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Minutes

37th PARLIAMENT, 1st SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Tuesday, May 28, 2002

0935

The Chair (Mrs. Sue Barnes (London West, Lib.))

Mr. Robert J. Giroux (President, Association of Universities and Colleges of Canada)

Professor Robert Lacroix (Chairman, Association of Universities and Colleges of Canada; Recteur, University of Montreal)

0940

Mr. Robert J. Giroux

0945

The Chair

Dr. Arthur Carty (President, National Research Council Canada)

0950

0955

The Chair

Dr. David W. Strangway (President and Chief Executive Officer, Canada Foundation for Innovation)

1000

1005

1010

The Chair

Dr. Thomas Brzustowski (President, Natural Sciences and Engineering Research Council of Canada)

1015

1020

1025

The Chair

Mr. Rob South (Government Relations Coordinator, Canadian Alliance of Student Associations)

1030

1035

1040

The Chair

Ms. Janet Halliwell (Executive Vice-President, Social Sciences and Humanities Research Council of Canada)

1045

1050

The Chair

Dr. Alan Bernstein (President, Canadian Institutes of Health Research)

1055

1100

The Chair

Mr. Rahim Jaffer (Edmonton—Strathcona, Canadian Alliance)

1105

The Chair

Dr. Arthur J. Carty

The Chair

Dr. Alan Bernstein

The Chair

1110

Dr. Thomas Brzustowski

The Chair

Dr. David W. Strangway

The Chair

Pr. Robert Lacroix

1115

The Chair

Mr. John Herron (Fundy—Royal, PC)

Dr. Thomas Brzustowski

The Chair

Mr. Rob South

1120

The Chair

Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ)

Mr. Robert J. Giroux

Pr. Robert Lacroix

1125

The Chair

Ms. Janet Halliwell

The Chair

Ms. Carolyn Bennett (St. Paul's, Lib.)

1130

The Chair

Mr. Robert J. Giroux

Ms. Carolyn Bennett

Mr. Robert J. Giroux

The Chair

Dr. Thomas Brzustowski

The Chair

Ms. Janet Halliwell

1135

The Chair

Mr. Bryon Wilfert (Oak Ridges, Lib.)

Dr. Thomas Brzustowski

1140

The Chair

Dr. Alan Bernstein

The Chair

Dr. Arthur J. Carty

The Chair

Mr. Gary Pillitteri (Niagara Falls, Lib.)

1145

The Chair

Mr. Gary Pillitteri

The Chair

Dr. Arthur J. Carty

The Chair

Dr. Thomas Brzustowski

The Chair

Dr. Alan Bernstein

The Chair

Mr. Shawn Murphy (Hillsborough, Lib.)

1150

The Chair

1155

The Chair

Mr. Robert J. Giroux

The Chair

Ms. Janet Halliwell

The Chair

Dr. Thomas Brzustowski

The Chair

Mr. Roy Cullen (Etobicoke North, Lib.)

1200

The Chair

Dr. Arthur J. Carty

The Chair

Mr. Robert J. Giroux

The Chair

Dr. Alan Bernstein

The Chair

Dr. Thomas Brzustowski

1205

The Chair

CANADA

Standing Committee on Finance

NUMBER 104

1st SESSION

37th PARLIAMENT

EVIDENCE

Tuesday, May 28, 2002

[Recorded by Electronic Apparatus]

¿ (0935)

[English]

The Chair (Mrs. Sue Barnes (London West, Lib.)): Good morning, everyone. Bienvenue à tous. Welcome. The order of the day is, pursuant to Standing Order 108(2), that we're in pre-budget discussions.

We have a large panel with us today. The witnesses from the Association of Universities and Colleges of Canada are Robert Giroux, president and Professor Robert Lacroix, chairman of the board of directors and Rector of the University of Montreal. From the National Research Council of Canada we have Dr. Arthur Carty, president. From the Canadian Foundation for Innovation we have Dr. David Strangway, president and CEO, and Carmen Charette, senior vice-president. From the Natural Sciences and Engineering Research Council of Canada we have Dr. Thomas Brzustowski, president. From the Canadian Alliance of Student Associations we have Rob South, the government relations coordinator. From the Social Sciences and Humanities Research Council of Canada we have Janet Halliwell, executive vice-president. And from the Canadian Institutes of Health Research we have Dr. Alan Bernstein, president.

Welcome to all of you. It's a wonderful panel. We're looking at issues of research and productivity. We will go in the order you are listed on the agenda, starting with the Association of Universities and Colleges of Canada.

Dr. Giroux.

Mr. Robert J. Giroux (President, Association of Universities and Colleges of Canada): Thank you, Madam Chair, for inviting us to participate in the finance committee's pre-budget consultation process. You have initiated a national dialogue with Canadians on an issue of fundamental importance, how to increase Canada's economic prosperity while ensuring the highest quality of life for all. Because universities form the intellectual underpinning for the economic, social, and cultural development of their communities, they hold one of the keys to Canada's future success.

In keeping with the importance we accord to this committee's work, I am joined today, as you noted, by Dr. Robert Lacroix, chair of AUCC's board of directors, Rector of l'Université de Montréal, and a distinguished economist.

[Translation]

Professor Robert Lacroix (Chairman, Association of Universities and Colleges of Canada; Recteur, University of Montreal): Thank you, Robert.

Madam Chair, innovation is a key determinant of a country's social and economic well-being and a key driver of productivity growth. By innovating, all sectors of the economy become more productive, more profitable and more competitive.

This growth in productivity leads to greater collective wealth and enhanced quality of life for all citizens of a country.

For a number of years now, the federal government has demonstrated remarkable leadership in fostering innovation through major investments in research and in access to higher education and skills development.

As a result, universities are now better equipped to create and disseminate new ideas and knowledge. Through teaching, research and community service, universities contribute to knowledge and innovation in their local communities, as well as regionally and nationally.

With innovation policies and adequate funding in place and a private sector that fully plays its role, the future can be extremely promising for Canada.

Universities are undergoing rapid change as a result of increased and diversified demand for more research, more learning opportunities and development engines for their regions.

Members of this committee, I am convinced, will be familiar with some of these changes. Demand for university enrolment is growing, with more than 45,000 additional students entering universities over the past three years. Our projections suggest that demand will continue to grow in the next decade, with an increase of between 20 and 30 percent in the total number of students by 2011.

To accommodate this demand, Canadian universities will need to renew and enhance their physical and human resources. They will need to hire at least 30,000 faculty members in the next decade to provide the high-quality learning opportunities university students require.

To put that in perspective, universities currently employ about 34,000 full-time faculty. This influx of bright young faculty will change the face of academe. Highly-trained and enthusiastic, younger faculty members are even more likely to expect and to be expected to actively engage in research and knowledge transfer activities in their community. This is also what is expected of them in our university institutions.

Demand for additional research funding as a result of faculty renewal is already being felt by the federal granting agencies and also by the granting agencies of various Canadian provinces.

The nature of research activities has also changed over time. Many of the key challenges we collectively face as a society, whether they are related to health, the environment or social programs, require solutions that can only be found at the intersection of disciplines, by individuals often working in different sectors and, indeed, in different countries.

In today's changing world, multidisciplinary knowledge and skills are developing in a globalized world. These are the conditions that constitute the basis for success for a country such as ours.

¿ (0940)

Madam Chair, our universities can do much to enhance Canadians' innovation performance, but to do so it is essential that our universities be healthy and well resourced.

To become one of the most innovative countries in the world, Canada will need more researchers doing more research in more research institutions.

We will need a deeper pool of university-educated graduates who have the kind of skills required to excel in a knowledge-based economy.

We will also need more faculty members who can provide this growing number of students with the necessary conditions to train a new generation of scientists and professionals that have the potential to achieve the ambitions of our country.

[English]

Mr. Robert J. Giroux: Madam Chair, the federal government has recently renewed its commitment to creating a strong, innovative culture in Canada. It has come forward with some bold targets and is stimulating a dialogue on innovation in all sectors. We support this approach. Through AUCC, the universities are developing collective targets to improve our contribution to Canada's competitiveness and innovation performance. To meet these targets will require complementary actions by the universities' partners in government and in the private sector. Improving Canada's innovation performance over the next decade must begin immediately. Let me outline four key areas that require immediate attention by government in the next federal budget.

First, we must find a permanent solution for the reimbursement of indirect costs of research in universities. The non-payment of indirect costs on federally sponsored research is forcing universities to divert significant sums of money from teaching and maintenance to support the growing research enterprise. It is creating unproductive tensions between teaching and research and is a major reason universities are losing ground in their efforts to remain internationally competitive. We welcomed the one-time payment of $200 million in the last budget, but we must now turn our attention fully to the development of a permanent solution to this long-standing problem. We are heartened to see this has now become a government priority and are looking forward to working with federal officials and ministers on developing an appropriate program in the months to come.

Second, for Canada to improve its innovation potential and competitive position in the world, it will require a substantial and sustained commitment to university-based research across the broad range of disciplines. We believe the federal government will need to significantly increase support for the direct costs of research by more than doubling the combined budgets of the three federal granting agencies in the next ten years, with particular attention paid to redressing the funding imbalance in social science and humanities research. Because innovation is as much social, cultural, and political as it is economic and technological, it will be important to ensure that Canada's research capacity in areas of vital interest to our future is not eroded any further and that faculty members and students in the social sciences and humanities have access to research funding.

Third, given the importance for universities and university colleges in all parts of the country to contribute fully to the innovation agenda, it is essential that additional assistance be provided to smaller universities to help them further develop a sustainable research capacity. A targeted initiative, in addition to the programs already in place, would go a long way to ensuring that Canadians in all regions of the country benefit from the new economy.

Fourth, it is clear that the demand for highly qualified personnel equipped with graduate degrees is growing in all parts of the economy. Universities and other public sector institutions and private corporations will increasingly require the knowledge and research skills of individuals who have completed graduate programs. In its innovation documents the federal government correctly identified this issue as a priority. We believe federal and provincial governments can play a role in ensuring that universities have the capacity to offer the rich learning environment necessary to train more graduate students and to equip them with the skills our society needs, including the skills to be successful in an increasingly global and multidisciplinary world.

Madam Chair, we firmly believe immediate action on these four measures will go a long way towards achieving our collective goal of making Canada one of the most productive and innovative countries in the world, with a quality of life that is the envy of the world. Meeting Canada's productivity and innovation challenges in the next decade will require concerted efforts from all sectors. To be effective, Canada's strategy will require that all pieces of the puzzle be in place. It will be important for all governments and universities to assist the private sector in more fully playing its key role in the innovation system, notably by the creation of stronger receptor capacity in small and medium-sized enterprises.

Recently, the federal government initiated an important consultation process with Canadians from all sectors on the next steps required to ensure that we can achieve the future we collectively envision, a prosperous and successful country recognized for its innovative spirit and the quality of life of its citizens. We believe the federal government is adopting a winning strategy in bringing together all key partners in a national dialogue. You can be assured, Madam Chair, that Canadian universities will take an active and constructive part in this dialogue in the months to come, as we collectively work towards achieving our common goal of a more innovative and prosperous Canada.

¿ (0945)

Thank you very much.

The Chair: Thank you very much.

For the next 10 minutes we'll hear Dr. Carty.

Dr. Arthur Carty (President, National Research Council Canada): Madam Chair, membres du comité, good morning, everyone. Bonjour à tous.

Thank you for once again inviting me to speak in the context of this committee's very important and influential pre-budget consultation exercise. I was honoured last year not only to speak before this committee, but also to see a quote from my presentation highlighted in your subsequent report. Thank you very much for that. That quote spoke specifically, in the context of September 11, about the need to balance a focus on urgent issues of the day with an investment in the longer term and for future generations. As it turned out, it was a notion that was echoed by others. It was a central theme of your report and a message in the finance minister's budget tabled a few weeks later.

¿ (0950)

[Translation]

The budget, among other things, provided for strategic investments in Canada's research infrastructure and, in particular, the implementation of the NRC's Technological and Community Clusters strategy.

In recent years, the Government of Canada has in fact invested appreciable sums in research conducted by universities and other institutions across Canada and has made new commitments in terms of human resources and programs.

[English]

At NRC we are very proud indeed to be playing an important role in fields of strategic national importance, such as nanotechnology, plutonics, biotechnology, as well as technologies for key industrial sectors, such as aerospace, materials, manufacturing, and the environment. We'd be very pleased to provide the committee with a full report on these and other initiatives. We would very much welcome an opportunity to show members our facilities and people in action.

However, in the time allotted to me today, I'd like to speak to the slide deck we are circulating and to make one single, urgent point. This point is that Canada will not reap the jobs, the community-based economic growth, and the innovation benefits from the government's investment in research and development, the reduction in taxes, and the overall strategy to promote knowledge-based business without a complementary, strategic, and aggressive drive to promote the creation and growth of small and medium-sized companies--SMEs, as we call them--in every community and every region across Canada. I say this for three principal reasons. First, SMEs are the most powerful source of new employment, innovation, and growth in our economy. Second, they are also a unique vehicle for technology transfer, commercialization, and innovation. And third, if we are to see national investments in research and development turned into real benefits for Canadians and if we are going to attain the ambitious national objectives set out in Canada's innovation strategies, we need to support SMEs, including the spinoffs and startups that provide new receptor capacity for the knowledge and technology flowing from R and D labs.

We therefore have a great opportunity, but also a great challenge. Canadian SMEs are vital to our economy and our potential for innovation-based growth. They are often what we call micro-firms, companies that have to devote all their efforts to the day-to-day challenges of business, with little capacity for forging links to international technologies, competitive intelligence, networks beyond their communities, and without the resources to invest heavily in research and development.

But Canada also has a tremendous asset at its disposal, the NRC's industrial research assistance program, known as IRAP. NRC's IRAP is widely regarded--and I've heard this myself many times across the world--as the most effective SME innovation program in the world. Over its more than 50-year history it has developed into a unique network of highly skilled people and organizations. It is in place and ready to serve Canada now.

Many of you will be familiar with NRC's IRAP, because we undoubtedly have successful client companies producing jobs and opportunities in each of your constituencies. You can go to virtually every major community in the country and find successful firms that will tell you it would not have happened without IRAP. Through IRAP, NRC serves close to 12,000 innovative companies across Canada every year. We have people working in over 90 communities and over 140 different organizations across Canada. As the Minister of Industry, the former Secretary of State for Science, Research and Development, the House of Commons Standing Committee on Industry, Science and Technology, and many individual members of Parliament and ministers have noted, IRAP works. It works because it focuses on technology and client service and because it is delivered by outstanding people. IRAP has well over 250 industrial technology advisors. These are graduate-level scientists and engineers who have not only tremendous technical skills, but also years of business experience and extensive national and international networks.

IRAP provides modest contribution funding on a matching basis to SMEs. This funding makes a tremendous difference, because it is provided quickly and efficiently as part of a package of information and assistance that identifies a technical problem or an opportunity, and it also links a firm to solutions and sources of technology. I want to particularly stress that for every one dollar provided by IRAP, we lever an additional two dollars in SME R and D investments. This makes IRAP an excellent means of achieving the government's R and D targets in innovation. In fact, most of IRAP's clients don't receive any financial assistance at all. They receive technical and scientific advice, help in forging new alliances, and other support in innovation.

¿ (0955)

In short, NRC's IRAP program is a major success. It creates jobs and it helps create new businesses and stronger communities across Canada. As I mentioned, it does serve 12,000 firms a year, which sounds impressive on its own, but this is only a tiny fraction of the roughly two million SMEs in Canada and far below the number of firms we estimate could produce more jobs, more sales, and more technological innovations immediately with IRAP assistance.

IRAP also works in partnership with other organizations, including Technology Partnerships Canada, Human Resources Development Canada, the regional agencies ACOA, DEC, WED, and FedNor, to support roughly $150 million per year in SME innovation assistance. The Minister of Industry, the House committee on industry, and many national organizations and companies have called for a doubling of this funding to SMEs under the government's innovation strategy and overall commitment to double investments in R and D. We at the National Research Council agree and have identified long-term funding for IRAP as our number one priority for this year, in this context, of course. This would entail an annual increase in funding for IRAP of $150 million by the end of five years. We believe this one measure alone would not only magnify the effect of other federal research investments many times, but have a direct, visible, and powerful impact on communities and on tens of thousands of people all across Canada. It would fire up a key part of a key sector of our economy and our country, and would empower Canadian SMEs and entrepreneurs with a unique advantage in global markets and commercial competition.

To this end, we have a new strategic plan for IRAP that will refine our service in the years ahead, and this plan will be the basis for implementing a more aggressive drive to create and support innovative SMEs. This will, we hope, be a cornerstone of a national SME innovation strategy. We already know our clients' and partners' fundamental priorities and what we intend to achieve through the strategy, and consistently with the NRC vision to 2006, our first priority for IRAP is a commitment to our people, particularly to a strong ITA network, which is our greatest asset and the source of our unique service to Canada.

Our strategy for the future will also build on NRC's vision to provide greater international linkages for SME clients, competitive intelligence gathering on a national scale, support for SMEs involved in technology clusters and community level innovation, new support for spinoffs from universities and other research organizations, and most importantly, a significant increase in innovation support to SMEs to provide economic benefits and value to Canada.

[Translation]

Apart from these fundamental priorities, Canada's innovation strategy and the NRC's Vision 2006 afford us the opportunity to develop IRAP's special contribution in the field of youth employment and economic development in the Aboriginal communities as well as among rural technological businesses and to attack many other national priorities.

[English]

So I will finish by urging this committee to join those supporting the proposal to double innovation assistance to SMEs through NRC's IRAP and to make Canada's vision for innovation, jobs, and economic growth a reality for tens of thousands of Canadians and thousands of companies across Canada.

Merci beaucoup. Thank you very much.

The Chair: Thank you.

Dr. Strangway, from the Canadian Foundation for Innovation.

Dr. David W. Strangway (President and Chief Executive Officer, Canada Foundation for Innovation): Thank you very much, Madam Chair.

It's a great pleasure to be with you once again to brief you on the activities of the Canada Foundation for Innovation. It was a pleasure to express our appreciation to you for your continuing support of the foundation, but also for the many other steps you have taken in reinforcing the ability of Canada's non-government, not-for-profit, research-performing institutions, mainly universities, teaching hospitals, and colleges across Canada, and allowing them to perform leading research.

With the creation of the CFI in 1997, followed by the Canadian Institutes of Health Research, the Canada research chairs, the start of support for indirect costs, as was mentioned by the AUCC, and even a start on a graduate student scholarship fund, you have changed Canada's research agenda. In doing these things, you have empowered these institutions and their researchers in many ways to go for the equivalent of the Olympic gold.

My comments will be in the form of answers to a few questions. First, how was the CFI established? An act of Parliament in 1997 created the CFI and funded us as an arm's-length foundation, scheduled, in fact, to function until this year. In the intervening years new funding was provided and our lifetime has been extended as far as 2010. Clearly, we were meeting a need, and we were meeting it well.

We were set up to provide research tools and to support up to 40% of the cost of the research tools, so these institutions have had to find partners. So second, who are the CFI clients? CFI clients are the institutions I referred to. In order to be successful, they have had to develop institutional research plans and find partners to support the remaining 60%. This they have been able to do by finding support from provincial and municipal governments, as well as the private sector and the voluntary sector. We are one of the first agencies to support colleges.

What has the CFI received? CFI has been awarded a total of $3.15 billion in support of its mandate for the period 1998, when the first award was made, to 2010. Including interest, we will be able to award about $4 billion, triggering a total investment in Canada's research infrastucture of about $10 billion.

What are the CFI programs? CFI programs are all based on merit and competition. CFI provides enabling technologies to client institutions that permit them to play a major role in Canada's innovation agenda. Next we have opportunities for new faculty appointments. Over 1,200 newly hired faculty members have been supported by the CFI. There is an innovation fund to provide equipment and facilities to meet institutional needs and opportunities, and there are infrastructure operating funds to contribute to the operation of those facilities. As to the Canada research chairs program, we support the purchase of equipment for these new appointments being made in Canadian institutions. And finally, international funds are permitting Canadians to attract major international partnerships and providing Canadians with access to the best of international facilities. These are designed in all cases to link the best with the best. To date we have funded 1,975 projects valued at $1.75 billion--that's the CFI share.

How have the CFI's client institutions decided what to compete for? They prepare and publish their own research plans, which then guide them in selecting those projects they will submit to CFI for evaluation. This has caused them to focus on building on and achieving excellence.

Have CFI's clients been able to raise matching funds? Yes. No projects have failed for lack of matching funds. Institutions have been remarkably effective at encouraging their provincial governments to assist them with matching funds. In fact, it's because there is no federal government involvement in the decision and because the decisions are made by CFI at arm's length and are merit-based that the program itself is so successful.

What is the selection process? CFI's decision process is merit-based and depends on expert reviews and panels. To date we have used over 2,000 reviewers, many from outside Canada, and we have depended on panels to provide the advice. There are, of course, concerns from those whose projects have been rejected. The process is nevertheless widely accepted as a process with integrity, as well as one that enjoys the perception of integrity, and the criteria for selection are widely circulated.

À (1000)

What is the distribution of CFI awards in dollars and numbers? Institutions in all parts of the country, institutions large and small have quite similar success rates. The excellence CFI is mandated to seek is found in all these institutions. Remarkably, the distribution outcome is very similar to that achieved in their competition with the various granting councils, all of whom are represented here today.

What have the client institutions been able to achieve with CFI assistance? We require institutional and project annual progress reports. These reports document a remarkable resurgence of excellence and enthusiasm. They are helping to attract and retain outstanding faculty and graduate students. It is clear now that Canada is able to recruit and to retain the very best. These institutions are based in communities large and small from coast to coast, and they, in turn, are doing a great deal to assist their communities to move into the knowledge-based society.

What is the role of the CFI client institutions in commercialization and in cluster developments? Canadian institutions are fully competitive with their American counterparts on a per-research-dollar basis. They are highly productive in creating spinoff companies and patenting. The differences from the United States can largely be attributed to the receptor capacity in Canada that has been referred to already by others. There are many clusters already in Canada. These are all centred around universities, hospitals, and colleges, which are the single most important element of clusters. These institutions are based in communities across Canada and are often seen by their municipalities as central to their own evolving visions of where they, as communities, wish to go.

Does CFI need to identify discipline priorities? There are many vested interest groups that would like to influence the CFI to select their own preferred topics. However, from reviewing the approximately 100 research plans, it is clear that the institutions themselves have identified the key research areas that are of significance to Canada: information technology, nanotechnology, genomics, biotechnology, material science, you name it. If it's a hot topic Canada ought to be engaged in, the universities already know they want to be engaged in it and have made decisions accordingly.

How do we monitor the impact of CFI, document the outcomes, and demonstrate value for money? CFI has many forms of accountability and operates in a highly transparent manner. In addition to the formal audit conducted by a private sector firm, we carry out regular reviews and evaluations, which are widely disseminated. We authorize these reviews and evaluations by third parties. We require the institutions to submit and publish not only their research plans, but also progress reports on the impact it has had on them as institutions. These, in turn, are all submitted to the Minister of Industry, Science and Technology by the terms of our funding agreement, so that he can monitor the outcomes of CFI investments and the value for money being achieved with CFI assistance. And, of course, we regularly appear at House committee hearings such as this.

Have new governance models emerged? The CFI itself is a new governance model that is widely praised and respected, and in many ways it is being emulated in other parts of the world. As the government has empowered more and more non-government research performers, many new governance models have emerged at the institutional level. Typically, these involve groups of universities, hospitals, and colleges choosing to work together, often on a pan-Canadian basis. In other cases the private sector and provincial or federal agencies are choosing to join these alliances. The addition of government labs and principal government procurement policies offered to universities can add to this powerful mix. It is interesting to observe that today one university and its affiliated hospitals, the University of Toronto, with competitively won outside research funding of over $400 million added to their own expenditures on research, is now the largest single research-performing institution in Canada. It has surpassed even, with due respect, Mr. Carty, the National Research Council, and there are other institutions that aren't very far behind.

À (1005)

Are there concerns and complaints about CFI? There are certainly some, especially from those, as I said earlier, who are not successful in the rigorous competition. Some smaller institutions feel disadvantaged, but their overall success rate is precisely the same as it is for the larger institutions. Some regions feel disadvantaged compared with others, but success rates are similar in all parts of the country.

What do the CFI client institutions need if they're going to play their role in branding Canada and in helping Canada to reach the top five countries in the GERD to GDP ratio by 2010? The federal government needs to stay the course in supporting the full cost of research in these institutions, as was so eloquently said by the AUCC brief. This includes the CFI, Canada research chairs, indirect costs, and graduate scholarships at the institutional level, and as was mentioned by them, significant increases to the granting councils at the researcher level. Much has been accomplished, but the job is not finished yet. CFI is responding to these needs and itself will need some further attention in the coming months. We have three programs that are coming to an end, and if they are to be continued, they need to be looked at quite carefully.

What will it take for CFI to help maintain the momentum to 2010? CFI is playing a major role in helping Canada to go for the equivalent of the Olympic gold. We are helping Canadian institutions to combat the brain drain and to keep and attract the best from around the world. Articles about CFI or CFI-supported research activities appear frequently and increasingly in national, international, and now even in airline magazines. The institutions and their researchers are now confident that Canada can rise to the challenge of being among the best in the world. They are competing globally, with the assistance not only of CFI, but of the other agencies. You have started the ball rolling. The research community has risen to the challenge. You have to stay the course. Economic prosperity and quality of life for all requires no less.

Thank you.

À (1010)

The Chair: Thank you very much.

We'll hear now from the Natural Sciences and Engineering Research Council of Canada.

Dr. Thomas Brzustowski (President, Natural Sciences and Engineering Research Council of Canada): Thank you, Madam Chair, et bonjour aux membres du comité.

Thank you for inviting me once again to present some facts and ideas to you and giving me a chance to hear your comments, your concerns, and your questions.

My presentation will follow the deck that's been distributed in both languages. It is headed “Playing our role”, and it really concerns what NSERC will have to learn to do to help Canada achieve the goals of the innovation strategy. The innovation strategy, particularly the volume called Achieving Excellence, expresses expectations of university research in the area where we contribute.

[Translation]

As I mentioned, the title of our presentation today is “Playing Our Role”. That is what NSERC will have to learn to do to help Canada achieve the goal it has set with regard to the innovation strategy.

In our opinion, that strategy is very important, and we will play a key role in its success.

[English]

What I've done, Madam Chair, in the ten slides in this deck I will go through is outline what we believe we will have to achieve and the process we've launched to learn how to do it. I will admit at the beginning that today we would not feel that our policies and programs and our experience are adequate to do what is expected of us.

Let me begin with the first slide. Obviously, the goal of the new strategy is to make Canada one of the most innovative countries in the world. The goal is more explicitly stated as “moving into the top five” in the Prime Minister's speech. Most people interpret that as moving to fifth place. It really deals with wealth creation, the wealth creation that produces the prosperity, both private and public, that provides the means to improve the quality of life of Canadians.

Looking at the strategy, we are of the opinion that the greatest challenge may be in the private sector. At the top of the second sheet is a slide that really is quite startling, in my opinion, because a number of people around the country have been trying to make estimates of what it would take for Canada to reach fifth place by the end of the decade. The estimates are startling. They suggest that the Canadian private sector will have to increase its R and D expenditures by something like $20 billion a year.

À (1015)

[Translation]

I should emphasize that that's an increase of approximately $20 billion a year in private sector research and development spending.

[English]

I've seen numbers as high as $26 billion, and these are based on a variety of assumptions about what the rest of the world is doing. Some very conservative assumptions, such as that the rest of the world will stand still, produce numbers lower than this, but Taiwan has published a national goal to reach GERD over GDP of 3% by the end of this decade, the European Union has committed itself to reaching an average GERD over GDP of 3% by the end of this decade. We are about 1.9% at the moment, so this is a huge increase.

Moving down that slide, one finds some more astonishing numbers. The obvious questions are, how many people will this take, and where will the money come from? I'm quite convinced there will be increases in venture capital investment, federal and provincial funding, and what have you, but compared with $20 billion a year, these will be very small. The main source of that additional $20 billion a year will have to be a huge increase in the sales of Canadian private companies in world markets. If one assumes that the companies that are active in R and D will spend about 10% of their sales on R and D, a number that would be very high if taken across all companies in Canada, but probably not bad for the group that are active in R and D, we're looking at $200 billion per year additional sales by the end of this decade by Canadian industry, and that, of course, is a serious fraction of the GDP. So we're talking about massive changes here.

How many people will it take in the R and D area? The estimate of about 100,000 is based on the assumption that typically, Canadian companies spend about $200,000 per year per R and D employee, but I've seen numbers as high as three times that.

I'd like to draw your attention to the last bullet on that slide. If Canadian industry is to increase its sales in world markets by $200 billion per year by the end of the decade, in addition to being an R and D powerhouse, we'd better be a world marketing powerhouse as well. That is a challenge, a different challenge. It's a Canadian challenge. It may not be an NSERC challenge, given our narrow mandate, but it certainly is a challenge for the nation.

So will that demand for 100,000 more HQP and R and D materialize? We hope to have the answer, of course, from the nationwide consultation on the innovation strategy. We do know where these people will have to come from. They'll have to be new graduates from colleges and universities, they will have to be retrained employees, they will have to be retrained unemployed or underemployed people. We hope to attract Canadians from abroad; we count, as always, on immigrants.

Let me move on and connect now with the remarks of Professor Lacroix, who reminded us of the need to replace professors in universities. If present proportions continue, something like 7,000 or 8,000 PhDs in sciences and engineering will be required between now and the end of the decade, possibly several thousand people with masters and PhDs to replace retiring government scientists, and of the roughly 50,000 or 60,000 people now employed in Canadian private sector R and D some number will have to be replaced because of retirements. We underline immediately one of the things we don't know, and that is the mix of the 100,000 by degree level, by area of study. We simply don't know that.

The bottom slide on page 3 comes to time dimensions. We are now only eight years from the end of the decade. It takes time to move people through university. It takes time to train people. NSERC has decided that for planning purposes, we will try to learn what it would take to double the number of graduates in science and engineering with advanced degrees from our universities by the end of the decade. We need to learn how to make that happen. We're very much aware that we control only one or two of the factors that influence these rates: obviously, enrolment in graduate school; completion rates, the fraction of those who enrol who actually complete a degree; completion times, the number of years it takes to get an advanced degree; university programs, practices, and above all, capacity--you've heard about that as well; the availability of qualified and interested candidates; economic incentives.

Madam Chair, I'd like to underline this point. We are finding that in some disciplines it takes eight years to get a PhD from the bachelor's degree. That's eight years from the time you walk out with a bachelor's degree in your hand to the time you walk out again with a PhD. In some disciplines it's a little less and in some it's a little more, but the average is eight years. Consider yourself to be a very bright student in a discipline in which there's a great demand. Would you contemplate eight years of forgone earnings to get a PhD? If you are graduating with a bachelor's degree with accumulated student debt, this is a no-brainer. You just don't do it. We have to address these issues, and we also have to address the availability of professors. All we can contribute are appropriate policies and programs to support graduate students and appropriate policies and programs to support the research of professors who teach them.

I turn to page 5 now and underline that the matter is urgent and that we have decided to start urgently learning how we might do this. We are holding five regional workshops. We have filled two of these already, in Halifax and Toronto. We'll be holding them in Calgary and Vancouver this week and in Montreal in three weeks. These are workshops involving professors, students, university officers, private sector R and D managers, and provincial government officials to find out from them what it might take on our part to help in the process of doubling the graduation rate. The diagram at the bottom of the page is one we put up on the screen to give people a graphic impression of the challenge.

À (1020)

What are we hearing? We're already hearing strong opinions and strong consensus in the two workshops we've held. We have to lower the economic barriers to graduate studies by vastly increasing, perhaps doubling, the graduate scholarships, to restore the position of some decades ago, where, if one went to graduate school, the sacrifice in salary was not huge. One sacrificed some percentage of a starting salary in business, but it wasn't a question of accepting something that was 25% of the starting salary. We need to attract more graduate students. The universities and the students are telling us that the undergraduate research awards we give, allowing interested undergraduate students their first serious exposure to research, provide a hugely important experience, and we're being urged to increase that from 3,000 to maybe 10,000. We're also being urged to expand the number of scholarships and fellowships to about 6,000 or 7,000 for graduate students and to continue to provide reasonable funding for the growing number of new professors.

I'll stop with the explanation of the growing number of new professors who want to do research. This is a combination of demographics and a change in expectation. People are retiring, but some of those who are retiring now were appointed in the 1960s and early 1970s and either stopped doing research some years ago or have never done it. Their replacements in all universities, large and small, are expected to do research from the first day they appear. As a result, we're supporting a larger and larger fraction of the population. Our estimate is that if these kinds of advice continue, it will take a compounding at 10% per year of NSERC's budget from now until the end of the decade.

To conclude, Madam Chair, I hope this very specific example of what one agency is doing to try to learn what it'll take to meet our expectations will be useful to the committee in your deliberations.

Thank you very much.

À (1025)

The Chair: Thank you very much.

Now, from the Canadian Alliance of Student Associations, Rob South.

Mr. Rob South (Government Relations Coordinator, Canadian Alliance of Student Associations): Good morning, and thank you, all, for the opportunity to present here today.

CASA represents over 310,000 university and college students across Canada, in other words, one in every 100 Canadians. CASA is a non-partisan organization comprised of 23 student governments from across the country. We strive to effect positive change in our country's post-secondary education system through practical policy proposals and reasoned discussions with key decision-makers.

The topic of today's panel discussion is, of course, research and productivity. When examining this topic, it may be useful first to ask the question, why does research and productivity interest us? I think the answer to this question is simple: research and productivity are key ways to make Canada grow, both economically and socially. Canada has always been a country about growth. In 34 short days Canada will celebrate its 135th birthday. Perhaps looking back at some of Canada's early growth policies will help us contextualize why policies that promote research and productivity are so important for Canada today.

During the time of Sir John A. Macdonald and Sir Wilfrid Laurier two key government initiatives played a large role in Canada's growth. They were the building of a national railway and the promise of affordable land. In my speech today I will draw parallels between the way these policies helped Canada grow in the 19th and 20th centuries and the way policies promoting publicly funded research and access to education will promote Canada's growth in the 21st century.

The first issue I wish to raise relates to the government's role in publicly funded research. Much as affordable transportation of people and goods by rail was one of the major engines for growth in the early days of Canada, the creation and dissemination of new ideas is one of the major engines of growth for Canada today. The value of publicly funded research is hard to repudiate. Consider the comments of renowned MIT economist Lester Thurrow:

Put simply, the payoff from social investment in basic research is as clear as anything is ever going to be in economics.

The Government of Canada clearly realizes the value of research with its bold stated goal of moving the percentage of GDP spent on research and development from 14th to 5th among OECD countries. CASA's recommendations to help Canada meet this goal focus around three values, the government paying a fair share, a focus on the public good, and a promotion of student research.

Our first value, the government paying its fair share, centres around the issue of the indirect costs of research, as has been raised by several other panellists. In the last budget the government took a very positive step toward addressing this issue by providing $200 million in one-time funding to help defray these costs. When Industry Canada recently released its major paper Achieving Excellence, it stated that these costs must be covered on a continuing basis. CASA supports the notion of supporting these costs on a continuing basis and recommends that it be a key element of the next budget. That this issue is important to students may be surprising to some, but when you consider that the money that goes toward covering these costs, if not paid by the government, is often taken from teaching budgets and student services, it shouldn't be surprising at all.

The next issue I want to bring up is the promotion of the public good, and perhaps this also can be explained by comparison with the early days of the railroad. Though the railroad very clearly had important commercial applications, our forefathers also realized that applications had to serve the social good of the time, allowing for the transportation of materials and people at a reasonable cost. With regard to research, it is just as obvious how solutions to commercial problems can be found and new products can be developed. Research can also help solve social and medical problems, the importance of which goes well beyond the limited scope of commercial profitability. To ensure that publicly funded research in Canada serves a broad public good, CASA has two recommendations.

À (1030)

The first one deals with the increasing pressure to have research with immediate commercial applications. At times this focus is entirely appropriate and has helped Canada's economic growth, but at other times we must question whether important social research on problems such as homelessness, multiculturalism, and family well-being is suffering because of their lack of ready commercial application. CASA simply recommends that the government be vigilant in the search for balance between commercial and social research.

The second recommendation focuses on the Social Sciences and Humanities Research Council. Currently, SSHRCCC receives significantly less funding than either the Natural Sciences and Engineering Research Council or the Canadian Institutes of Health Research. CASA's issue is not with the disparity of funding among these three councils, as some types of research simply cost more than others, but with the disparity of opportunity in research for these different disciplines. To illustrate the point simply, SSHRCCC cannot afford to offer research fellowships to master's degree students, but NSERC, as was just mentioned, can afford to offer a limited number of research fellowships to undergraduate students. Interestingly enough, recent releases from both the Fraser Institute and the Conference Board of Canada have suggested that it may be better for Canada's long-term economic interest to invest more in social research than in research that has ready commercial applications.

In all recent budgets the federal government has shown its strong commitment to research by increasing its funding to all granting councils. In achieving excellence, the government shows a wise commitment to increase this funding further. CASA recommends that the government show a particular focus on SSHRCCC for funding increases to eliminate this disparity of opportunity.

Finally, with respect to research funding, much like a railroad, it is not good enough that it exists, people also have to use it. That is why CASA believes the government must actively promote student involvement in research. CASA also believes that if we want a truly innovative society, we must have students starting to think about research earlier. The government's goal of having a 5% increase in graduate student enrolments for each year of the next ten is very worthy, but CASA advocates that the government also encourage the research councils to make more opportunities for undergraduate research at the same time. Doing so will result in students starting to think about graduate school much earlier. Further, it will help students have an easier time getting into graduate school, because of their prior research experience. Third, the money they gain from undergraduate research fellowships will make their education more affordable.

These points help us move on to our second major topic area, access to education. Just as available farmland offered the opportunity for a better life to Canadians decades ago, access to education offers that opportunity now. It's necessary for the growth of our country that we get more individuals to take the opportunity of higher education. Study after study from groups like the Conference Board of Canada shows that our country is facing a looming crisis in skilled workers. Study after study from Statistics Canada shows how much higher the lifetime earnings are for people who have post-secondary education, particularly professional or graduate degrees. That is why access to education is CASA's number one priority.

Just as the federal government had a key role in settling the farmland last century, they have a key role in helping people gain access to higher education in this one. This role is particularly important with respect to the social development of Canada. As Minister of Finance Paul Martin said last year, denied access to education, the poor are robbed of their right to fully participate in the economic, political, and cultural lives of their countries. The key to the federal government's role in helping people gain access to higher education is the Canada student loans program. CASA again has three simple values it's promoting this year to make the program better. These are increasing the availability of funds to students, allowing greater ability for students to work, and helping borrowers who have trouble with repayment.

On our first goal, dealing with the availability of funds, we have two simple issues to raise. The first is the loan limits on the Canada student loans program. These limits haven't changed since 1994. Since that time tuition has gone up almost 100% and, of course, inflation has occurred. Currently, students can borrow no more than $165 per week from the Canada student loans program, and this is expected to cover 60% of their costs. We have found that 42% of their borrowers are borrowing at the maximum limit. This strongly suggests that students are not getting enough money to fund their education. They're either having to go into debt through private sources or are just not getting enough money and having to prolong their studies by taking fewer courses.

À (1035)

Second, as well as increasing the loan limits for the program, we ask that the government reconsider how it applies the parental contribution standard of the Canada student loans program. The parents of students who have not been out of high school for four years are expected to contribute money towards the costs of their children's education. These contributions are based on a moderate standard of living. Any income above that moderate standard of living is deemed discretionary income and parents are expected to contribute above that. Parents can be expected to contribute up to 75% of their discretionary income above the level of this moderate standard of living to their children's education. Recent research from the Canada Millennium Scholarship Foundation finds that half of all students in this age group get no financial support from their parents at all. Clearly, the level of contribution the government is expecting isn't matching people's actual behaviour. This needs to be redressed.

Our second issue, allowing students to earn more while they're in school, is very simple. In 1994 the government made it that students could earn no more than $600 while studying. That's within an eight-month period. The Province of Ontario, for its portion of loans, allows students to earn $1,700 over an eight-month period. The Province of Alberta allows students to earn $1,800. We don't think it's unreasonable that the federal government should allow students to earn up to the same amount. This is still only about $200 a month, an amount many students can manage while taking a full-time schedule. Those students who currently earn over the $600 have their earnings clawed back by the federal government at a rate of 75% and counted against their loan. We do not consider this to be fair or encouraging students to participate in the economy.

Finally, we would like to raise the issue of helping those who have already incurred debt and are having trouble their with repayments. There are two federal government programs I want to raise specifically in connection with this issue. The first is the debt reduction in repayment program, which this committee made note of in its report last year. The take-up on this program has been remarkably lower than was anticipated when the program was announced in 1998. In 1998 the government said the take-up would be approximately 12,000 students a year. The idea behind this program is that students who've had trouble repaying their loans for a period of more than five years will get a portion of the principal of their loan repaid by the federal government. Currently, only about 300 to 500 students a year benefit from this program, because the standards for access are far too stringent. A student cannot make use of this program until they've exhausted interest relief, another program the government offers for those students having trouble with their repayments, but unfortunately, 75% of those students who exhaust interest relief are ineligible for the debt reduction in repayment program.

The last point I want to raise with respect to helping students who are having trouble with their repayment is about when students are able to make use of these compassionate measures offered by the government. Currently, students missing a payment for a period of 90 days or more are ineligible for the interest relief or debt reduction in repayment programs. This is a difficult standard for many students. Payments are often missed as a result of the transient nature of their lives during the first few months after graduating from school, when they're searching for new and better employment. The United States has a similar standard, but it allows for 275 days. CASA is asking the government of Canada to move its standard to 270 days, so students who have missed one repayment for a period of up to 90 days still have an additional 180 days in which to secure access to these compassionate measures. Hopefully, doing this will make it easier for the students to repay their loans in the long run and will mean more money returned to the government of Canada.

The solutions CASA has proposed today are affordable, reasonable, and most importantly, make for good public policy. Students across the country are asking the federal government to send a strong message in this budget, a message that a strong economy and a thriving social environment are important, that our well-being today is in large part affected by our investment in the future, that education is important.

À (1040)

Currently, Canada is a country with great potential. Over the past 135 years we have done a lot with that potential: a balanced federal budget, the strongest economic growth in the G-8 for the next year, strong publicly funded health care, and one of the highest standards of living in the world, as well as a vibrant multicultural atmosphere. However, we must realize that with respect to the new economy, Canada is still a young and developing nation. Other industrialized nations are out-investing us in both education and research. If we do not match these investments, we seriously risk falling behind, but if we start to invest in research and access to education now and continue to increase our commitment, we can make the 21st century the great Canadian century. From the words of Prime Minister Chrétien, the future belongs to societies whose economies are sound, whose population is healthy, whose children are well prepared, and who invest in knowledge, innovation, and education.

Thank you for your time.

The Chair: Thank you, Mr. South.

We'll move to the Social Sciences and Humanities Research Council of Canada, Janet Halliwell.

Ms. Janet Halliwell (Executive Vice-President, Social Sciences and Humanities Research Council of Canada): Thank you very much, Madam Chair and committee members.

I'm delighted to find myself back before a House of Commons committee. My last appearance was in 1991 as chair of the then Science Council of Canada. I'm now here as executive vice-president of the Social Sciences and Humanities Research Council, the funding agency that deals with 53% of the academic research community and 59% of the graduate students in this country.

[Translation]

Our president, Mr. Marc Renaud, regretfully cannot be with us today. He is playing a key role in a number of workshops at the Congress of the Social Sciences and Humanities. It's the event of the year for the community of researchers who work in those fields and is attended by more than 100 learned societies and attracts more than 8,000 delegates. It is the largest congress held in Canada.

[English]

Last Friday's Globe and Mail contained an insert describing the congress and the very broad range of issues that were being addressed there, from the multicultural nature of Canadian society, peace and security, language and culture, aboriginal issues, and the impact of the charter on electoral democracy to obesity and many more things. The congress is about making the information gained through research in the social sciences and humanities more readily available and more useful by getting it into the hands of other researchers, policy-makers, and the general public.

Let me mention one particular congress event as an example. SSHRCCC is sponsoring a session featuring University of Toronto peace and conflict specialist Thomas Homer-Dixon. His latest book,The Ingenuity Gap, which won the Governor General's award for non-fiction, explores our society's ability to deal with the accumulated impact of change. The focus of his book and his presentation is whether we can really develop ideas fast enough to solve the very problems, environmental, social, technological, and economic, we've created. And of course, what SSHRCCC deals with is the stuff of the solution, the ideas and the people generated through research, the sources of the necessary ingenuity, the sources of the necessary innovation.

SSHRCCC funds an enormous breadth of research, the work of 18,000 full-time faculty in Canada. Of these 17% are in social sciences, 15% in humanities, 8% in education, 7% in commerce or business, 4% in fine arts, and 2% in law. We deal with research that affects our understanding and our capacity to manage the environment, business and innovation, justice, security, poverty, communications, and more, issues that reflect all aspects of our lives. We're dealing with research about real life. We're building understanding and finding real solutions to real problems. But there is a challenge, as you've heard around this table already.

Our 18,000-member research community has been re-energized by the innovative programming through SSHRCCC. It's been re-energized by increased government support for research and development, for which we thank this government. It has been enormously useful, but we have run up against a wall. The recent funding increases do not address the fact that with 12% of the federal R and D funding, SSHRCCC cannot unleash the potential of 55% of the academic community. It cannot meet essential needs. We are facing a crisis.

À (1045)

[Translation]

Last year, we presented to this committee a document entitled “Planning for the Future: Transforming through Renewal”. I have asked that that document be available to you again this year.

This report outlines an urgent need to invest in people across the country and to renew faculty who provide future research capacity and train the new generation of knowledge workers.

[English]

The report is a good news, bad news story. The good news is that the analysis has stood the test of time, it's withstood scrutiny. The bad news is that we are further than ever from having the resources to do what is needed. We are not even treading water.

What are the symptoms of this budgetary crisis? First, despite looming faculty shortages, SSHRCCC can finance only three and a half per cent of the entire graduate student population in this country in its fields, with no funding for master's students at all, which is the entry-level research training. Our sister councils have got it right. They understand that we have to invest in at least 15% or more, as they do.

Second, in the last three years the application rates for new scholars have increased 47% in our core programs. Last year in the applicant pool a full 41% were new scholars, but we could fund only one out of three, even though twice as many were recommended for support. This can be a career-threatening move: no SSHRCCC funding, no tenure.

Third, we have launched and maintained some enormously exciting collaborative ventures. One you've heard Marc Renaud speak to around this table is the community-university research alliance program that engages the community partners in a very real way. Those programs remain critically underfunded, with a 10% to 15% success rate from start to finish. The projects we support are producing groundbreaking research, but rejecting nine out of ten for reasons of budget, not quality, is a totally unproductive use of the research talent of this country.

[Translation]

Every week, we receive offers from partners for new opportunities and new joint projects.

[English]

I think we had half of the CIHR institutes approach us for collaborative ventures. Yesterday I spoke with a man from Bell Canada Enterprises on the same issues, but we simply cannot respond, we do not have those resources.

You say, what about cost? Some research in the hard sciences is more expensive than research in the social sciences and humanities, that is a fact, but not all, and certainly not to the extent the current budgetary allocations imply. Students should be funded at the same level, regardless of what field they are in. The costs of collaboration, field work in the north, and much data collection are comparable. So SSHRCCC now finds itself at a point that is very critical.

Let me just make a personal comment, one that derives from my 25 years of experience in the business of funding university research and foreseeing the pressure on all researchers in all disciplines, in all fields, because I have worked across the spectrum. This is not a toy problem, it is a real crisis. At no point and in no other field of endeavour have I seen such an enormous gap between the funding and the need, between the funding and the potential returns to Canada.

So what is the solution? This solution needs both the hard sciences and the human sciences, and Canada must fill the gap in the human sciences. We will achieve the government's innovation agenda only if this investment is made. It will have a very real impact, increasing enrolments of quality students at the master's and doctoral levels, ensuring the necessary skill mix, getting the regulatory conditions right for innovation and commercialization, creating a culture of innovation in our schools, in our businesses, in our communities.

What do we need to get the job done? What do we need to achieve the aggressive targets? This country needs SSHRCCC's budget to move to a level of $500 million per year, and this within the next three to five years. Half of the investment will go to support the pipeline of research talent, from student through to new faculty. The other half will enrich and shape the research environment in which researchers work.

To kick-start the pipeline, we will support 20% of doctoral students in the social sciences and humanities; we'll introduce a master's program; we'll introduce an undergraduate awards program to whet the appetite of the young student in research. And to enrich and shape the research environment, we will increase the number and value of awards; we will increase the scope for collaborative interdisciplinary activities; we will enlarge the scope of our community-university alliance, going beyond one application per institution, which is criminal; we will invest in new joint initiatives of strategic importance; and we'll invest in knowledge mobilization.

So, Madam Chair, to conclude, the Government of Canada has done a remarkable amount in the last ten years to address the needs of the so-called hard sciences, to support students in those fields, and to build a research environment that will allow Canada to be competitive in the future.

À (1050)

[Translation]

This was done through major budget increases for the CIHR, NSERC and the creation of the CFI, Genome Canada and the Canada research chairs. We applaud these initiatives.

[English]

But the country now needs the government to act in the same direction for the so-called soft sciences, those fields that will ensure a culturally fluid citizenry capable of fully participating in the global economy. Canada needs this government to allocate proportionately larger increases for SSHRCCC to address an unsustainable asymmetry in the budgets of the funding councils

The Chair: Thank you very much.

For our final presentation we have, from the Canadian Institutes of Health Research, Dr. Alan Bernstein.

Dr. Alan Bernstein (President, Canadian Institutes of Health Research): Thank you very much, Madam Chair, and thank you again for the opportunity of coming before you today. Finally, thank you for the tremendous support this committee and the Government of Canada has been giving to research in general over the last three or four years, in particular health research.

I'd like to cover three broad areas in respect of future directions for CIHR, particularly speaking to increased productivity, the purview of this committee, and a progress report on where CIHR stands at present. Our birthday is 12 days away--we will be two years old--and I should again thank parliamentarians for the vision you showed two years ago in passing the act that created CIHR.

At the beginning I'd like to talk a bit about what we've been doing and the importance of research to our health care system and the future of Canada. As my colleagues have been saying, Canada's future--and I firmly believe this--is entirely dependent on research and science. I say that for several reasons. One is that many of the problems facing our country, from global warming to Kyoto to understanding and curing disease and improving health, will intimately and intricately depend on research. The huge debate going on in this country about our health care system will absolutely depend on having an innovative research-based culture that's integral to our health care system. I'm going to walk us a bit through the handouts.

Our health care system is a $100 billion-plus industry. It is by far Canada's largest knowledge-based industry. Health research is crucial to that industry, to future economic prosperity for Canada, and to the quality of life of Canadians. I would remind you of the mission statement in the act that created CIHR, to excel, according to internationally accepted standards of scientific excellence, in the creation of new knowledge and to translate that into improved health for Canadians, a stronger health care system, and new products and services.

In less than a two-year period of time we have created 13 institutes. These are virtual institutes led by outstanding researchers from across this country, who are based in their host institution and lead their communities underneath them. You'll see a jigsaw puzzle in the handouts of the 13 institutes. They range from the traditional ones, cancer research, genetics, to newer ones reflecting the very broad mandate of CIHR, aboriginal health, gender and health, population and public health, health services, policy research, and others. In that folder there are also brief synopses of three or four of the institutes--I didn't burden you with every strategic plan the institutes are generating--that I encourage you to read, Infection and Immunity, the Institute of Aging, and a little bit about how they're operating and what they're doing. Each institute has an advisory board of 15 to 20 women and men from across this country and outside Canada, who advise the scientific director about strategic directions. Parliament challenged us to be a strategic prioritizing agency, proactive and innovative. Those are our marching orders, and we are embracing them with great enthusiasm, and I will come back to that.

À (1055)

I have been impressed with how quickly CIHR, which replaced the old Medical Research Council of Canada, has transformed the health research landscape in this country. On the next page are some small examples, two interdisciplinary team programs that CIHR is running. There are two examples of the 13 teams that are being funded, one with François Béland at McGill University on the challenge of understanding and meeting the needs of frail older persons within the Canadian health care system. This is a perspective from the social sciences and humanities about aging and how older people deal with a health care system that is undergoing its own stresses and strains. The second example is Jeanette Holden's team program on autism in children. It deals with everything from the psycho-social aspects of autism to understanding the genomics of this very interesting, strange, and serious disease that affects an increasingly large number of Canadian children.

A second program is community-based research. Janet Halliwell mentioned the CURA program, based on the SSHRCC program. There are 19 of those funded, a $30 million commitment over the next five years. There is Stephen Bornstein's research, for example, at Memorial University on maritime and coastal workplace health and safety. And there is Karen Chad of the University of Saskatchewan on “Saskatoon in motion”, trying to convince people in Saskatoon to be active to prevent serious disease later in life, from obesity to cardiovascular disease to diabetes.

The success rate in both of these programs was of the order of 10% to 15%. I think it is one measure of the capacity in this country to undertake very innovative, very exciting interdisciplinary research in partnership, in the latter case, with community groups.

Dr. Brzustowski talked about the turnover of faculty looming in this country and the importance of training the next generation of researchers. I would echo his comments. In response to that looming need, and in recognition of the fact that there are particular areas that need to be built up in this country, health research is undergoing very profound changes as a result of the revolution in health research that's taking place. And if you look across this country, every major research-intensive university and every major teaching hospital is expanding its physical plant for research, in large part fuelled by CFI funding, in partnership with the provinces and private philanthropy.

We have developed a strategic training initiative. These are block grants to groups of investigators in partnership with the provinces, the health charities, and the private sector. Minister McLellan will be formally announcing the results of that competition in a week or so. This is a $85 million commitment over the next six years to train the next generation of health researchers. We'll be funding 51 teams across this country. I've listed five examples of the teams that are being funded. These are all partnerships, in many cases right across this country. There are Jim Dosman of the University Saskatchewan on public health and the rural ecosystem and Pat McGrath at Dalhousie University on pain in child health. There is Paul Roy at the Université de Laval, Quebec, on résistance aux agents antimicrobiens, antimicrobial resistance to antibiotics. And there are Peter Liu at the University of Toronto on cardiovascular research and Graeme Hunter from the University of Western Ontario on oral research.

We are going through a very profound revolution in health research. It's an interdisciplinary revolution. That really was Parliament's vision for CIHR. We are not a discipline-based agency, we are a problem-based agency. There is not a department of health research in this country, there is not a faculty of health research in this country. We are embracing every possible approach to health, from information technology to the social sciences and humanities, to focus on health problems, and we are developing programs built around this integrative, multidisciplinary vision for health research.

Part of our strategic tone are four broad areas CIHR will be focusing on in the next three to five years. One is building on excellence, the second integration, the third the health status of vulnerable populations--that includes the homeless, aboriginals, people in rural Canada, immigrants--and the fourth incorporating genomics into the health care system and into health in the coming years. All the strategic initiatives being developed by the 13 institutes and by the cross-cutting initiative will respond to some aspects of those four broad areas.

Á (1100)

The next page is a metric, if you will, our scientific directors have developed to speak to how to choose between the myriad of opportunities in health research these days, opportunities to advance science ethically, improve health integration, and improve the health care economy, if you will. A niche for Canada requires a national effort and transcends the mandates of individual institutes or individual disciplines. On the next page are some examples, and in the interest of time, Madam Chair, I will not go through them. They are unrolling as we speak. They are engaging many Canadian researchers right across this country.

I want to end on public-private issues. The biotechnology sector is booming. Canada has the second largest biotechnology industry in the world, but we shouldn't rest on our laurels. Other countries, obviously, are moving forward. There was a series in one of the national papers about what Sweden is doing in the biotechnology sector. We are developing a suite of programs, going right from discovery to the implementation of new discoveries in the clinic or with the population in partnership with industry. Industry includes the big pharmaceutical companies and home-grown biotechnology industries. Partnerships include venture capital, the provinces, and the health charities. All this helps to move ideas out of universities and hospitals and into the real world, and I would be happy to elaborate at another time. I have examples of things we are already funding in the innovation pipeline, spinoff activity from CIHR-funded research, in this case from the University of British Columbia. Similar diagrams could be drawn for other universities.

I'll just end, Madam Chair, with a view for the future. I believe strongly that Canada has an important role to play in this century of health research. Health and the health care system matter to Canadians. We need to build on that and to move forward to develop a vibrant, strategic, proactive health research community that's responsive to the changing health needs of Canadians and the changes in our health care system. We are a rapidly aging society, for example. That's going to require a nimbleness within our health care system that is not yet evident. We need to develop synergy and partnerships between various levels of government. Many of these programs are exemplars of that with health charities and the private sector, and we must develop a coherent, multi-sectoral approach to commercialization for the benefit of Canada.

Thank you very much.

The Chair: Thank you, Doctor, and thank you, everyone, for providing us with detailed materials we can review.

I'd like to get to questions, and we'll start with Mr. Jaffer.

Mr. Rahim Jaffer (Edmonton—Strathcona, Canadian Alliance): Thank you, Madam Chair.

Thank you to all the presenters here today. I appreciate being updated on many of the challenges you face in your various research-related positions. I heard many of these things before, some of the challenges, when I sat on the industry committee, and now here we are at the finance committee.

It raises the point that aside from what governments can do to help support research and innovation in this country, there are some problems with the economic fundamentals. These are things we need to complement any action the government takes to continue to foster innovation and promote productivity in this country. When you look at Canada's current R and D tax credits, they're some of the most generous in the world, yet for some reason, Canada seems to underperform in this area. Is it business's fault, is it government's fault, or what is the problem?

This is why I'd like those of you who wish to comment on how we should address the fundamentals of our economy so we can in the long run continue to support action the government takes in increasing funding for research to the various chairs. It seems to me that to increase productivity and the return for our innovation, the economic policy has to complement any investment in your area. We have these problems, such as a low dollar, that obviously create a branch plant economy here in this country. We still have high tax rates, both personal and corporate, which tend to provide disincentives for individuals, as well as for companies. Then there's the problem of access to capital for many small, medium, or large industries in many areas of research. Obviously, there's the size of our economy at home, the problem of our population. That is another big problem when it comes to how we can grow if we can't compete effectively internationally. How do we create an economy at home where we can actually sustain much of the work we do?

This is a broad question covering many areas, but I think it's fundamental to address these issues in any action the government takes. In my opinion, if we don't do that, we're going to have a cycle that isn't complete.

Á (1105)

The Chair: Dr. Carty.

Dr. Arthur J. Carty: Talking about economic fundamentals and the nature of our industry, I think two of the factors are that in the past Canada has traditionally had a resource-based economy. I think everybody recognizes Canada as having a really strong base in resources. Unfortunately, the resource-based industries have not also in the past invested very much in research and development. That's a starting point. The second point is that in the past we have also had, because of our relationship with the United States, a large number of major companies with branch plants here, and they have also not invested very heavily in R and D.

So we're at the situation where we're making a transformation from a resource-based to a knowledge-based economy, adding value to the resource industries through science and technology, but also trying to grow small companies and medium-sized companies into the giants that we know help drive economic growth. That takes time. You need to really have a good base of support for your small and medium enterprises. You also need to encourage and enhance the capacity of medium-sized companies to grow into the large world competitive major industries. I think we're making progress in that regard, but we need more support for spinoffs and start-ups. We need support for small and medium enterprises across the spectrum of science and technology.

The Chair: Dr. Bernstein.

Dr. Alan Bernstein: First, I would echo Dr. Carty's comments; it's a very astute observation you've made. The Canadian economy is undergoing an evolution from a resource-based to a manufacturing-based to, hopefully now, a knowledge-based economy.

My own diagnosis would be that first, we need patience. It's really been only two or three years since the federal government and most of the provinces recognized the importance of research to the future of the country. That's a very short period of time to create a culture of entrepreneurship and innovation within a nation's economy. Particularly in the bio-tech area, my own experience has been that we need knowledgable venture capitalists, people who understand the science and the players, both in Canada and internationally. There's been a sea change, I can tell you that, in the last five years in that community. They've gone from “I won't touch this” to “Tell me more.” I see that. I had dinner last night with a major venture capital firm discussing what, from their perspective, CIHR's role might be in what they are doing. It was exactly along the lines you were getting at. It's a different conversation from one I would have had three or four years ago. They understand the business opportunities, and they understand the importance of the pipeline of discovery that's being fuelled by government support. But I think it does require patience on everyone's part to see this happen.

The Chair: Dr. Brzustowski, you wanted to add a comment, and then Dr. Strangway.

Á (1110)

Dr. Thomas Brzustowski: I have two comments. I think the question's a very good one, because there are many factors involved. We're not going to solve this by looking for a silver bullet. I think we need to have a whole ammunition belt. There are issues of attitude, of risk aversion, of economic history, of missing institutions. I'll just focus on that.

For all intents and purposes, we have no corporate research sector. It really is underdeveloped in proportion to the economy compared with the United States, where you have three quarters of a million corporate researchers and 15,000 establishments. We certainly don't have one-tenth of that or anywhere near it. Also, we don't have not-for-profit institutions that take an idea all the way from the lab bench to designing a product for production, which they hand off to a private enterprise. Countries like the United States, Taiwan, and Germany all have these institutions. We're much more dependent on university research, and given that the universities have lots of other things to do as well and we have many expectations of them, this missing set of institutions is a bit of a problem.

The statistics bear this out. We have the largest percentage of university research paid for by industry of any of the countries. We're at about 11% of higher education research and development paid for by industry. We also, of all the countries, do the largest percentage of industry research, something in the order of 5% or 6%, in the universities, because these other institutions are missing.

This requires much more than a silver bullet, it requires a broad range of consistent, coherent strategic approaches.

The Chair: Dr. Strangway, and then Professor Lacroix.

Dr. David W. Strangway: I agree with much of what has been said, but I'd like to make a couple of observations.

First, the creation of small companies is, in fact, extremely active in this country. Relative to the research dollars, universities in this country produce more small spinoff companies than any of the institutions south of the border. The most interesting one is the University of Sherbrooke, which produces per research dollar more spinoff and licensing income than any university in North America. There are many examples of success in the country. I'd like people to look at where some of the successes are. Of companies that spin out of the universities 80% are still in business after five years. Some of them have grown significantly, some of them not so much. Nevertheless, there's a high success rate for those that are nurtured by and come out of the university environment.

Second, 80% are within 100 kilometres of the university from which they spun out. They are really central to the whole idea that we're building up nodes and clusters around the country.

Third, one of the things that helps to make the companies successful is the IRAP program Dr. Carty was talking about before. He can give you the statistics. It's my perception that probably more than half of the companies are given an enormous helping hand in the process of spinning out to create this activity.

The “feedstock” is actually pretty healthy and is growing fast. The culture in the universities to support this is also growing very fast. The fundamental question is, over the next few years will some of the smaller, now becoming medium-sized, enterprises grow into large ones? It is a question that in many ways is beyond most of us who are testifying today. It gets to some of your questions. I think, if you don't feed them, create them, and nurture them, as we have been doing and are doing, we won't see any of them grow to a big size. Many of them are happening. Going back to the 1930s and 1920s, if you want to go that far back, there are examples of enterprises that have become big companies because of this.

The Chair: Thank you.

Professor Lacroix.

[Translation]

Pr. Robert Lacroix: I believe we have a magnificent example of the impact of investment in education and university research on the economy's transformation when we consider what has happened in Montreal over the past 20 years.

Montreal is the first industrial city in Canada whose economic development was essentially based on traditional and heavy industries. Those industries have been in decline for some time, and Montreal's current renaissance is essentially due to the new economy. Employment growth in that city stems in large part from the new economy, which is based on science and innovation.

The fact that Montreal has four of Canada's major universities and approximately 200 research centres linked to those universities means, in my view, that Montreal is being reborn in the knowledge economy and transforming completely.

So this all comes back to what I was saying at the start. In the new economy, it is possible to invest in human capital and in basic research, and supply will create its own demand. When you have qualified staff and basic inventions, the rest generally follows. That's what Montreal is currently showing, and that's the attitude we should adopt for major research development and university development policies.

Á (1115)

[English]

The Chair: Mr. Herron, Mr. Loubier has allowed you to ask one question before he finishes your time.

[Translation]

Mr. John Herron (Fundy—Royal, PC): Thank you very much, Madam Chair, and thank you for your generosity as well.

[English]

I have to take off to another committee, the health committee.

I was really struck by the presentation made by NSERC on the necessity to ensure that we invest in intellectual capital, where we double the number of graduates at the graduate level, and the undergraduate level as well. You spoke about barriers and economic incentives that are necessary for our best and brightest to seek higher learning. You made the very astute comment, dovetailed with CASA, that because of the enormous student debt burden we have right now, it's taking longer for individuals to finish their degrees. Some of our best and brightest are choosing to not even attend post-secondary education at all. On many occasions they are even forgoing higher learning from the graduate level as well.

My question is on the study you're doing right now collecting information on the barriers preventing people from seeking higher learning. Will you be making some suggestions as to what types of incentives or public policy initiatives should be adopted to address the issue of student debt and the barriers to seeking higher learning?

Dr. Thomas Brzustowski: We expect to hear a lot of very useful ideas from the people we're bringing together at the workshops, and the reaction at the first workshop tells me that people have been thinking about these issues, that in some sense we triggered an outpouring of opinion on a subject that has been long considered. We're very conscious, though, of the limitations of our own mandate and our programs, but we will report everything we've heard and we will offer advice to anybody who is prepared to listen.

What's emerging is that the whole issue of the time to completion of graduate degrees has to be addressed. The deans of graduate studies have been worried about that for some time. The time has been creeping up. The reaction from our British colleagues who fund universities in the same way we do is that they can't believe a PhD should take more than three, four, or at the absolute maximum, five years, and that has been the tradition, the short PhD. In the American system, which is closer to ours, I was told the number they're worried about is nine years, where we're worried about eight years.

Economic incentives and the time to completion are not independent issues, because somebody with a debt load who can't forgo all those earnings might be carrying a part-time job while doing a PhD. But if the goal becomes to supply highly qualified people for the economy of the nation that's waiting for them, I think we have to worry far more about how long it takes to get a degree and what the graduation rates are, which combine both the enrolments and the completion times. So it may very well be that the definition of a new goal, perhaps one that has never existed in this area, will move things in the right direction. We will do our share and provide whatever information we can from our workshops to help those who make the policies, but many of those policies are made by others.

The Chair: Mr. South.

Mr. Rob South: I want to add one thing to those comments about the time increasing from when somebody finishes their bachelor's to when they finish their PhD. It's also at least that we don't have any national evidence on it. The voices we hear say it's not a unique phenomenon at the graduate level. Students are also taking longer from the start of their bachelor's to the finish now, because they decide to work while they're in school to try to lower their debt load and so on. This might be adding an extra year to a lot of students' studies. So this is a phenomenon at the undergraduate level as well.

Á (1120)

The Chair: Thank you to both of you.

Monsieur Loubier.

[Translation]

Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): Thank you, Madam Chair.

I have two brief questions for the Association of Universities and Colleges of Canada. The first concerns the indirect costs of research. I know that you've been appearing before the Finance Committee for a number of years now, with the same mantra: it is important that the indirect costs of research be covered by government subsidies.

In the last budget, I thought the amount of $200 million was recurring and came back every year and was adjusted on the basis of the research grants awarded by the federal government, but you seem to say that this $200 million amount was a one-time expense.

Have you estimated, year after year, the additional amounts that should come from the federal government and should settle, once and for all, this entire issue of indirect expenses which, in my view, should have been settled a number of years ago because it's nonsense?

My second question is for the rector of the Université de Montréal. We're talking about innovation, knowledge and the importance of clusters. There is a Quebec institution called the Faculty of Veterinary Medicine at the Université de Montréal which is headquartered in Saint-Hyacinthe, the technological centre for agrifood. That school of veterinary medicine needs $59 million in federal funding. The Government of Quebec has already done its share by contributing $43 million. If that institution, which is fundamentally important in the agrifood chain, does not receive that $59 million, it could lose its accreditation.

Can you explain for my colleagues' benefit what it could mean for the future of an institution such as that if it lost its accreditation?

Mr. Robert J. Giroux: With your permission, Madam Chair, I'm going to answer the first part, and Mr. Lacroix can answer the second.

Mr. Loubier, you are right in saying that the $200 million was a one-time amount set out in the 2001-2002 federal budget. It was distributed to the universities to pay indirect expenses. It represents an average of 25 or 26 percent of overhead.

However, in Mr. Martin's budget of last December, the government undertook to consult and dialogue with the universities with a view to introducing a long-term program to establish a basis for indirect research costs. As we mentioned this morning, it is important that that be done as soon as possible because a $200 million payment has already been made. If there's nothing next year or in a future budget, the universities will have received an amount and then they will get nothing. We will then have returned to the starting point.

In our opinion, indirect research costs should be in the order of 40 percent of direct research costs --that's what we've been saying for a number of years now--and those indirect costs should apply to direct research costs, as I mentioned.

We hope to be able to come to an agreement with the federal government on this basis. We want recurring budgets to be established. Every year, an amount would be set aside for indirect expenses, representing exactly 40 percent of direct research costs. I must tell you that 40 percent is not an exaggeration. When you compare that with what's going on in the United States and other countries, that's a low figure. That's our objective.

Pr. Robert Lacroix: I know you're interested in the Faculty of Veterinary Medicine and that it's in a riding that interests you as well. But the Faculty of Veterinary Medicine of the Université de Montréal is not the only organization concerned. There are four schools of veterinary medicine in Canada; in Prince Edward Island, Saskatoon, Guelph and Quebec. Since, in my opinion, there has been an under-investment by the provinces and the federal government over the past 15 years, those four schools now find themselves in an extremely difficult situation compared to the schools of veterinary medicine in the United States. The schools of veterinary medicine have North American certification done by committees consisting essentially of Americans. Currently, two schools have reduced accreditation: those of the Université de Montréal and Saskatoon. The accreditation of the two others will also be reduced since they are currently under investigation.

There is a risk that accreditation will be lost. The loss of accreditation means that the qualifications of the veterinarians those schools produce, who are responsible for the health of animals, but also for meat safety and agrifood research, would no longer be recognized by the United States. That could have consequences for the quality of care and research in Canada, but, more particularly, the United States could very well decide that, if our veterinarians are no longer qualified, our meat and products linked to veterinary medicine and meat safety are no longer acceptable to the United States. Consequently, we could have a major problem exporting anything related to the agrifood sector to the United States.

As the four presidents of the universities involved have tried to tell the federal government and the federal Department of Agriculture, it is necessary that this problem be looked at, not only from the standpoint of the quality of training and research in this sector, but also from the standpoint of the considerable economic consequences that could be caused for Canada by the loss of accreditation, which is imminent in the case of our own school: our accreditation will be valid for precisely another 18 months, and, if investments are not made, that accreditation will be lost. Saskatoon has two or two and a half years.

The Government of Quebec has already allocated $43 million in recurring budgets and investment budgets in order to go part of the way, and requests have been made to the federal Department of Agriculture by the four schools, which provide training for Canada as a whole.

Á (1125)

[English]

The Chair: Ms. Halliwell, and then Dr. Bennett.

[Translation]

Ms. Janet Halliwell: I would like to emphasize a few comments that Robert Giroux made on indirect expenses.

[English]

The indirect costs universities face are very real and continuing. The funding in the granting councils is predicated on the existence of a very strong system within the universities that includes such things as a good financial support system, management of ethics in research involving humans, management of animal care provisions, adherence to a lot of federal regulations, good stewardship, excellent libraries, and not least, a strong research office that will aid young researchers, that will aid the existing staff build bridges, linkages with partners in research, funding partners, etc. This is a very real problem and challenge for the universities, and our funding goes further with that strength at the base.

The Chair: Thank you.

Thank you, Mr. Loubier.

We're going to go Dr. Bennett, then Mr. Wilfert, and then Mr. Pillitteri.

Ms. Carolyn Bennett (St. Paul's, Lib.): I'd like to start with the indirect costs. I think we heard it strongly in the fall and put something in our report about it. I'm still concerned that we don't know exactly what you want us to do. Post-secondary education and universities are provincial. Every time we give something, the provinces--one notable one that I live in--give a tax cut, and you end up without the dollars you thought were going to the teaching and the infrastructure. Now you've come back to the federal government and said, thanks for all the research money, but what are you going to do about our indirect costs? I know the NIH has a two-stream thing. What is the actual proposal you want for a solution on this? Do you want CFI and each of the granting councils to have two streams, so that if you get this, that's money for research and you get a certain amount for indirect costs as well? How do you want us to do that? That was my first question.

With regard to Tom's comment, if we're worried about these people who are going to do the research, why is there still compulsory retirement at 65? I've seen a lot of university professors, at CMA awards ceremonies, for example, who are furious that they're having to retire and stop their research mid-point. Why do we need to get all these young people? Why are we still turfing them out at 65? My dad still goes to work every day at 83.

The other question was for SSHRCC. Even though you're having trouble collaborating with CIHR on some of the things I care the most about, I think CIHR has done a spectacular job in turning around a focus on multidisciplinary research. We know there's way more of that going on now because they know they'll get it funded. Some of your people are actual getting funding from CIHR now, even though it's not coming through you, are they not? Some of the social scientists in this country are actually getting good money through the CIHR multidisciplinary research. It's hard to watch the research councils fight with one another about who's getting more when we know some of your scientists are getting it through door number one instead of door number two. They're still getting research money. Obviously, we'd love to raise it all.

Those are my questions.

Á (1130)

The Chair: We'll start with Dr. Robert Giroux.

Mr. Robert J. Giroux: First, I would like to really compliment this committee for having made the recommendation last year about the importance of the indirect costs of research. I think the committee has done its job and has brought this to the attention of the government.

As I was saying to Mr. Loubier, what we want is essentially to have a government policy with the necessary funding attached to it that will provide for 40% of the direct cost of research to be paid as indirect costs of research. If a grant for a direct cost of research is $10,000, there'd be $4,000 of indirect costs along with it to cover all the areas that Madam Halliwell has provided for. That is what we are going to be undertaking discussions with the government about. That commitment essentially has been made. We haven't decided on the amounts, on the percentage, or on how it will be distributed, but this is where we're working. Actually, a lot of ground has been covered by the commitments that the government has made.

Ms. Carolyn Bennett: So researcher by researcher, they will have to up their application amount.

Mr. Robert J. Giroux: No. We are recommending, and we already have a report by the advisory council on science and technology on this matter, that it should go to the institution, because the indirect costs are costs of the institutions, not costs of the individual research.

The Chair: Dr. Brzustowski.

Dr. Thomas Brzustowski: As a quick answer to Dr. Bennett's questions, we don't turf them out at 65. If the universities decide that those who've reached the retirement age, whatever it is at that institution, are active enough and deserve to have continuing lab space, they will sign their applications to NSERC saying they will provide all the services that require indirect costs. We fund them. We fund quite a large number of professors emeriti, who, in fact, when they no longer have any teaching or administrative responsibilities, have more time for research than they've ever had during their career. So we certainly do that, but we have to depend on the universities offering these people the facilities.

The Chair: Thank you.

Ms. Halliwell.

Ms. Janet Halliwell: The SSHRCC interaction with the CIHR is, in fact, very positive. I'd just like to remind the committee that we were extremely active in working with the intergovernment council in creating the vision of CIHR, and I'm delighted to see the evolution and the growth, the dynamism of the institutes.

I think what we're seeing now is really not a battle; I'd describe it as unrequited love. The institutes are holding out a hand to SSHRCC saying, there are areas of our activities that have to move from the central area of health and involve much more the capacities and the disciplines that come through SSHRCC, sociology, psychology, even philosophy, etc. Some of these areas we will fund, and we continue to fund the core discipline expertise, the core research training. Is there a possibility, for example, in regional health of moving to other regional issues and providing partnership opportunities, where we're touching regional health issues on one side and on the other regional development issues, things SSHRCC has in its mandate and will continue to have?

There's the opportunity to do some exciting things in partnership with CIHR. We also know there's one area CIHR has not been able to tap into and is, indeed, difficult for us, the role of the humanities in health. So there are a lot of frontiers we would like to explore together.

Á (1135)

The Chair: Mr. Wilfert.

Mr. Bryon Wilfert (Oak Ridges, Lib.): Madam Chair, I wanted to go back to the issue of private sector research and development spending and the comments of Dr. Brzustowski in his presentation. I would concur that governments can't do it alone, and I think government's major role should be to have a clear policy agenda and articulate certain goals and practices they believe should be important for buy-in from all sectors. The Minister of Industry certainly enunciated very clearly in his innovation strategy back in February a policy development. The Minister of Finance spoke to venture capitalists earlier this month and made a very important speech with regard to their role, which I think was extremely well received. And yet we hear from the Conference Board that the private sector in this country doesn't show up when it comes to indicators for a commitment to innovation. We heard the Royal Bank CEO talk about the lack of a culture of innovation in this country.

The figures you presented talked about a need for a $20 billion increase in private sector spending, which is staggering in itself. I would really like to have you elaborate on that. How do we get the private sector to buy in, given all the factors you've discussed? And do we really have that solid commitment? Clearly, you're not going to get it from government, in my view. Government can only do so much, and I think government has contributed financially and been very supportive, also creating the policy. How do we get them particularly to buy in, given that we're talking about some major private sector participants who could contribute significantly to this issue? They're going to need the very people you are training.

Dr. Thomas Brzustowski: This is a big question that many groups are dealing with. The Conference Board leaders' forum on innovation and the current Public Policy Forum study are trying to deal with this issue. And there are a number of approaches to this that emerge. There are people who put statistics on the table and say, look at the companies that are already growing very fast, most of them in information and communications technology. The statement is made that if you extrapolate that growth to the end of the decade, you're going to be in the right range for the spending, so forget all the other sectors. There are others who say, look, we have this softwood lumber problem with the United States; the people who produce forest products in that area will surely begin to look for opportunities to add value, produce innovations, and find new markets. It takes leadership in the sector, and the response to that is always, well, look at the performance of that sector; they've shut down research labs as the bottom line became a problem.

What we're hearing is that this is a problem that embraces our economic history at one end and our culture and what some people call risk aversion at the other. I would dearly love to see this being very seriously addressed by the business schools of this country. What we need is to develop an appetite among managers and investors for R and D, for innovation, for putting goods and services in world markets for which we can set the prices, rather than always taking commodity prices. This will take time. It will take consistency of strategy. It'll take consistency of purpose. It'll take strong political leadership and strong industrial leadership. Some industrial leaders have been speaking out, and you've quoted some.

By and large, the feeling is that while there are bright spots, the country must move on a wider front in this area. The debate continues between those who say, count only on the one or two really fast-growing sectors, and others who say, no, we must have all sectors engaged in this area.

If I were able to give any more of an answer to this, I'd probably be out making speeches at $10,000 a shot.

Á (1140)

The Chair: Dr. Bernstein.

Dr. Alan Bernstein: I'll go back to Mr. Jaffer's question and my response. I think this area needs a long runway for liftoff, and the question then is, how close are we to liftoff? Of course, nobody can really predict the future, and that's why I used the word patience in response to Mr. Jaffer.

In the United States, certainly in the biotechnology sector, there are large pools of knowledgeable venture capital looking for opportunities out of universities, hospitals, and research institutes. We are getting to that stage. I think what we lack in this country, and hopefully, that will change in the coming years, is some successful biotechnology companies that are no longer small or medium-sized, but have reached a self-sustaining status, if you will, like our nascent pharmaceutical companies, which themselves are now investing. In the United States the large biotech companies are among the largest sources of venture capital investing in smaller start-up companies. As well, some mutual funds are doing that.

I think we're getting to that stage, but you're absolutely right that we are not there yet. Part of this depends on having the patience, thinking this eventually will happen if we have the right government programs in place and we have the pipelines of new intellectual property being generated that will yield those opportunities for venture capital to jump on.

The Chair: Dr. Carty.

Dr. Arthur J. Carty: I'd just like to echo what my colleagues have said. I do think this is a long-term issue and we need a coherent, consistent, long-term strategy to see Canada move to the objective the government has set of being fifth in the world, one of the most innovative nations.

I'd like to say an extra word about the role of government, because I think this is important. Government can either choke off innovation by having the wrong regulations, no incentives, etc. or encourage it. I firmly believe our government has made a number of steps in the right direction. You've mentioned particularly the SR and ED tax credits as being some of the most generous in the world. Very recently, in the innovation white paper, the government has committed itself to increasing the amount of venture capital. I think that's also an excellent point.

As I said before, we need to encourage the small companies, we need to support them, we need to help the medium-sized companies grow, but we also need to have an investment climate here that is the best in the world, so that we actually attract inward investment, the large companies. It's a complex equation that requires the growth of small enterprises, the attraction of large ones, and a gradual move to what I would call this very intensive, knowledge-based economy.

The Chair: Mr. Pillitteri, are you going the full ten minutes or are you going to split your time with Mr. Murphy?

Mr. Gary Pillitteri (Niagara Falls, Lib.): I'll split my time with Mr. Murphy.

Á (1145)

The Chair: Okay, that's fine.

Mr. Gary Pillitteri: Thank you, Madam Chair.

I have two questions. One I want to ask is about research and development. We had years ago what you called more of a branch economy, where very little research was done. There came a time, at the end of the year almost, of taking profits outside Canada without doing that much research and development. Is it also a mindset within Canadian companies starting up to go for the fast returns, not really wanting to plan long-term in research and development? Since we've been into more investment in Canadian companies in the last few years, is there any evidence that money put in is benefiting research and development? How long will it be before we see any results with those investments? That's question one.

The other question is to Dr. Carty. The thing I get asked about all the time, as a small businessman in the Niagara Peninsula, is IRAP. Of course, in the last few years we've had a lot of business start-ups. On the one hand, we say we have money for IRAP, on the other hand, by the time some of these companies apply, there's really no money left there. How much more would really be needed for this program in order to make it continuous, from year to year, without the stalling--there's no more money left, and some companies are out of luck?

The Chair: The last question first, Dr. Carty, if you want to answer it. Then we'll go to Dr. Brzustowski to answer the first question.

Dr. Arthur J. Carty: As you've just mentioned, it is true that IRAP's funding is lasting for a shorter and shorter period before it runs out. We're proposing a doubling of IRAP's budget over five years, but in order to really reach the potential of the program, we think it will have to increase again in the period from 2005-2006 to 2010. In other words, we believe there is a significant receptor capacity in existing SMEs that is not being realized because we simply don't have the money to provide them with matching R and D funds. It is also true--and I think the committee should know--that over the years the value of the IRAP contribution has dropped. It used to be, on average, 50% to 60%, it's now down to 33%. So again you have an impact on the ability of SMEs to carry out R and D, and thus to innovate. There is a very significant growth potential there, which, with the present budget, we just can't handle.

The Chair: Dr. Brzustowski.

Dr. Thomas Brzustowski: I would say in answer to Mr. Pillitteri's question that there's evidence of R and D producing economic benefits all around us. We've heard about small companies. There are also large companies benefiting from it. I think the national problem is that while we've developed the competence, we're doing these things on too small a scale still.

I would say first and foremost that there's probably a lack of understanding by the public of the importance of innovation. It is important for us to put really attractive Canadian goods and services into world markets. You can't have innovations without R and D, in the design industry, the furniture industry, the clothing industry, entertainment products, and so on. In the modern knowledge economy more and more of the important products are based on research. I don't think the public really appreciates yet that research connects to their daily lives and the country's prosperity as it does. It's not something done by people in white coats who are from a different planet. This will take time, but the examples are all around us.

The Chair: Dr. Bernstein.

Dr. Alan Bernstein: I have a couple of points. One is on the growth in the biotechnology sector. The venture capital flowing into it has been growing by about 20% to 25% a year for the last seven years, and that money has been going into investments, largely into new spinoff companies. I don't have the number in my head, but the rate of formation of new spin-off companies in the biotech sector is one of the largest in this country in any industry. It's a small industry, but it's growing at a very high percentage rate.

Second, if you look at it in a qualitative sense, the Canadian edition of Time had a feature two weeks ago on the biotechnology sector in Canada. It really stressed how buoyant and vibrant that sector is. It ended with a quote from a Wall Street analyst, who talked about the strength of the biotechnology sector in this country and how fast it's growing relative to the rest of the world. Undoubtedly, one can trace this back to, among other things, the federal government's increased investments in R and D.

The Chair: Mr. Murphy.

Mr. Shawn Murphy (Hillsborough, Lib.): Thank you very much, Madam Chair.

I have a question of Dr. Strangway, and some of the other granting councils may want to jump in. It involves the area of regional economic development and our smaller universities. I'm sure you've had this discussion before on many occasions. For the regions to prosper economically, they have to rely on the knowledge and innovation sector. Of course, the leaders in the future will be our smaller universities. The argument is made of a systemic bias towards the larger institutions in Canada through CFI, and I want your comment. To give you an example--you've heard it all before--the smaller universities, although they're interested in research, don't have the capacity or, in many instances, the matching funding for that. They don't have the ability for the indirect costs, although the $200 million was very much appreciated and was of tremendous benefit right across Canada. Perhaps most importantly, because of the shortage that's been identified by Professor Lacroix, they don't have the ability to keep their people. Once a person gets a bit of background under him or her, they get recruited by the bigger universities, U of T, McGill, and places like that.

I've identified the problem, sir, and I invite your comments, but I don't have the solution. It would be difficult, as a politician, to support a regional emphasis, because there has to be peer review, there has to be integrity and accountability in the system. I'd never support a principle of politics and grants; that would be a very unholy marriage to go forward with. I invite your comments.

I'll just put the second issue on the table too. I also sit on the Standing Committee on Public Accounts, and we have a lot of complaints about how these funding councils, including your own, are funded. Madam Fraser has indicated on many occasions that the mechanism that's been adopted by finance minister Martin is outside the parliamentary oversight; once it's gone to you in your group, parliamentarians have no more oversight as to how it's spent. The accountability is out the door, according to her. I don't necessarily agree with her, but I invite your comments on that also.

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The Chair: Dr. Strangway, we'll start with you on this one.

I want to finish at noon, and I'm going to allow Mr. Cullen one question, so please keep your comments in accordance.

Dr. David W. Strangway: Let me first address the questions you raised about regional or small universities, which are not exactly the same question, but they're similar. One of the things that's interesting to us is that the applications and the success rates for the small universities are exactly the same as the success rates for the large universities. So we don't see the kind of bias you're talking about. Obviously, the large universities put more proposals in, put larger proposals in, but they have about a 50% success rate. Small universities this time had a separate panel, and that panel independently came up with exactly a 50% success rate. So the success rate for the small universities is basically the same as for the large universities.

The second point you raised was with respect to the ability to raise matching funds. There has been no indication whatsoever that any project CFI approved has had to be turned down because they could not find the matching funds. In some cases it's taken time, in some cases it's taken longer.

I think you're aware that this government created the Atlantic innovation fund. That is a $300 million fund, and it was created explicitly and primarily for the purpose of allowing those institutions of the Atlantic region to be on a fully competitive playing field and for the purpose of matching CFI. It's not even coincidental, if you look at the amount of funding CFI has, that the $300 million is, in fact, about the right share. We have not seen evidence that there is an inability to find matching funds. There are a lot of private sector contributions to the matching funds: 40% from us, 40% from the provincial governments, or in the case of the Atlantic, from the ACOA agencies, and 20% from voluntary sectors or the private sector. Much of the private sector contribution is, in fact, gifts of equipment or deep discounts on equipment, and that has no regional dimension to it whatsoever. So we have not seen evidence, from our information, that there are those kinds of biases. Time will tell, but I think the $300-million fund has gone a long way to assisting that.

The second question had to do with the Auditor General, and as you know, the Auditor General has made many comments about the creation of these foundations and the fact that the funding is provided to us. That is a decision that was made by the federal government. It was decided to put us on an arm's-length basis, and all I can tell you is that from the point of view of the Canada Foundation for Innovation, we take transparency and accountability extremely seriously. We have independent auditors, we have independent review mechanisms, we use the Royal Society to review our programs, we bring in consultants to review, we have auditing processes that go on at the institutions. So we don't think there are any issues in which we are not documenting and demonstrating value for money. All that information, in turn, by our funding agreement, is provided to the Minister of Industry, who provides that information to Parliament. There is a trail of transparency, information, and accountability, so we don't think it's nearly as serious as she represents it to be. But in any event, we as an agency take it extremely seriously. We believe accountability is what we're all about.

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The Chair: Mr. Giroux, Ms. Halliwell, Dr. Brzustowski, and then that's it for that one, and I will give one very short question to Mr. Cullen.

Mr. Robert J. Giroux: You will recall that in my presentation I indicated that it was important to develop a program to increase the research capacity of the smaller institutions. We also have suggested very strongly that since a lot of the smaller institutions are really very focused on the SSHRCC programs, increasing the budget of SSHRCC will also be very helpful. We think that will help a lot in positioning the smaller institutions to do better in granting council funding, but at the same time, to establish themselves as a stronger group.

We talked about undergraduates being exposed to the research function. It would help a lot in these smaller institutions. While many of them are really more focused on undergraduates, they are a source of the graduate students who will go to the larger institutions. So we have recommended that such a program take place, and these smaller institutions need help in a number of areas. It could be their research offices, technology transfer, equipment, laboratories, and these kinds of things. We think that will go a long way.

The Chair: Ms. Halliwell.

Ms. Janet Halliwell: In our experience, the capacity of small institutions and those from regions to compete effectively is predicated on three things. The first is the presence of provincial support programs, and I'd have to compliment Quebec as having a visionary support system across all areas. That has allowed their researchers to be immensely more competitive at the federal level. The second is institutional support, the existence of a strong commitment to research within the institution. We've seen one institution in the Atlantic region, for example, double its success rate as the result of the insertion of a position this year. The third issue, to pick up from what Robert has said, is that the threshold of quality cutoff right now is disadvantaging new scholars and researchers from small universities. The quality threshold is so high that those in the winner's circle are only those who've had the Olympic money put behind them, and that is not healthy for this country.

The Chair: Thank you.

Dr. Brzustowski.

Dr. Thomas Brzustowski: As a quick point, NSERC visited a total of 16 universities,11 in Atlantic Canada and 5 in the prairies, in the year 2000 to deal with these issues. In fact, we were in Atlantic Canada on the day the Prime Minister announced the innovation fund. Our conclusion is that in our part of the research areas, the issue in the smaller universities and in some of the older universities is not one of intellectual capacity of the faculty or the students. As far we're concerned, they're on the same level as anywhere else in the country, but they face, in some of these institutions, barriers to productivity. For example, an institution that has never seriously considered having a research mandate will simply not have the lab buildings or anything else. So very much along the lines of the comments Bob Giroux made, what I think is needed is a short, intense investment program aimed particularly at the universities in which existing barriers to productivity need to be removed. The problem is not with the people they're hiring.

The Chair: Mr. Cullen.

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

My apologies for not being here for all your presentations. I was in the House debating Canada-U.S.A. trade problems. That's why I was interested in Dr. Brzustowski's comments on the value-added products in the forest sector and R and D in the natural resource economy, but we'll have to save that for another day.

My question is going to be short, but I'm not sure it's going to lend itself to short answers. What is the state of play in Canada with respect to technology transfer and diffusion? As you know, you can have the greatest research in the world, but if it's not getting out there.... Some of it, of course, is basic science, and some of it is for various social policy objectives, but we need to have a good system of technology transfer and diffusion. I'm not sure we've been great at it in the past. Are we getting better? If we are, how do we measure that? What are your institutions and organizations doing to make sure technology gets out there into play in the commercial sector in Canada, where that's appropriate?

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The Chair: Dr. Carty, Mr. Giroux, and Dr. Bernstein.

Dr. Arthur J. Carty: Let me give a general comment and perhaps say something about NRC. It's my perception that over the last few years interest in the commercialization of the results of publicly funded research has increased dramatically. The interest in spinoffs has increased. Licence revenues are increasing from the universities, for example, and from the National Research Council. If you go to conferences these days--and there are many of them--this is a hot topic, it's on everybody's mind. I think there is a really excellent environment developing for technology transfer and commercialization across our public institutions.

As far as NRC is concerned, we committed ourselves five years ago to being much more aggressive and entrepreneurial in transferring our technology and our people to benefit society. We've spun off more than 50 companies in the last five years. Our licence revenues are above $5 million a year. This is a positive effect of the encouragement, the culture change, and the entrepreneurship we've managed to instill in the National Research Council. I hope some of those things will spin off to other government laboratories, so we have a much more effective system overall in Canada.

The Chair: Mr. Giroux.

Mr. Robert J. Giroux: Madam Chair, thank you.

AUCC has committed itself, as part of the innovation strategy package, to tripling the commercialization results in Canadian universities by 2010. Of course, there's a condition on that. The universities have to be well-resourced. Universities need the indirect cost units, and the granting council budgets must increase. We need to feed the people there. It's in intellectual property revenues, inventions, patent applications, licence awards, spinoff companies--a major trait of what Canada does--research parks, business incubators, you name it. The universities feel very strongly that they can achieve this objective if the proper conditions are in place. As we've discussed this morning, one of them is strong support or strong receptor capacity in the small and medium-sized enterprises.

The Chair: Thank you.

Dr. Bernstein.

Dr. Alan Bernstein: That's an important question. I have a couple of observations. I agree with my colleagues that there's been a huge increase in interest and activity in universities and hospitals across Canada, recognizing the importance of the continuity of the pipeline from discovery to practice. I would say, however, there is still some difference in the quality of the technology transfer between universities and hospitals. This is based on analysis we have done in the biology and life sciences area. So we have put three programs in place to encourage and level the playing field. One is in partnership with NSERC and SSHRCC, an IP management program to help technology transfer offices in universities across the country.

The second element is a career path. Where are the staff of these offices going to come from? So we've partnered with WestLink in the prairies, at a million dollars, to help encourage young people with science backgrounds pursue careers in technology transfer.

The third aspect is a proof of principle program, which is a pre-IRAP, if you will. We've told the university research community's technology transfer offices we're prepared to fund between $50,000 and $100,000 per project, on a pre-venture capital basis. We will evaluate that program to see how many of those projects we fund eventually become spinoff activities. So be careful what you put forward. We have been inundated with proposals, so we are tripling the size of that program this year from $1 million to $3 million a year.

The Chair: Dr. Brzustowski.

Dr. Thomas Brzustowski: Much of what I wanted to say has been said already, but the fact is that commercialization of new knowledge and new products is the business of industry, and putting research institutions in many different forms of contact, partnership, and relationship with industry does help that. But we do have a limiting condition. We have a sort of bottleneck, and that is a shortage of people, individuals who, on the one hand, know the science, the research, well enough to be able to spot something new, and on the other hand, know a market segment well enough to see the fit and also know the investment community, the legalities of licensing, creating spinoffs, and so on. Some of the initiatives mentioned, in fact, are helping to train more such people. We have few such people. The United States has a great many. We need many more, and we're trying to find ways of educating them now.

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The Chair: Thank you.

It remains for me, as chair, on behalf of all my colleagues who have joined us today, to thank you for your input today. I think it certainly added to our discussions as we move towards our pre-budget decisions.

We are adjourned. Colleagues, we have a meeting this afternoon on future business and there will be some votes, so please encourage your colleagues to come out.