INST Committee Report

            In 1997, the Government Canada widened its set of policy instruments of support for R&D in Canada beyond the three granting councils with the establishment of the Canada Foundation for Innovation (CFI). The CFI is an independent corporation whose mandate is to strengthen the research infrastructure at Canadian universities, colleges, research hospitals and other not-for-profit institutions to enable them to carry out world-class research and technology development. By investing together with other funding partners from the public, private and voluntary sectors, the CFI helps to ensure that Canadian researchers will have access to state-of-the-art equipment and facilities. The CFI programs are designed to: build Canada’s capacity for innovation; attract and retain highly skilled research personnel in Canada; strengthen research training of young Canadians for the knowledge economy; promote networking, collaboration and multidisciplinary approaches to problem-solving among researchers; and ensure the optimal use of research infrastructure within and among Canadian institutions.⁶

            Together, these policy statements and actions demonstrate the government’s commitment to its innovation agenda and its favouritism towards supporting and facilitating R&D activities of the research community at large. One witness, who is closely engaged in this agenda, reinforced this view:

            Unfortunately, the Committee was unable, in the time available, to assess the performance or effectiveness of these federal agencies in meeting their mandates. Instead, the Committee chose to pursue the breadth of the current mandates of the peer-review councils and the CFI, along with the resources available to attain them, in order to gauge their role within the national innovation system and their potential contributions to a knowledge-based economy.

            When it comes to public goods such as research work, particularly basic research, the private marketplace will undervalue and, therefore, underproduce this socially beneficial work (in an optimizing sense). This can be taken as a given when all the benefits of the research cannot be appropriated by the researcher. However, the opposite side of this coin is that if we leave it strictly to government to underwrite these research projects, the subsidy will attract all researchers, even those with privately rewarding projects needing absolutely no public funding whatsoever, not to mention a litany of researchers with unworthy projects. Without some way of limiting government’s commitment to fund research proposals, we risk overvaluing and, therefore, overproducing research work (again, in an optimizing sense). Obviously, a balance must be struck and some sort of rationing device must be adopted to avoid a situation where demand outstrips supply and we are engaged in research for research sake.

            The rationing device used by all three granting councils and the CFI is the peer-review process. Peer review is the assessment of research proposals or research contributions by impartial experts in a specific field. Applicants typically submit in their grant application: the proposed research; career achievements of the individual or firm; contributions to the training of highly qualified personnel; an itemized budget, etc. Grant selection committees are peer-review committees drawing highly qualified people from Canadian universities, industry, government laboratories and foreign institutions. Each of these peers provides a unique perspective and valuable contributions to the decision process. In the end, the peers decide who may get council funding for his research work and, by implication, who may not get government funding. Appeal mechanisms are usually put in place to assure mistakes or unfair treatment does not occur.

            Besides the benefits of being intimately knowledgeable of the disciplines and the industry for which funding is requested, an advantage of the peer-review process is that the panel of experts can remain flexible in choosing between alternative strategies such as opting in favour of providing relatively large grants to a small and very selective group of researchers requesting funds or providing relatively smaller grants to a large number or broad range of researchers. Only experts in the field can know what works best in each discipline and what is more likely to produce innovation and advance knowledge. Moreover, often there is some trade-off between "excellence" and "innovation" in funding research projects and only a panel of experts could plausibly manage such a tradeoff in an efficient manner. Consider one such decision made by NSERC. As with all three granting councils, the demand for NSERC funds far exceeds supply. NSERC responded this year in the following way:

            Similar types of tradeoffs were made by SSHRC and CIHR, though the size and percentage of applicants differs substantially.

            In the upcoming years, it is well known that there is going to be considerable turnover of professors at Canadian universities. Many will retire and they will have to be replaced. The consequent loss in expertise and research experience will be tremendous, but their younger replacements will be of a different genre, with far greater appetites for research. The change in composition of the professorship at Canadian universities suggests that demand for research funds at all three granting councils will skyrocket.

            If Canada is not to lose its best and brightest, it cannot afford to hold the line on research funding knowing full well that demand will grow at unprecedented rates. With diminishing prospects for research funding and building a good team, while being forced to endure working with aging equipment, researchers will turn off and move elsewhere.

            Clearly, if the government is to deliver on its agenda to double the amount of research in Canada, it will have to rely increasingly on university researchers and, by implication, the three granting councils as the funding vehicle of choice. The Committee also strongly supports the government’s strategy of directly funding private researchers and their collaborative teams. However, the Committee has great concerns on how the granting councils carry out their mandates and on the selection criteria they use for funding projects.

            Another pressing issue the Committee found troubling was the relatively weak research capacity of small universities, particularly those in Atlantic and Western Canada. This weakness or disparity in regional research capacity shows up in the success rates of applicants to the granting councils. The Committee understands that it is not because their faculties do not have the potential to achieve research excellence, but because of a number of barriers such as: heavy teaching workloads; inadequate laboratory space, workshops, technicians and basic equipment; and, probably most importantly, low levels of value-added industrial activity. Clearly, this structural difference in regional economies and provincial funding of universities cannot be fixed overnight.

            Together, these concerns warrant further investigation by the Committee. Indeed, the federal government’s commitment to double Canada’s R&D expenditures by 2010 is opportune in that before such funding increases are delivered by the government, the Committee’s review of the mandates, processes and decision-making criteria of the granting councils (scheduled for this fall) is essential to ensure good management of these scarce resources.

            NSERC supports research in universities and colleges, research training of scientists and engineers, and research-based innovation. The Council promotes excellence in intellectual creativity in both the generation and use of new knowledge, and it works to provide the largest possible number of Canadians with leading-edge knowledge and skills. NSERC fulfils this mission by awarding scholarships and research grants through peer-reviewed competition and by building partnerships among universities, colleges, governments and the private sector. NSERC goes about this funding in the following way:

            As with all three granting councils, the demand for NSERC funds far exceeds supply. In fact, NSERC reports that on the industrial side of its mandate, it has had to suspend some competitions:

            Looking at some of NSERC’s most recent accomplishments, the Committee notes that, in 1999-2000, NSERC supported over 8,700 university professors, 15,000 university students and post-doctoral fellows, and another 3,100 university technicians. This bodes well for both scientific discoveries and building industry’s so-called "receptor capacity." Furthermore, the number of firms that have participated with NSERC programs rose from 50 in 1983 to about 500 in 1999. Today, for every dollar NSERC invests in a project, an additional dollar and seventy cents is contributed by industry and others. The Committee is impressed with these results and believes that NSERC programs, which cost taxpayers just short of $600 million in 2000-2001, represent money well spent.

            Over the next several years, the federal investment of $1.9 billion for the Canada Foundation for Innovation (CFI) will translate into over $5.5 billion in investment in much-needed infrastructure. However, while the CFI will strengthen the capacity of Canada’s universities to conduct research, it will also create challenges for all sectors. NSERC, which funds the direct costs of research, anticipates a large increase in the demand for funding to operate the new facilities and laboratories. NSERC estimates an increase in demand for funding by at least $135 million per year. Moreover, the cost of performing leading-edge, world-class research is rising — due to a weak Canadian dollar relative to the U.S. dollar, the source country of most scientific equipment imports, and to new and more expensive research methods — which will cause greater dependence on NSERC funding.

            SSHRC is the national agency responsible for supporting university-based research in the social sciences and humanities. SSHRC funds basic research — that is, targeted research on issues of national importance — the training of highly qualified personnel and the broad dissemination of knowledge for the benefit of Canadians. Its programs and strategies promote research excellence, innovation, productivity and partnerships with users of research in public, private and community sectors.

            The demand for SSHRC funding also significantly outstrips its ability to supply, probably more so than the other granting councils. SSHRC reports its most innovative programs can only fund between 10% and 20% of meritorious proposals. For example, the Community University Research Alliances program — which supports the creation of dynamic research partnerships between universities and their local communities — was able to support only 37 projects from among 298 submissions.

            The president of SSHRC felt there was an inequity between his granting council and the other two councils. He mentioned that students and faculties in the social sciences and humanities constitute the major portion of the so-called "human capital" at Canadian universities, yet receive a significantly lower share of the federal S&T funding budget. This inequity is even more skewed when one factors in the fact that SSHRC allocates proportionately more funds to small and medium-sized businesses in Canada, where the "innovation gap" is said to exist. Relatively less funding has forced the Council to provide very small grants.

            The Committee is satisfied that the recent commitment by the government to double SSHRC’s appropriations to $400 million provides a good start at redressing the apparent inequity among the granting councils.

            The CIHR is the federal agency with primary responsibility for funding, promoting and sustaining basic, applied and clinical research in the health sector. Its mandate is much broader than its forerunner organization, the Medical Research Council of Canada (MRC), which now spans everything from basic or fundamental laboratory research right up to social sciences as it pertains to health, health services and research. More specifically, its objective is to "excel, according to internationally accepted standards of scientific excellence, in the creation of new knowledge and its translation into improved health for Canadians, more effective health services and products and a strengthened Canadian health care system."

            Over the past few years, the former MRC and a broad range of partners and stakeholders in health research came together to promote a common cause: a new vision for health research in Canada. This vision is predicated on the belief that an increased investment in extramural health research is an indispensable step in improving the health of Canadians and on recent and forthcoming new advances:

            A new operational framework that provides the instruments for the CIHR to achieve its objective and move beyond the organizational limits of a traditional granting council has been adopted. Some of the elements of this framework are stated in the Canadian Institute for Health Research Act. The CIHR will have a president and governing council that will exercise overall governance for CIHR, which includes 13 institutes. A scientific director and an advisory board will lead each Institute. The CIHR projects that it is reasonable to expect that each institute it funds, when fully developed, will support a research program in the order of $20 million to $80 million per year, and will fund between 200 and 500 researchers. In forming these institutes or partnerships, the CIHR is attempting to strategically increase research in the health field. For example, in terms of partners such as the pharmaceutical companies:

            When it was first established in 1997, the CFI received an allocation of $800 million from the federal government. Since that time, there have been a number of significant additions to the funding for the CFI that brings total government appropriations to $3.15 billion. Furthermore, beginning in 2001, CFI funding was expanded to cover two new areas of endeavour. The first covers the funding of international infrastructure joint ventures that would provide Canadian researchers the opportunity to collaborate with the best in the world by helping them build and access facilities in Canada and abroad. The second covers the follow-on operating costs of new CFI-funded research installations and equipment. The president of the CFI explained the Foundation’s investment intentions as follows:

            On average, the CFI contributes 40% of total eligible project costs with the institutions; their other partners contribute the rest. Using this formula, total capital investment under this initiative will exceed $7 billion by 2010.

            Some commentators have suggested that there may be some overlap or duplication between the mandates and investments of the CFI and the granting councils, but the Committee was told:

            Given that the demand for CFI funds outstrips supply by a considerable margin — the Committee was told by a factor of three-to-one — rationing is required and funding decisions become critical. The Committee was told that this funding has and will be based on:

            This special governance model, however, is not without criticism. The Auditor General of Canada, for example, noted in his 2001 report that where the federal government had delegated decision making to a partner, such as the CFI, little reporting to Parliament on performance was done and, in other cases, there was a lack of "adequate measures to protect the public interest, such as complaint and redress mechanisms and rules on conflict of interest."⁷ The Committee followed up on this criticism and drew the following responses:

            The Committee, however, is not satisfied with these responses. In the Committee’s view, the problem runs deeper and may be directly related to the special arm’s length relationship with government. The Committee has been able to identify three areas of concern that need to be seriously addressed: (1) the evolving and expanding mandate of the CFI; (2) inadequate industry involvement in the research projects funded to date by the CFI; and (3) the accountability, transparency and Parliamentary oversight afforded this R&D funding vehicle.

            Furthermore, the committee remains troubled that the Auditor General’s second criticism — that of a lack of conflict-of-interest rules and mechanisms regar5ding complaints and redress when there are such significant taxpayer dollars at stake — is not being addressed. The Committee holds great sway with the peer-review process as a mechanism for ensuring "excellence" in research, but would also caution the S&T community at large that peer-review decisions on merit and excellence are not always purely objective; they represent the collective values of the people who are making the decisions. As a result, the Committee finds it disturbing that one of Canada’s largest universities has received more CFI funding than the combined funding granted to the universities of Atlantic Canada, Saskatchewan and Manitoba. This inequity, the Committee believes, is symptomatic of the arm’s length structure of the CFI from government. For these reasons, the Committee intends to review how the CFI’s legislation is being carried out, including the current arm’s length arrangement between the CFI and government, and the processes and criteria used in the funding decision making of the CFI in the fall.

            Furthermore, the Committee remains troubled by the Auditor General’s second criticism — that of a lack of conflict-of-interest rules and mechanisms regarding complaints and redress when there are such significant taxpayer dollars at stake is not being addressed. The Committee believes that the public interest needs further safeguarding when spending power has been delegated from government to private, arm’s-length organizations and, therefore, recommends: