some work being done, but there's a gap. Why do we need to take many years to fill that gap?

I would agree with you there's a macro sense to it, and I don't want to avoid that at all. But we do have a gap. Research tells us that, the people who are commercializing tell us that, and the research parks tell us that. Why don't we fill the gap?

Mr. Robert Giroux: The best way to fill the gap is to ensure the institutions have in place the necessary structures. For example, I will never say which are the best Canadian universities. I wouldn't stay very long in this job if I were to say that. But we know there are a number of universities that have done well, not only the University of Alberta. The University of British Columbia, Waterloo, McGill, l'Université de Montréal, have done well in different ways. But what is necessary in order to improve them?

In the case of the University of Alberta, I think we have to recognize the provincial government has been very instrumental in encouraging them and assisting them in doing this and providing them with the necessary resources. It's a question of having the right people and the ability to identify the potential of the research, and then being able to make the link with those who can maximize this.

It's uneven across the country and it has to improve. I think the best way to do it is to resource the universities in a proper manner with the right kind of people who have the backgrounds to be able to commercialize their products. We think the expert panel report will probably offer us some very good suggestions along those lines. We'll have to wait and see. The governments will have to find ways of encouraging them to do it.

Our universities have had to make cuts all over the place in recent years. They've cut in libraries and have larger classes now. They've deferred maintenance in terms of their infrastructures. They have not been able to put the resources toward those needs. It is important to allow them a sufficient base of resources to be able to achieve that.

The Chair: Last question, Mr. Lastewka.

Mr. Walt Lastewka: I get the final question. In some areas, colleges and universities work together. They partner and cooperate. In many areas, colleges and universities don't work together. They duplicate and compete with each other, rather than partnering with each other.

What are we doing in Canada to help our colleges and universities work closer together, partner together, make more things happen together, and not duplicate and waste money?

Mr. Robert Giroux: I have a lot of difficulty with your question, because you are making an assumption that I have not seen in my research or in what we have. Colleges and universities are working more and more together. In many provinces there's a natural flow from the college system to the university system. In Quebec, of course, it's done very smoothly. In British Columbia we have more and more of what we call university colleges, which are combinations of community colleges and universities. They work together.

In Ontario a lot of work is being done to allow credits to be transferred from the colleges to the universities. The colleges have given themselves the mission of doing much more applied research—very practical kinds of research. The universities do basic research. There is no doubt there is a certain amount of competition between the colleges and universities across the country, but I don't sense that we have a major problem of them not working together. So I have difficulty with your question.

The Chair: Thank you. Thank you, Mr. Lastewka.

Madame Jennings, please.

[Translation]

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): I wish to thank all our witnesses for their presentations. I'll try to keep my comments brief.

• 1130

I seem to understand that you maintain that the federal and provincial governments have a duty to increase their basic investment in universities and colleges so that they can strengthen their infrastructures, with regard to teaching staff and their tools, notably libraries and assistants. When I was studying in a Quebec cégep, we didn't have the problems referred to by Mr. Lastewka. You clearly said that there was fairly good complementarity, and I hope that is still the case. In some of our courses, the teacher was backed up by a master's student who gave the class or acted as a tutor. As far as I know, this very seldom happens these days in Quebec's cégeps. That's one of the problems encountered.

Ms. Ramji, on page 5 of your document, you say that it is absolutely necessary to remove obstacles to mobility. You agreed with her, Ms. Robert. You talked about intra-institutional mobility, inter-institutional mobility, inter-sectoral mobility and so on. Can you give me some more examples? I know there are coop programs in some colleges and universities and that students can spend some time working in a private company, for example.

You also raised the problems faced by teaching staff. Do the teachers pursuing a tenure track encounter obstacles when they change institutions in order to pursue a research project? For instance, when a professor from Queen's takes part in a long-term research project at McGill, does this have any ramifications on his tenure track? If so, shouldn't this question be addressed, not to the government, but rather to the unions and professional associations?

Ms. Louise Robert: I'll ask Mr. Giroux to deal with the question about unions. I think you're right about interdisciplinary partnerships. Increasingly, granting agencies are offering programs to professors or their faculties in order to continue multidisciplinary and pluridisciplinary approaches not only in the social sciences and humanities, but also in natural sciences and engineering. I think that this process has been initiated and I know that the granting agencies strongly support his sort of approach to research. Once again, if we're too targeted, we may miss the boat. There are also major projects that link the granting agencies and enable us to study certain questions as fully as possible.

I think that the situation you've described was prevalent in universities a few years ago. There were numerous obstacles to this type of exchange and the teamwork approach. Things are loosening up more and more in this regard as a result of the granting agencies' wishes and also of the youngest faculties, where teachers want to work together.

Between universities, there are also exchanges or a certain networking among health research centres. It seems to me a very different approach is being taken.

Ms. Marlene Jennings: Allow me to interrupt you. I was trying to understand the role of government in facilitating such mobility.

• 1135

Some may refer to the fact that, because of provincial decrees, construction workers cannot work outside provincial boundaries. I'm a lawyer, and the LL.B. I have in Quebec is not recognized in another province. I'd have to get the necessary professional qualifications from the Ontario or British Columbia Bar Association to be able to practise there. These are legal barriers. A federal or provincial government cannot intervene or amend an act unless a particular question is within its jurisdiction. There are interprovincial barriers that they're trying to lower. But we're talking here about mobility within industry, government, universities and society. You said:

[English]

Until now, exchanges have been promoted through fairly limited inter-sectoral mobility measures such as student exchanges between university and industry...

Then if I go down to the second paragraph, last line, it says:

More generally, removing the information and cultural gaps between industry, government, university, and society at large entails a rethinking of mobility measures that is all-encompassing...

I want to know, what can the federal government do to encourage that? If it's not law, what can we do?

The Chair: Dr. Giroux.

Mr. Robert Giroux: First of all, I think the federal government needs, through a number of mechanisms—and I think one of the better ones, of course, is the budgets of the granting councils—to encourage more interdisciplinary mobility. I think one good example of what it is leading to, of course, is the new project, the Canadian Institutes for Health Research. What is this? They're very much trying to maximize what is being done best in all parts of the country. If you're doing specific research in the area of cancer, for example, you want to be sure the researchers will be able to know what's happening at the University of British Columbia, l'Université Laval, Dalhousie, and of course be able to connect and interrelate with one another.

But at the same time, cancer research is not only about the disease itself; it's about lifestyle; it's about how you look at cancer; it's about growth; it's about how you feed yourself—it's about a number of things like that. So it brings in elements of ethics. It brings elements of the social sciences and humanities, and so forth. You want to develop an approach that allows for this multidisciplinary review of research and activity itself. We need to encourage that, and governments can show leadership. The Canadian Institutes for Health Research is essentially intended to do that. It's a major challenge to put in place. You're asking people to think differently, to approach things differently, and not in a narrow stovepipe way, which is the vertical way, but more of a horizontal way. And I think that's very important.

Governments can help. Governments can provide leadership. They can provide incentives. But we're not denying that the community, the universities themselves, the people who are doing the research, have to also make a certain leap and also be able to work in that particular manner. But it is something that is very much happening in the United States. The Institutes of Health in the United States have a number of institutes that are not just medical research-oriented but are much broader than that. It is a good example of what should happen.

Ms. Marlene Jennings: I think you kind of answered. The Canadian Institutes for Health Research would be one.

Are there other examples that aren't happening that you think the federal government... I'm not concerned right now with the provincial government; this is a committee of the House of Commons. There has been a significant increase in federal government moneys going to the research funding councils and science and technology. I've heard that the federal government should increase its transfer payments to the provinces for post-secondary education and not limit its core funding to a narrow scope. It's core funding. I'm also hearing that the initiative with the health research institutes is a great idea.

• 1140

Are there other areas you can think of where the federal government, through a policy decision, can actually effect a change so we will see something positive coming out two, three, or five years down the road? If you can't think of it now but think of it later, send it to us.

Mr. Robert Giroux: Another good example, of course, has been the national centres of excellence program. This kind of thinking and approach is finding itself, to a certain extent, in Canadian institutes of health. Of course, in the last budget, the federal government increased its budget for the national centres of excellence program. So that's another example of how it can be done.

Another way of doing it, and one area where I feel it is lacking—it's not necessarily intersectoral mobility but it is mobility. The SSHRC budget is very small for scholarships for people who are proceeding with master's and doctoral degrees. The more you expose students at university to research and develop what Madame Lalonde was getting at previously with me, the more you develop this ability on the part of our products. If I remember correctly, SSHRC is able to finance only 5% or 7% of the demand for scholarships because its budget is narrow.

We need to encourage that. We need to be able to help a person who's moving on to a master's or a Ph.D. to do a research project, get exposed to top-flight researchers, and so on. That's another element of mobility. We need to encourage the social science and humanities, through another program SSHRC is doing, to be very active and relevant in the community.

So in all these things, it's a question of more funding and being able to do more, because by doing more you will increase the possibilities of innovation.

I don't know if I've given you some other examples, but I thought I'd raise those.

The Chair: Last question.

Ms. Marlene Jennings: On your point about increasing the funding to allow more scholarships, that might encourage more women to continue their post-secondary education. I know in some fields, like law and some of the other fields, more than 50% at the undergraduate level are women, but once you hit the master's and the Ph.D. levels, our equity suddenly drops drastically.

Mr. Robert Giroux: I just want to add one extra point.

The UCC will be coming out with a report soon called Trends. One of the things in that report that is also important, which gets back to the base funding of universities, is you then have to provide jobs for these people to go to. A lot of them would just love to continue at the university level, but we're finding we're not able—I hope I have this right—to absorb as many Ph.D. graduates as we did previously. That's one of the issues Rubina has pointed out. So that's also an important fact.

So there's not just one little targeted solution here. You have to look at the broader base of funding.

The Chair: Thank you.

I want to thank you all for joining us. We appreciate your presentation and the discussion. We look forward to meeting with you again some time in the future.

We will adjourn now until 3.30 p.m., when we will be meeting with the Business Development Bank. We have two motions after that, and then we'll have the first part of the Y2K report in camera.