INST Committee Report

            The Committee intends to address the second of these three roles — basic and applied R&D — and will suggest ways of improving this contribution by colleges and universities without compromising the others. Indeed, because research and educating functions are highly complementary, as scholars who build on our stock of knowledge are better able to teach their students and students gain valuable experience when working with faculty on research projects, the Committee is convinced that its proposed commercialization agenda will financially assist colleges and universities at being better in all three functions.

            Relatively speaking, Canadian universities perform more R&D as a percentage of total R&D undertaken in the country than do their counterparts elsewhere in G-7 countries, except Italy. In fact, Canadian universities accounted for 23.6% of all R&D activity across the country in 1998 (see Figure 10.1). Moreover, while outsourcing 5% of their total R&D to universities (see Figure 10.2) and financing 12% of university R&D (see Figure 10.3), Canadian firms rely more on the university as a source of innovation than do those of any other G-7 country. The university sector also co-authors an impressive number of research publications in collaboration with industry.⁸ The quality of academic research and its efficient transfer to industry are, therefore, especially important in Canada.

            At first glance, the impressive relative R&D performance of Canadian universities is particularly surprising given that the Canadian government’s funding does not cover the indirect costs of the activity, whereas virtually every other major competitor country of Canada’s does. However, on second thought, the relatively low GERD-to-GDP ratio, the smaller defence budget, and the lack of government funding of indirect costs of research oblige Canadian universities to seek and rely more extensively on the private sector for funding of its R&D activity. Paradoxically, then, this unusually great performance of Canadian universities in R&D is actually a cause for concern.

            Indeed, the Committee has discovered that the federal government’s reluctance to cover the indirect costs of R&D when funding the activity has a couple very serious implications for universities. In the first case, the lack of coverage of the indirect costs of R&D means that a portion of the university budget that would have otherwise been allocated to students or capital requirements may have been diverted to R&D activities. Insufficient federal funding of R&D thus means that students and the community in which the university serves may suffer.

Secondly, there are implications for research capacity in Canada, particularly among Canada’s small universities:

            Where the Committee departs from this view is that we posit a reason why small universities do not have "the facilities and the capacity to provide these services." We believe there is a causal connection between the lack of federal funding of the indirect costs of R&D and capacity to undertake R&D, particularly at the smaller universities across the country. This is not the only reason for insufficient research capacity — for example, the lack of a well-established graduate program at some small universities would be an issue — but it likely is a significant contributing factor.

            Among the experts appearing before the Committee, it was unanimous that before universities could contribute further to the federal government’s innovation agenda that would double the amount of research done in Canada, we must first address the shortfall in funding of the indirect costs of R&D.

            In fact, all higher education stakeholders appearing before the Committee said that they welcomed the new programs for support of research such as the CFI, Canada Research Chairs Program, Genome Canada, and the Canadian Foundation for Climate and Atmospheric Studies, but that this funding brings both new work and a new administrative burden that costs them real dollars, in some cases dollars they do not have.

These costs are also more constraining at the smaller universities:

            The Committee agrees with these university research stakeholders that this historic oversight in the funding of university research must be redressed. The Association of Universities and Colleges of Canada (AUCC) contends that the federal government should reimburse universities for their indirect cost of research at a nominal rate of 40% over and above the direct costs, and would have this rate adjusted upwards for smaller universities to reflect their higher cost structure. The Committee, however, will not put an exact figure on such a proposal, but will instead provide a general economic formula for covering all the costs of university research. The Committee recommends:

16. That the Government of Canada analyze the direct and indirect research costs at Canadian universities and colleges. Based on this information, the Government of Canada and provinces negotiate a new funding agreement that would take into account direct and indirect research costs and also the differential between large and small universities and colleges.

            Research grants on this basis should allow the principal investigator to negotiate a reduction in his teaching load to pursue his research interest without imposing an undue burden on the remaining teaching resources.

            The Committee also has other, more general, concerns with the current levels of funding afforded post-secondary education. The present Canada Health and Social Transfer (CHST) may not lend itself to the kind of targeted transfer needed to increase the capacity, and improve the infrastructure, of our universities and colleges. The Committee will, therefore, examine this aspect of post-secondary education and research in the fall.

            The Government of Canada, in its budget for year 2000, provided $900 million to establish and sustain 2,000 Canada research chairs that would be administered by the three granting councils. Under the Canada Research Chairs program, these new research positions were created to strengthen degree-granting institutions across Canada — from large universities with research strengths across a variety of disciplines to smaller institutions with more focused research capabilities. About half of these positions would seek to attract established world-class researchers and the other half would seek to support those institutions that have demonstrated the potential to achieve world-class standing in their area of research.

            The program’s key objective is to encourage the building of a critical mass of world-class researchers in order to help Canadian universities achieve research excellence. Universities were to develop comprehensive plans describing their research priorities and strategies. Applications from universities for individual positions would be evaluated against these strategic plans by review panels established by the granting councils.

            Events following the announcement of the Canada Research Chairs program have been troubling to the Committee. The preponderance of research positions was allocated to the largest of universities, with 6% going to smaller universities. While the exact allocation process was not explained to the Committee in detail, we were told that it was largely based on past performance or past competitions for research grants:

            Apparently, the government perceived the research capabilities of smaller universities as deficient in some way. When it was realized that this was unacceptable, a quota was established:

This decision was then described as a great accomplishment:

            The Committee is unable at this time to determine if the allocation of the 2,000 Canada research chairs was handled in an equitable manner, but it does believe that the apparent method chosen raises serious concerns on grounds of efficiency — that is, on whether the best or least-cost way of expanding capacity is being taken. Because the research chairs were created as one component of an innovation agenda — an agenda focused on the future — it seems rather contradictory to allocate these positions based on historical performance. Using past performance as a decision criterion means the future is condemned to reflect the past, which we know in advance favours large universities with strong research capacity over small universities with poor capacity. It is not surprising, then, that these Canada research chairs, which were touted as a way to build new research capacity at Canadian universities, ended up mostly in the hands of large universities, thereby simply reinforcing, if not augmenting, the existing disparity in research capacity across the country. This disparity may further be compounded by the larger universities raiding the smaller universities for their best and brightest faculty members. Knowingly tilting an already "unlevel playing field" further towards large and against small universities clearly calls into question the "set of values" held by these decision-makers.

            The Committee would have preferred to see these positions offered up in an open competition to the best bids based on transparent and legitimate research plans and capability criteria. If it were thought that this method would still be biased towards the larger universities, then the 6% quota for smaller universities would have remedied the inequity consideration. In this way, the 94% of research chairs won in the open competition, whether won by large or small universities, could not be subject to criticism on efficiency grounds without calling into question the criteria (something that could have been handled by a request for comment from the stakeholders at the outset). The primary difference between what the Committee proposes and what appears to have happened is the orientation of the decision: ours focuses on the future, which is the direction to which our policy compass should be pointed.

            The Committee could not, because of time constraints, pursue these concerns at the present time. When it examines the granting councils in greater detail this fall, the Committee also intends to pursue the distribution of the Canada research chairs.

            For many higher education stakeholders, the commercialization of university research is an area of concern; it preoccupies the Committee as well. At the outset, and as was stated above, the Committee believes that universities and colleges have three roles to fulfil and we do not want to see one being compromised for the other. At the same time, and as the Committee recommended in its earlier report entitled Research Funding: Strengthening the Sources of Innovation, Canadian universities and colleges need to strike a proper balance between the amount of basic and applied research they do.

            The favourable U.S. position relative to Canada shows up in the return on investment data as depicted in Figure 10.4. Colleges and universities in the U.S. have a return on investment approximately three times greater than that of Canadian universities. In looking to the United States as an example, it was suggested that:

On this point, the Committee was told:

It was further suggested something similar should be adopted in Canada:

Many universities in Canada, however, are not prepared in terms of commercializing their research results:

            For this reason, most witnesses appearing before the Committee recognized the need for, and supported the development of, a commercialization policy in Canada:

            However, within the teaching community there is a spectrum of views beginning with those who believe that teachers and universities should have nothing to do with the IP business to those who will "fight tooth and nail" to preserve their right to create and protect their IP. The first camp holds that:

The second camp holds that:

            The Committee recognizes that there is no unanimity on the question of whether to commercialize or not. However, the Committee is fully aware that the framing question is not whether university and/or professors should commercialize or not — because they can commercialize, and indeed have done so already, without the federal government’s say — but whether there should be laissez-faire or rules and/or guidelines governing commercialization efforts of universities and scholarly professors. There are merits on both sides of this question; however, the Committee sides with the need to develop a commercialization policy of university research in the hope of improving Canada’s record at turning good ideas into products and services, as well as ensuring commercialization efforts do not overtake public interest concerns on producing the knowledge workers of tomorrow. Although the Committee is not at this time in a position to suggest the specific components of such policy, we recommend: