EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, November 7, 1996

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[English]

The Chairman: Pursuant to Standing Order 108(2), the committee will resume its review of science and technology and the innovation gap in Canada.

I would like to welcome the witnesses here. This is one of a series of round tables we're having on science and technology policy in Canada. We have a very busy schedule because we're working on a round table format and not in a linear fashion with the witnesses, so we try to start on time and give everybody a chance to have their say.

I encourage you to get to the point at first and then elaborate on questions. We have found that the committee members, opposition members and government members have been very interested in the testimony in previous sessions and that the time we have together goes by very fast.

I appreciate you're all very expert in your area and have very busy schedules, and the fact that you're giving us a morning of your time is greatly appreciated by every member of the committee. We're going through a learning curve, and it's not the first time the industry committee has dealt with this issue, but it's a first time recently. I think we're all trying to get our minds around to what we should be doing on science and technology.

There are some common themes on why you're all here today, and I'm sure we'll find them out before the morning is over. I usually start with witnesses who are not from the main departments and then end up with the main departments. If any of the parties have more than one person at the table, I would appreciate just one person speaking in the opening round.

I would ask Gerry Turcotte from the Communications Research Centre to start the morning session.

Mr. Gerry Turcotte (President, Communications Research Centre, Department of Industry): You told me I was going to end it.

The Chairman: I like to start with people, as I said, from outside the main departments and then give them a chance - -

Mr. Turcotte: I'm from Industry Canada; it's the Communications Research Centre of Industry Canada.

The Chairman: You're from Industry Canada; oh, it's not clear from this. We have the Department of Industry here, too.

Well, then, Dr. Carty, I ask you to start. Do you mind?

Dr. Arthur Carty (President, National Research Council Canada): No, I don't.

Mr. Chairman, hon. members, I'd like to thank you first of all for the opportunity to speak to you today on the federal science and technology strategy. I was very happy that the committee took the opportunity to visit NRC last week. Or was it the week before? I have lost track of time.

I was glad to see what I would describe as some federal science and technology in action. At that time I had an opportunity to address the group about NRC's current programs and directions and to provide you with our perspective on some of the issues you're addressing in your terms of reference. These include choosing and promoting the critical technologies for the next century, training highly skilled personnel required in the knowledge-based economy, and the steps we have taken to encourage entrepreneurship at the National Research Council.

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Jacques Lyrette, our vice-president of technology and industry support, also had an opportunity earlier this week to outline two of our important programs: the Industrial Research Assistance Program and, related to that, the Canadian Technology Network. He has, I think, tried to put those in the context of a Canadian system of innovation.

As a result I think you have been exposed already to a number of aspects of NRC that relate to the mandate of the S and T review, which the committee has undertaken. So I'm going to restrict my remarks to issues relating to the federal S and T strategy and its implementation.

The document Science and Technology for the New Century, which resulted from the S and T review, underscores the critical role of science and technology in a knowledge-based economy, and that's front and centre of the document. I'd just reiterate that this is a theme that resonates very strongly within NRC and is reflected in our vision to 2001.

At the risk of being redundant, I will quote our vision:

As Canada's foremost R&D agency, the NRC will be a leader in the development of an innovative, knowledge-based economy for Canada through science and technology.

As you probably are aware, NRC was quite heavily involved in the development of the federal strategy leading, for example, to the preparation of the report of the task force on sustainable wealth and job creation. We participated also in the other task forces.

We're very supportive of the seven principles espoused in the strategy. They are consistent with the directions we've been following for some time now, and they do reflect the role that science and technology can play as a driver of economic growth.

I don't want to waste any time going over the seven principles, but I would like specifically to comment on the two that I think are particularly applicable to NRC. These are increasing the effectiveness of federally supported research and capturing the benefits of partnership. I think these are two crucial elements of the seven principles.

Most of the strategies we've devised to realize NRC's new vision reflect our desire to increase the effectiveness as well as the commercial and industrial impact of the research we carry out. This ranges not just from the choice of strategic research program areas but also reflects on the strong client focus of our activities and on maximizing the transfer and commercialization of our technologies. It also speaks to becoming more entrepreneurial, which is a part of our vision, increasing access to our facilities and programs, and becoming more results oriented in measuring our performance. I think those also are in your terms of reference.

As far as partnership is concerned, NRC works in partnership in most facets of our operation these days. I think it's also perhaps a truism to say that in today's world, few organizations have the resources, the expertise, the facilities or the time to do all of it themselves.

We've found that collaborative research with the private sector, with the universities, not only brings more human and financial resources to bear on research problems but also develops useful synergies and is often the most effective form of technology transfer. I think it's well recognized these days that the old traditional push-pull mechanism for technology transfer, where, for example, research labs, universities, and government labs try to push out their technology and industry reaches in and tries to pull it out, is not very effective. It's not the most effective mechanism.

Having partners involved in the design and the performance of research from the very early stages, participating directly in it, ensures that the research is relevant and raises the knowledge level and the technical capability of the private sector partners. That frequently results in what I would call ``technology transfer on two feet'', i.e., the transfer of knowledge and know-how via people. That's a very important aspect.

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Working in partnership has become a bit of a cliché perhaps in the scientific community, but I would stress that it is very important and is a critical factor in the development of the system of innovation. I'd argue that in Canada, indeed, with the very peculiar industrial structure we have, it's crucially important in helping ramp up private sector investment in R and D by using partnerships.

These partnerships then do what I would describe as filling the strategic innovation gap, the lack in Canada of many major industrial research and development laboratories that have a focus on medium- to long-term strategic research. We don't have many companies that invest in strategic medium- and long-term research. Industry, government, and university partnerships help to leverage more of this activity and to fill that gap. It's very important, particularly in Canada.

We already have a number of successful partnership programs and networks in Canada, and I would point out that is one of our nation's real strengths. We have, for example, the federal networks and centres of excellence, and the provincial centres of excellence have proved extremely effective. At NRC we have also added new targeted programs, partnership programs, such as the NRC, Natural Sciences and Engineering Research Council of Canada, an industry and university partnership program to enhance what is already a strong focus at NRC on collaborative research.

To illustrate how this works, let me give you an example of how collaborations and partnerships can result in a significant opportunity to create jobs and drive economic growth. This example is a recent example from our research programs in the area of silicon germanium microchip technology. NRC is a world leader in silicon germanium microelectronic devices, and we've developed unique capabilities for producing silicon germanium chips. This technology significantly extends the range of silicon devices and is poised to capture a major market share in radio, satellite, and wireless applications.

The chemical vapour deposition system for silicon germanium that we have at NRC is the only facility of its kind in Canada, and it's the only public sector facility in North America. Those state-of-the-art facilities are, of course, not the kinds that any single firm or university could possibly own or operate. In the case of the NRC facility, it was a partnership that managed to custom make and establish the facility. Their location in a government lab has allowed timely access to researchers from all parts of the science and technology community.

Using those facilities, NRC has carried out successful joint projects with large Canadian companies, large Canadian telecommunications firms. We're also supporting multi-partner projects.

To complete that, under the new NRC-NSERC partnership program, we've embarked on research in this field, involving Gennum, Nortel, Mitel, and Carleton University. Still using those same facilities - these are silicon germanium facilities - this fall NRC spun off a new company called Silicon Germanium Microsystems Inc. That company is being headed by a former NRC employee and has the potential to capture a significant niche market in this area. That's a small to medium-sized enterprise. It currently has five employees, and it's set to grow very rapidly because of the access they have to these unique facilities.

I think you can see that there is real economic potential in that facility, and the underlying research excellence in the area has given Canada a lead in silicon germanium technological development and growth in that area.

Partnerships extend beyond research to other industrial support programs. IRAP, as you know, is delivered in partnership with a network of other organizations, including provincial research organizations, industrial associations and university technology transfer offices.

Networking has allowed IRAP to respond to the needs and diverse requirements of small and medium-sized enterprises very effectively. The IRAP-CTN network, which you heard about, is a relatively small organization. It does respond in a comprehensive and multi-disciplinary manner to the wide diversity of industry's technological needs.

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I mentioned that I strongly believe in the principles listed in the S and T strategy, but we should remember they are just that, principles. More important is how we put those principles to work. Departments, as you know, have responded to the challenge of the S and T review framework through a series of action plans, and we were pleased that Minister Manley asked NRC to spearhead the development of an action plan that fostered cooperation, collaboration, and synergy among the eleven departments and agencies that comprise the industry portfolio.

The industry portfolio represents a $2 billion federal investment, about 37% of federal spending on S and T, and that action plan not only outlines 45 specific collaborative initiatives but also presents a new strategic approach based on the coordination of the distinct capabilities of the portfolio members and, very importantly, on a shared commitment to a common vision within the industry portfolio. We're continuing to play a role in coordinating implementation of that plan and monitoring its progress.

I'd like to give you another concrete example of how, in a sense, we're putting all of this together; that is, joint program delivery within the industry portfolio, working in partnership with universities and industry, making our facilities more accessible, transferring technology more effectively, and making a significant economic impact via S and T.

This example is a recent announcement of a joint NRC-FORD-Q investment to build a new incubator wing onto our successful Biotechnology Research Institute in Montreal. The incubator will also require significant private sector investment from a developer who will build and manage the facility. The Biotechnology Research Institute has already attracted large international firms to co-locate on its property. Indeed, one Dutch company, Bio-intérmediare, has already begun construction, and other firms are expected to follow shortly.

The new incubator will provide laboratories and office space for NRC's partner and client firms. Often these will be small firms that work in close contact with NRC's research teams.

There's evidence these initiatives are helping to build a very healthy bio-pharmaceutical cluster in the Montreal area, drawn in part by the day-to-day interaction with NRC scientists, as well as the access to state-of-the-art facilities. The impact of the initiatives is being felt not only in the individual firms that are improving their market position but also collectively in the local economy.

Now, despite many of the positive characteristics of the current directions in government S and T policy, this committee has identified one key weakness, that of governance. I'd like to comment on this.

Federal S and T activities are scattered across a large number of departments and agencies. Although there is considerable working-level interaction, particularly in complementary research programs, there is relatively little and sometimes no coordination at the decision-making or policy level. One problem in the current government system is this lack of central coordination or oversight of federal S and T activities.

Decisions can be made in isolation and often are, even decisions that can impact significantly and strongly on other departmental operations and the rest of the S and T infrastructure.

I think it's probably reasonable or fair to say that efforts to date that coordinate federal S and T activities have focused on describing and monitoring existing activities. They have not dealt with the true governance issues, which are really strategic.

I'd also like to make a couple of comments in response to the question posed by your committee: what can Parliament do to ensure the government follows a results-oriented S and T strategy, is fully accountable for S and T, and has the right tools to monitor the progress of the S and T strategy?

When I met with you before I described how we're creating at NRC a comprehensive performance framework that will provide qualitative and quantitative measures of performance for everything we do. We're also leading an exercise within the industry portfolio to develop a common performance framework and to promote the best practices in the field. That will also be shared through the Federal Partners in Technology Transfer initiative, which we're coordinating.

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I'll leave the committee with a word of caution. In talking about results, it's very easy to get caught up in short-term outcomes, measuring what we are doing and the tools we use to achieve the goals, not the goals themselves or the impact of the activities. Albert Einstein, if I can get a quote in, had something to say about this. He admonished the world's science community with this note: ``Concern for [humanity]...must always form the chief interest of all technical endeavours...[and we must] never forget this in the midst of our diagrams and equations.''

The country's collective goal - the creation of new jobs, new companies, products, and services that benefit all Canadians and building a stronger, knowledge-based economy for Canada - is the goal we should have in this country. Those are the results we should measure, in other words, and an overzealous emphasis on process and bureaucracy rather than on concrete outputs and impacts will have a negative effect.

I'd like to make a last comment on what I think is the single most important issue facing science and technology in Canada today, and that is the need to reinvest in the S and T infrastructure in this country. Our government has recognized that science and technology is very important as a driving force in economic growth and a key factor in the development of this knowledge-based economy, which we need for the next century.

But we need to put our money where our mouth is. In other words, give science and technology a higher priority. I think everybody recognizes that government funding of S and T has dropped significantly over the last few years, and that has resulted in a serious erosion of the S and T infrastructure.

This is true in universities, where laboratories, facilities, and equipment are increasingly obsolete, rundown, or over-extended. It's also true at NRC, where, for example, in 1998-99, because of the sunsetting of funding, our IRAP program will be severely reduced. Of course, the cuts will have an impact on the vital support we can provide to small and medium-sized enterprises, which are essentially the lifeblood of the economy.

I've already provided the committee with figures that show that Canada lags behind most of its partners in the G-7 in government investment in S and T - that's the handout I gave you last week - and illustrated that the countries with the most rapidly growing economies are those that are making an increasing investment in S and T. Those countries are our real competitors in this global environment.

So an investment in S and T is an investment in the long-term future of this country and its economy, and that is something Canada cannot afford to ignore for very much longer.

Thank you very much. I'm sorry for having gone on so long.

The Chairman: Thank you very much, Dr. Carty. The questions you addressed, particularly the issues of coordination of research in the government and levels of spending, I think are issues the committee members will wish to pursue in the round table and get some more direction on.

For committee members, Dr. Carty presented us with material last week. We'll make sure everybody in the committee has a copy of that as well as the background documents. If we need extra copies, we'll get back to you.

I'd like to turn to Mr. Weisenburger, from the Agricultural Institute of Canada, to make the second presentation.

Sir, welcome. You have a presentation that's in English only. With the permission of the committee, I will circulate it. Thank you.

Mr. Ronald Weisenburger (President, Agricultural Institute of Canada): Mr. Chairman, committee members, ladies and gentlemen, I'd like to thank you for the opportunity for our organization to participate in this review exercise. Primarily on behalf of the ag and food sector, this is the area we work in. One of the things within our ethics is that we try to keep our discussion to the things we know something about. So we'll largely limit them within that area.

I would like to take a few minutes to hit three areas. First, I'd like to address the importance of science and technology to the agriculture and food industry. Second, your research staff had asked us to make a few comments about Agriculture and Agri-Food Canada's plan on science and technology and how it's coming about.

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I originally expected I would be speaking after Dr. Morrissey, but what I say shouldn't, I believe, surprise him terribly.

I would then like to conclude by making a few specific and very brief comments in relation to the six questions you've asked about the terms of reference.

I won't go completely with the text in our briefing notes. I'll highlight some points and make the assumption that everybody can read the rest of it at their leisure.

First of all, recognizing that agriculture and food overall is an important industry in Canada, we get to the point now of saying there are really less than a half a million farmers in the country, so that's a pretty small group of people. But I think we need to recognize that close to two million people in the country are, in one way or another, directly working with the agriculture and food industry, if we take it all the way from the farm gate to the retail shelf.

In terms of sales, we're growing. The notes within the briefing document would say that agriculture and agriculture products are, and are continuing to be, one of the major export commodities and areas within this country - well, it's not just within the country, but moving beyond it as well - and that overall our export performance is moving to the point at which we stand a good chance of meeting the overall federal government goal of $20 billion of food exports by 2000.

I believe we, particularly at the farmer level within this country, have an old impression of what agriculture on the farm is about. We don't really realize just how much, even at the primary agricultural level, technology is used, and its extreme importance to people. A couple of examples come to mind.

One is the use of technologies such as the Internet to gather and seek information. That probably has as high a percentage of use amongst farmers as it does within the general population in the country.

It's not unusual for the people harvesting the crops this fall to be running equipment that costs $500,000. They're sitting in that machine while they're operating it. They have radio technology, cell-phone technology, at hand to keep track of the rest of their business while they go about the business of harvesting the crop. We tend not to think about those.

One of the things within agriculture is that we do a lot of work and need a lot of work generally in adapting technologies for use within agriculture.

I've also made some notes about global-positioning equipment and its use. It was originally developed for the military, but it is finding a new and growing use on the agriculture side of the world to get fertilizers and chemicals to the right spot on the field so that the crop production is optimal while the environmental hazards, because of over-use, are markedly reduced. We're getting the right amount of product to the right place at the right time.

Overall, agriculture, like many of the resource-based industries, has over the past thirty years seen no real increase and has in fact probably seen a decrease in the price per unit of the output products. In order to remain competitive and to stay in business, people have had to use technology wisely to minimize the cost side of the equation. Relatively little has happened on the price side in order to stay in business. When costs are generally increasing, you have to be very competitive and work very hard on the cost side of the operation in order to keep things in business and carry on.

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Part of that has resulted in farm sizes becoming bigger, but more importantly, the ability to use technology to keep costs in line has been very key and will continue to be very key in this industry for some time to come.

I have a few comments regarding Ag and Ag-Food Canada. We've taken a look at the action plan that has been developed by Ag and Ag-Food Canada to tie into the strategy. We would comment roughly as follows.

We realize government budget-cutting is necessary. We believe Ag and Ag-Food Canada in this environment has strived, pretty wisely, to retain as much of its investment in research as it could during that period of time, and we applaud their efforts on that side of things. We believe the plan they've come up with is focused on the right clients and is headed in the right direction. If they stay with it, that will be okay.

A number of other things have happened. The new food inspection agency is coming about. It should provide an opportunity to reduce the amount of duplication on that side of things. It's an aside to this one, but there will be a technology use component in there that should be able to help further reduce the actual costs per unit of inspection, if you prefer to have a go at it that way.

As a cautionary note, we have received, to be frank, some mixed reactions to the Pest Management Regulatory Agency. Despite the pulling together of a number of groups from a number of departments, the whole system does not seem to be working a lot more efficiently - in fact maybe not any more efficiently - than it did in the past. So just because we pull things together doesn't necessarily mean the job is done.

I have some concluding remarks before I make some comments specifically about your terms of reference.

We need to recognize that the resource industries in this country have been our strength for a long time and they'll be a part of our future, even in an increasingly information age. If we develop and apply these new technologies and all new technologies created in a climate of industry and government cooperation and increased public awareness, we can continue to hang in there with the world leaders, at least in our world of ag and food.

I'd like to make a few very brief comments specifically on the terms of reference. I would guess we'll probably get back to some questions on these later.

I have some very quick and brief thoughts on critical industries and technologies to create opportunities. I largely covered this one in saying the resource industry is a chunk of our strength. From the agriculture and food point of view, the two most important components are the application and use of electronic technologies and similarly the application and use of biotechnology. Those are the leading ones.

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As to the role of government in promoting emerging technologies, overall we'd suggest we need to maintain - and I'm talking here from an ag perspective - a balance between basic and adaptive research. Because of the adaptive nature of agriculture, if that doesn't happen, we don't convert basic technologies into the technologies that are truly useful to the industry.

In terms of impediments and so forth, public perceptions and misconceptions about the products resulting from new technologies is an area we truly have to address, not just as governments but as sectors and as industry as a whole.

I think we need to seek ways where we make the government process for industry and for users of the industry effective, but as least burdensome as possible. With things like the food inspection agency coming about, we have the opportunity to be able to do that, to be able to have one window dealing with people.

I think we have some major steps we can make within the whole registration of products side of things in order to make that simpler and more effective. I think the same thing might apply on the patents side of the world. In a lot of cases it takes too long and too much effort to get it done and be effective.

With regard to promoting entrepreneurship, probably the biggest short-term thing is the streamlining of processes where at all possible so that business can get on with doing business.

An area we don't know a lot about is the question of saying from an industry point of view what sort of tax benefits there are for organizations that involve themselves in high-tech research. I put that one forward as a question.

How well are we doing at meeting needs? I think we need to really look ahead on this one, because we're into the stage where within the next seven to ten years people of my vintage are going to be gone - and there are many of us. As a crew and as a country we need to do a job of replacing the bit of expertise, I hope, some of us take with us out of the system.

I think we need to take a look at our educational institutions and our upgrading programs for people who have already been through educational institutions so that we truly are in a solid position, not just within the next few years but for the real challenge, which I believe starts in about 2003-04 and beyond.

As a final comment in terms of what can you do as our political leaders to help us through this process, there are three things we suggest, which are easy to name and difficult to deliver on.

The first is simply spending money in the right places. We believe a priority on science and technology is needed to have us in the right place down the road.

As well, in a few words, there must be today a meaningful dialogue and consultation with stakeholders across the country regardless of the area we're talking about.

In terms of an overall plan, in order to say how things are coming together, a real challenge is to develop effective performance measures on those plans before we go ahead and start collecting data. What do we need to know?

In my regular day-to-day work I spend some time working on developing performance measures. Particularly when you get into intellectual property and the moving around to it, it's darn tough, but we need to at least think about where we want to go before we start measuring everything.

Those are a few thoughts, some fairly random, but I hope we'll get some thought and some discussion going later this morning.

The Chairman: Thank you very much, Mr. Weisenburger. By addressing the questions as directly as you did, which Dr. Carty also did earlier, I think you're giving us a good idea of your approach, which we can come back to. The great benefit of this for everyone is that the quicker we can get the members into a discussion, the more they adhere to the issue, if you will, and get themselves involved. That's why we try to move along as quickly as we can.

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I think I'll turn to Dr. Morrissey. I believe his presentation will follow along the same type of field as Mr. Weisenburger's.

Welcome to the committee. Please go ahead with your presentation.

[Translation]

Mr. J.B. Morrissey (Assistant Deputy Minister, Research Branch, Agriculture and Agri-Food Canada): Thank you, Mr. Chairman.

Mr. Chairman, hon. members, thank you for giving me the opportunity to be with you this morning. I am pleased to be able to share a few ideas with you about the role of government in research and development, and the application of our discoveries.

[English]

Mr. Chairman, as you heard during earlier sessions, innovation creates wealth. The economist Robert Solow, who was recognized with a Nobel Prize for his work on innovation, noted that between 1909 and 1949, the U.S. economy doubled. Only one-eighth of that growth in the U.S. could be attributed to an increase in capital. Innovation, Solow concluded, was behind the other seven-eighths, or approximately 90%, of U.S. growth.

Canada, as you know, Mr. Chairman, has been targeted by the OECD for criticism for a lack of innovation and for relatively low productivity gains in recent years. However, the OECD has painted us with a rather broad brush and I think it's important to recognize the performance of individual sectors within Canada.

In a 1992 study entitled Multi-factor Productivity for Canadian Agriculture, authors Narayanan and Kizita found that in the years 1962 to 1990, primary agriculture and forestry led all Canadian industrial sectors in productivity growth. What Robert Solow tells us is that seven-eighths of this growth came from innovation.

That really isn't very surprising, Mr. Chairman, when you consider that in 1900 about 80% of this country was involved in farming. Today that figure is about 3%.

Dow Elanco's chairman, John Oliver, who appeared before this committee last week, suggested the golden years of Canadian food production may actually lie ahead. He predicted food prices could double early in the next century and the Canadian agri-food sector, with its expertise, especially in biotechnology, is poised to take advantage of a lucrative global market.

Biotechnology is what Ozzie Silverman of Industry Canada had in mind, I believe, when he talked to this committee about the overwhelming impact of enabling technologies on a national economy. These are, in Mr. Silverman's words, ``the technologies that have the potential to transform the basis of competition in whole industries...''.

As you look to identify the critical industries and critical technologies that will create economic opportunities for Canada in the next century, you may wish to consider the agri-food industry as a critical industry and biotech as a critical technology. Food is an area in which we, as a nation, have the natural resources and the R and D skills to innovate and to add value.

I have a few words, Mr. Chairman, on the role of the state in R and D. I'd like to share with the committee a paper on The Role of the State in Relation to R & D in Natural Resources. I've made copies of this paper available to the clerk.

In this paper, there are two key points, I believe, that may be relevant to the work this committee has undertaken. First, what R and D should the state invest in? The paper suggests the role of the state in relation to R and D is to invest in work that is of significant benefit to the nation, but which could not be done at a profit by the private sector alone.

The second question the paper raises is, who should pay? Again, it suggests a response. Work that is unprofitable to the private sector may be made profitable by the state and private sector sharing the costs. This avoids the state paying 100% of the costs unnecessarily.

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Keeping these points in mind, I'd like to suggest an overview of the research branch of Agriculture Canada and look specifically at some ways we're using to bridge the innovation gap. The mission we've set for ourselves is to improve the ongoing competitiveness of the Canadian food and agriculture sector. The focus is on research of national significance that's valuable to Canada, which the private sector could not do profitably working alone.

There are four areas of business we work in. First, natural resources, the health of the soil; second, the health of our crops; third, the health of our animals; and finally, food in terms of the health of our people, or food safety.

Without an R and D effort in these areas of business, it would not be possible even to maintain our present levels of agricultural productivity in this country. Nature presents us with a constantly renewed set of disease threats to our crops. These require a constantly renewed set of disease-resistant crop varieties.

For example, new strains of the wheat disease rust, which appear every few years, drive the need for the new rust-resistant varieties of wheat we develop.

On partnerships, one of the key messages that has been delivered to this committee by several presenters is the importance of partnerships and innovation. Professor John de la Mothe of the University of Ottawa did I thought an admirable job of articulating this when he spoke to you about the process of innovation.

At Agriculture Canada, we have attempted to integrate our clients as partners in the investment decision on R and D. This involves two steps: first, the sharing of information so that we can each make the same informed decisions; and second, a co-funded partnership in R and D to share the costs and the benefits of developing and marketing the innovation.

On the sharing of information front, we have a client-dominated research branch advisory committee for the organization as a whole.

On sharing the investment decision in partnership, I'd like to refer to a concept that was raised by Chris Albinson of Newbridge in his appearance before this committee on October 24. He talked to you about connectivity, or more accurately the lack of connectivity, between the government researcher and the end user of the technology produced.

Mr. Albinson said:

On the public research side...we have limited ingress measures for connectivity, meaning that there are limited mechanisms that force those people working on research to actually make sure that it is meaningful to industry....

Agriculture Canada has changed its funding mechanism to ensure that federal research is in fact tied to taxpayers' needs. A matching investment initiative has been set up by Minister Goodale, using existing funds to specifically address this issue.

The principle involved is simple. If I want a dollar of this crown money, I must match it with at least a dollar of private money. If I'm not connected with a private partner to whom this information is pre-sold, I get no money. The market's needs, or the environment's needs, not central planning of R and D by bureaucrats, drives the investment decision in R and D so far as we're concerned.

I have a comment on clustering, Mr. Chairman. Mr. Albinson also stated, at his appearance last Thursday, a strong case for what he described as ``clustering''. He used Newbridge's own example to show how a concentration of like-minded institutions in one area can become incubation centres for innovation through partnership and other exchanges.

At Agriculture Canada in the past few years we've moved to concentrate our facilities and expertise. We've done this to establish a critical mass of scientific expertise in each product area. This is why, in response to the 1995 budget, we did not make across-the-board cuts. Indeed, we chose to eliminate lower-priority programs and concentrate the resources available to us in geographic areas where clusters are forming, such as around Saskatoon, Guelph, and on the outskirts of Montreal.

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In conclusion, Mr. Chairman, three points. First, the federal government has played, we think, a critical role in the success of the Canadian agri-food sector. As noted earlier, this sector has led all other industrial sectors in productivity gains in the last three decades. I believe food will be a critical industry for the future, and biotech a critical enabling technology.

Second, government has a continuing and clear role to play in R and D. In our case, it is in ensuring the sustainability and safety of soils, crops and food.

Finally, Mr. Chairman, through such innovations as the matching investment initiative, government is finding ways to be a partner with industry to overcome impediments where there is a need to share risk and share costs in order for a company to better position itself as a generator of wealth in the Canadian economy.

[Translation]

Mr. chairman, hon. members, thank you.

[English]

The Chairman: Thank you, Dr. Morrissey, for reviewing the work in your field. Again, the committee will return to you for questions.

Mr. Sulzenko, why don't you go next. I'll go to the Department of Natural Resources after you give us a short overview.

Mr. Andrei Sulzenko (Assistant Deputy Minister, Industry and Science Policy, Department of Industry): Thank you very much, Mr. Chairman. I last appeared before this committee as a witness in the spring. I was then the executive director of the S and T review. I'm now the assistant deputy minister for industry and science policy in Industry Canada. In part it's my responsibility in the department, along with my colleagues', to ensure that the S and T review is now effectively implemented.

The Chairman: You do your own work, in other words.

Mr. Sulzenko: Yes. I can actually make it happen now.

The Chairman: It's a good position to be in.

Mr. Sulzenko: Mr. Chairman, my remarks will be fairly short. I know you would like to open it up for questions fairly quickly. I'd like to go back and actually build on Dr. Morrissey's comments a little bit.

I will go back to the underlying rationale for the emphasis in the government, and I believe around this committee, on S and T. It's really related very much to improving our economic performance. The OECD, as you've heard on a number of occasions, has talked about an innovation gap in Canada. That manifests itself in many different ways. I won't try to go through all those ways but it all boils down, ultimately, to a productivity issue. Dr. Morrissey referred to this earlier.

If we look at Canada's performance over the last 15 or 20 years in terms of what economists call ``total factor productivity'', that is, the combined effect of all of our resources, not just labour but capital and so on, it's been flat. It's been close to zero if not zero. This is a problem we share with our G-7 partners and most of our OECD partners. It's not unique to Canada. The fact is, however you measure it, in relative terms our performance has actually been inferior to many of our G-7 partners.

One of the principle questions we're asking in terms of our research, not just in Industry Canada but government wide, is to attempt to get underneath that and explain why it is. It's very important in research terms to know whether this is just a cyclical lag. We know we've been investing very heavily, particularly in information technologies, in most sectors. We just haven't seen the productivity output coming out at the other end. Or is it much more a structural problem, therefore requiring more intensive use of structural measures?

I might add, in addition to Dr. Morrissey's comments on the productivity performance of the agri-food sector, that I think it's generally been better in all resource sectors as compared with the average in Canada. It's been flat in manufacturing and services, with the exception of the communications sector, which has been very high in relative terms.

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So there are very significant sectoral differences. The bottom line, though, is that ultimately it's really the private sector that is going to improve that productivity performance. In Canada, frankly, our best guess at this moment is that it's a combination of a slowness to adjust relative to other countries, and then, of course, the proverbial relatively poor innovation performance.

Innovation is much more, as you know, than the hard technologies. It's innovations in terms of human resources. It's innovations in terms of organizational design and so on.

But we're not waiting to define the definitive answers. This is a long-term issue, and it's puzzling many economists in many countries.

The government has tried to move forward on a number of fronts to try to improve the private sector's performance. Dr. Carty mentioned the Canadian Technology Network. Individual departments have a number of initiatives. My own department has the Technology Partnerships program.

The other part of our efforts, which many of my colleagues are referring to today, is the importance of linkages with the private sector, partnerships with the private sector, commercialization of research and so on.

Let me just turn briefly to where we are in terms of implementation of the S and T strategy. The strategy really comes in two parts, in my view. One part is the improved decision-making in government and the other part is improved reporting and accountability for what we've undertaken to do.

On the decision-making side, there are a number of new initiatives taking place. I believe you were briefed recently on the first meeting of the new advisory committee on science and technology, which met for the first time last week.

That group is quite keen on its role. We are going to be meeting with them in the next month in a planning session. Subsequently, they will be meeting with cabinet ministers in the spring in terms of providing their advice on their focal issues.

So we will have direct input from that group. It's also fair to say there's an increased focus in the economic policy committee of cabinet on science and technology matters. Ministers met recently on this. They will be looking towards a late winter or early spring review of plans and priorities coming from departments.

We will also be building and renewing our relationship with the provinces on science and technology matters. This issue was raised most recently at the annual premiers conference last August. The Secretary of State, Jon Gerrard, has been meeting bilaterally with the provinces on the relationship on science and technology matters.

We will be following up in response to the request for closer partnership and coordination by the premiers at the officials' level in the very near future.

The fact that this committee is taking such a great interest in science and technology matters will be of great help to the decision-making process in government.

On the second part, reporting and accountability, we have a number of initiatives underway. Some of them are very specific, such as the StatsCan review of S and T indicators, which hopefully will be very helpful to all departments and agencies in government. The Treasury Board Secretariat is reviewing key personnel issues for the scientific community. All departments have been tasked with coming up with performance indicators and measurements so that we can be judged on our performance.

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Finally, in terms of the process and our reporting to Parliament, there of course will be the annual cycle in the spring with the main estimates and so on. We will be attempting to do a roll-up of our S and T plans for that purpose.

There is certainly an interest on the part of the Auditor General in a performance report. We will be putting together a comprehensive report on S and T performance in the federal government for probably later in 1997, which will be tabled in Parliament.

Thank you.

The Chairman: Thank you.

From the Communications Research Centre, we have Mr. Turcotte.

Mr. Turcotte: First of all, Mr. Chairman, I'm delighted to be here. This is my first parliamentary committee in this new job of running this research centre. As most of you know, I came from the outside. It's been a delight to work with people like Dr. Sulzenko and Art Carty from NRC in this new role.

I have a deck of documents to hand out to you, but I'll cover a couple of key points.

The Communications Research Centre, or CRC, is the federal agency charged with focusing on the communications side of the business. It's the agency that has taken the challenge from the previous National Advisory Board on Science and Technology to follow a line called the Lortie model.

The Lortie model looked at how we would evolve some of the federal assets towards a more commercial or more linked activity with the economy. We have certain authorities that have been granted us. We're evolving revenue retention and these types of activities as we speak. So it's enabled us to pick that one up.

I'm going to pick up on some comments made here as I go through my talk. We have strengths. You have to have strengths, or you have nothing to say, quite frankly, in S and T. We are a group that does R and D. It's that strength that allows us to link the people, to do the activities and to talk.

Chris Albinson, as you pointed out, made a key statement that had to do with the need to recognize that high-intensity economic development, which is typified by my industry, is primarily driven by clusters. It's all driven by relationships, by access to knowledge, by access to people, by access to resources. In fact, for the committee, I'd recommend you read Jane Jacobs's book, Cities and the Wealth of Nations . I think it's excellent, and I'm an engineer, so there you go.

What works? As many of you know, I have come from running the Ottawa-Carleton Research Institute for 12 years, so I fundamentally believe what I'm going to say - and I'm carrying it out, as others have before me, within the federal structure. That's linkages, the bringing together of diverse interests, diverse capabilities, as best as you can, and brokering new relationships, which really will create the wealth of the future.

Again, Masse's work, By Way of Advice, from SECOR, points out that if you really want to do economic development, it's not a monoculture you build, as in the agriculture sense, but a diverse capability. There are many ways, many approaches, many people. You're talking about creativity and the take-up of technology, about people seeing an advantage in moving it through to new products, new happenings, etc.

So what we have done on purpose - and CRC did this before I arrived; I'm just increasing that - is to have linkages right across the country as well as regionally. We're linked into the west in TR Labs, for example. Two days ago I started a memorandum of understanding with the Telecommunications Applications Research Alliance out of Halifax, Brian Penney's group. We have linkages to provincial research organizations, such as the Telecommunications Research Institute of Ontario. In fact, I sit on the board of TRIO. We have linkages to the national centres, such as the Canadian Institute for Telecommunications Research. Again, I'm on the board of that. It is based out of Montreal. A regional one I came from is the Ottawa-Carleton Research Institute.

I believe we have to foster these things, not just to say we've done them, but to end up driving what really is the currency - people-to-people communications, and seeing an advantage in moving their agendas forward for mutual gain.

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At the federal level we work heavily with National Defence and the Canadian Space Agency. We have a number of very exciting activities with NRC, including IRAP. We're heavily involved with the federal partners in technology transfer.

As a matter of interest, we have 260 formal agreements. I had my tech transfer office count them. They include licences, collaborative agreements, and so on. There's structure behind what I'm saying, but underlying it is a philosophy of trying to work out what the real currency of commerce is, which is relationships.

How do you do it? Well, we have, as they say, a core competency, a capability, particularly in satellite communications, in radio communications and those allied things, including networking and so on. That competency is a requirement. This committee should not lose sight of this. You have to know what you're talking about before you have anything to say.

The second issue is that it is useful to want to do something with it. We call that entrepreneurship. How do you foster in the federal labs an environment where the researchers want to reach out to companies, and where the companies want to reach in, to create those things? It's an interesting comment. The same is true of the universities. How do you drive those linkages so that it's not a forced fit but a natural evolution?

We have a lot of programs that do all of those things. We are competent. In the technology sector we have a tech transfer office that does the formal linkages. We have special connections, such as the broadband applications and development labs, which two of your colleagues visited two weeks ago.

They would agree it has a very exciting function of bringing players together, of demonstrating technology, of allowing the problems to be shown and the solutions to be developed. We work with the Heart Institute. We have strong relationships with the universities. We have about 26 researchers from universities on campus right now.

In fact, it was a delight that in the first week on the job I walked through the halls and in one of my conference rooms was a group of researchers. I dropped in to say hi, as is my wont, and it was Lot Shafai, from the University of Manitoba. He was delighted to tell me what was going on in my facility with his researchers, including people from McGill, Carleton and Manitoba.

I said, it's working. I mean, this wasn't the president; this was the organization doing it.

I went down later to the machine shop. I asked them if they had any relationships with Carleton University. They said it was strange I should ask. They walked me across the machine shop and introduced me to the man from Carleton who was putting a deal together to make a measurement system around this new technology called LMCS, which you referred to in your last meeting.

I think it's exciting those things are happening. The incubator facility is working. We currently have eight companies there that have relationships with CRC. That's why they're there. We're going to continue to advance those types of mechanisms, because it's this ferment that really makes it good.

Looking ahead, we're going to expand our networking. That's really one of my passions in life, and provably so.

We're going to keep driving collaborations, partnerships, and those types of things. We're going to continue to use the vehicles such as the ``badlab'', as we call it, which is a good lab - you can log that - and the Innovation Centre plus, to drive the things that matter. We're going to continue to explore opportunities such as the development of highly trained manpower.

Dr. Carty has of course some exciting initiatives he's launched with Mitel and others, and we'll be part of that. We meet today with some of the academics. I have ongoing meetings through OCRI with the local university presidents and the college presidents.

We're going to continue to strengthen internally with Industry Canada, because we are a research centre tied into Industry Canada. That is what that business relationship is. As well, we're going to increase our visibility, because I would submit that people will do what people know. One of our problems is people don't know what's going on.

In a nutshell, how can government do it? As we pointed out, government has an absolutely critical role to maintain specific core competencies that would not be maintained by the private sector. Agriculture and biotech are a good case in point.

The IRAP-type capabilities we have are another. Dr. Carty has given you the silicon germanium one. This is a very exciting area. I can guarantee we'd have no stake in it without the work done by Peter Dawson's group at NRC. That's a fact. I knew that before. We have to try to support the champions in those areas who will do the core work and tie into the universities.

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Our main problem with industry is their short-term focus. They're all driven by the bottom line in this quarter. Because of that, the investment in any activity that is longer than three years is almost non-existent in this country today. That's a fact. That's the role of government.

Okay, I'm finished.

The Chairman: Thank you very much, Mr. Turcotte. I'm sure your enthusiasm for your work must be infectious at your office.

Steve Shugar comes from the Natural Sciences and Engineering Research Council of Canada, better known by its acronym, NSERC.

Welcome. Perhaps you can say a few opening words to us.

[Translation]

Mr. Steve Shugar (Director, Policy and International Relations, Natural Research Council of Canada): Thank you, Mr, Chairman. I'd like to thank you for giving me the opportunity to meet with you this morning.

Unfortunately, Mr. Brzustowski, The President of the Council, had to go to Edmonton last night; I'll explain why in a few minutes.

[English]

The bottom line is, though, he asked me to express his sincere regrets for not being able to be with the committee this morning.

Members know, of course, that the new S and T strategy for the country lays out the goals of job creation, economic growth, improved quality of life, and of course advancement of knowledge. As a member of the industry portfolio, NSERC works very hard to help achieve these goals by supporting university research and training and by fostering partnerships that many of my colleagues around the table have already talked about this morning.

Therefore, we'll be presumptuous and assume that members of the committee will agree with us that it really is a given that university research and training are vital to Canada. In the type of environment in which we now live, a global, knowledge-intensive economy, we simply cannot maintain our standard of living or even improve our standard of living without the type of research and training activity that goes on in the nation's universities.

It is claimed by NSERC that we make strategic investments in Canada's intellectual capacity in science and technology. I guess if we're going to make that sort of claim, somebody's going to want to ask us to prove it. If you make strategic investments, there have to be some outputs you can really put your finger on. We maintain that these include high-quality research results that often are transferred to Canadian industry.

Knowledge about the way to use the research results are developed in collaboration with industry. When you make those sorts of strategic investments, you also end up with highly trained people who take their skills into the Canadian economy, transfer their skills and their knowledge to the workplace and indeed often end up establishing new enterprises of their own.

More specifically, then, the outcomes from this sort of investment include people. In a recent survey that NSERC did of former holders of post-graduate scholarships from our agency, we found that 98% of them were employed. A 2% unemployment rate is not bad these days. Over 65% of these people were in fact directly engaged in research and development.

When you make the type of strategic investment that I'm talking about in university activities, you end up with basic research, which is indeed the foundation for later collaborations. It's a training ground for students and a source of new ideas.

If we're going to have a strong innovative economy, then this country also needs good strong basic research activities going on in the universities.

The third output from all this activity that I would like to stress is commercialization activity. Programs at NSERC, much more than they ever have in the past, engage the university research community and industry and ensure that there is also a receptor out there in Canada able to use the research results.

What happens when you make this sort of investment? One of the things that happens is that you end up with spin-off companies. In a recent initial survey we did, we found over 80 companies that can trace their roots back to research that was done by academics with the help of NSERC grants. At the time we did those surveys, these 80 companies employed over 500 people and generated over $500 million in annual sales.

We'd certainly be pleased to provide members of this committee with the publication that provides that information.

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Another very important program of NSERC that I think goes a long way towards achieving the type of commercialization and partnership activities this committee has expressed an interest in are our industrial research chairs. These are chairs in which industry, universities and NSERC band together, form partnerships to support both senior chairs and junior chairs in universities, and go a long way towards once again improving the partnership links between the academic and industrial sectors.

In fact, the reason Dr. Brzustowski wasn't able to be with you this morning is because he's at the University of Alberta this morning announcing a new chair supported by NOVA Corporation. Information on that chair and indeed on a number of other recent chairs that NSERC has been involved in are detailed at the back of the notes I've provided to you this morning.

You also end up with, as I've mentioned, partnerships and products. Let me give you an example of what happens when you invest in these sorts of activities.

With phase II of the networks of centres of excellence program, with which members are familiar, you end up with partnerships galore. For example, 48 universities and 405 companies are involved in phase II of this very important federal program. Over 3,500 graduate students and post-doctoral fellows are being trained in an environment that blends the academic and industrial context. Funds are being leveraged from the private sector. So far over 21 new patents and 105 licences have spun out of phase II of the networks program, and there's been the creation of 19 new companies.

The university community and NSERC understand very well the financial situation that the country finds itself in. We understand that there are limited dollars. This is all the more reason, then, to make wise investments and to choose very carefully.

We believe that in making these investments you have to achieve a very careful balance between research that creates new knowledge and research that puts knowledge to work. We must be very careful not to neglect basic research in our effort to promote the productive use of the research results.

Of course, performance measurement is crucial. The Auditors General talked about it and there have been numerous reports. We believe NSERC is working very hard and making great strides to develop performance measurements so that we can assess whether or not our programs are accomplishing what they set out to accomplish, and to make sure we're in a position to make wise decisions about how to modify our programs.

In short, then, Mr. Chairman and members, NSERC believes we have to strengthen Canada's research effort. There probably is a large number of ways in which it can be done, and done sensibly. However, what we'd like to do is bring to your attention two actions that we feel are important and that can have a very important impact on this country.

One action is to renew the very successful networks of centres of excellence program, which is going to run out of funds in 1998-99. The government will be called upon to make a decision shortly with respect to this program.

A second action is to strengthen and renew Canada's research infrastructure. Whether you're talking about the libraries at universities, the laboratories, the scientific equipment or the communications networks, this committee has already heard from a number of speakers over the past few weeks about the state of repair or disrepair of these facilities. We'd like to leave you with the point that excellent research can only be done if you have up-to-date facilities in which to do it.

We believe if these actions are taken, Canada will be able to close the innovation gap, new knowledge will be produced, technologically and scientifically competent people will be available, and all the knowledge we're working so hard to generate will indeed be put to work for the overall good of the country.

Thank you.

The Chairman: Thank you very much, Mr. Shugar.

I'd like to turn now to our final participant, Dr. Robert Hargreaves from the Department of Natural Resources.

Dr. Robert Hargreaves (Director, Mining and Mineral Sciences Laboratories, Minerals and Metals Sector, Department of Natural Resources): Good morning. Let me start off by saying that, as my kids would say, I'm having a rather poor voice day. It won't be pretty, but I'll try to croak my way through this as best I can.

I thank you, as has everyone else, for inviting us to share some thoughts on science and technology and the innovation gap in Canada. While there are many facets to the issue, I'm going to confine myself today to commenting on the contribution government laboratories make to innovation and competitiveness, and on some of the operational factors that can limit this contribution.

The mining and mineral sciences laboratories, which I represent, are part of Natural Resources Canada. By way of introduction, let me first say a few words about NRCan's positioning in federal S and T.

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Natural Resources Canada is an S and T organization, with approximately 75% of our resources directed to S and T. Four of its five sectors are science-based. The Canadian Forest Service, the energy sector and the minerals and metals sector promote the sustainable development and use of Canada's energy, forest and minerals resources and the competitiveness of those industries. The earth sciences sector provides geoscientific and geographic knowledge of Canada's land mass.

Few other sectors of the economy have so large an impact on the economic and environmental well-being of Canadians. Natural resources account for 14% of Canada's GDP and 39% of its exports. Resource industries directly employ some 750,000 Canadians in more than 500 communities from coast to coast. Natural Resources Canada plays a critical role in providing and transferring the expert knowledge that Canadians need to develop this country's vast natural resources.

Innovation and commercialization of technology are key elements in the way Natural Resources Canada manages its S and T functions and activities. They are major components of our new management framework for S and T, developed in response to the challenges posed in the 1994 S and T review. The framework sets out a highly focused strategy to ensure strong management of S and T programs throughout the department and stronger tools to set priorities, measure impacts and ensure that the benefits are passed on to all Canadians.

I'm talking here about business plans for all our programs, frequent performance reviews, client surveys and other measures to improve performance. I'm also making the point that if we're going to run with the philosophy of maximizing the impact of our S and T activities and if we're going to be successful at it, then we do need to have strong commitment to that philosophy from top management. At NRCan we do have that.

Over the past 10 years most people will agree that there have been significant shifts in the direction and mode of operation of federal government labs. Notable amongst these shifts has been the increase in emphasis on R and D partnering, as everyone has already said.

It's always difficult to be the last speaker. You tend to repeat a lot of what's already said. Nonetheless, if it's worth saying once, it's worth saying seven times.

Partnering is critical. Partnering better ensures the industrial relevance and focus of work performed. It usually provides for leverage of industry resources into the project work. It greatly increases the likelihood of commercial application of know-how and technology developed and it minimizes the number of orphan technologies left looking for a home.

Partnering requires that you first find an interested party or parties and then convince that party that you really can amicably, effectively and profitably work together. Finding partners is just the first challenge. And a challenge it can be. There remains in Canada a marked lack of mutual awareness between people in government and in industry of each other's needs and capabilities.

In recent years many federal laboratories have moved closer to their client base, recognizing the need for greater dialogue with their clients and giving greater weight to industry needs in the development and priorizing of R and D programs.

In my division, the mining and mineral sciences lab of CANMET, we're trying to make focus on the client pervasive through the division. Moreover, we have a proactive business development group of eight staff members, in a division of 200 total staff, whose primary function is to network with industry, much like the marketing groups of many private companies, to identify partnership opportunities.

We also act as an R and D coordinator, facilitator and broker, as Gerry mentioned, even where we may not have the key expertise ourselves, but where we can bring together those who have, to address the issues.

These kinds of outreach activities are in my view essential to effective partnering. While much progress has been made by government laboratories in this area, I believe more could be done by some and should be encouraged.

Industry too would benefit from being more aggressive in searching out the capabilities and ideas resident in government laboratories. I have no magic cure for how to make this happen, other than by promoting the successes of those companies that have done so.

I'll return briefly to this topic at the end of my presentation.

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Having found a prospective partner, we must now reach agreement on how to partner, the terms of the partnership. At this point, four issues generally provoke the most lively discussion. They are: cost or price, depending on which side of the fence you're on; schedule, or how quickly we can get the work done and the technology into play; liability; and the disposition of intellectual property. I shall comment briefly on these in turn.

In terms of cost, with shrinking budgets and the move to being more businesslike in their interactions with industry, government laboratories are looking for, and often getting, better financial arrangements, better deals, than was the case a few years ago. In the end, however, government laboratories do recognize that industry's willingness to pay will be governed by the estimated financial impact on its operations of any technology developed and the costs and risks associated with the further commercialization of that technology.

Negotiating a realistic schedule for technology development is also a continuing challenge in many of our laboratories. The natural optimism of government scientists, the vagaries of research and the many demands of the government framework often conspire to consume time. Nonetheless, we are getting more realistic with practice, more responsive, and more cognizant of the importance of time in the innovation process.

Liability, the third issue, is always a difficult one for government, which is markedly risk-averse. Industry is generally, therefore, required to shoulder the lion's share of anticipated risks in these partnerships. This is usually okay. It's accepted, because industry will also expect to receive the lion's share of the benefits.

Intellectual property, or IP, as it is endearingly known in the business, is the fourth horseman of the apocalypse. Or is it? Custodial concerns are certainly reflected in the government's policies with regard to ownership of any IP developed by public servants. But ownership of technology in and of itself rarely creates wealth. Rather, it is the commercial exploitation of that technology that generates opportunity. We have considerable flexibility in the government labs when it comes to licensing of exploitation rights.

Indeed, I can recall few cases during my time in government where the issue of IP ownership actually prevented a partnership from proceeding. There were lots of lively discussions but few actual failures because of the ownership issue. However, we do acknowledge that sometimes the time needed to reach this agreement, particularly with a first-time client, coupled with the commonly held industry perception of IP as a deal breaker, means it remains an ongoing issue.

Once the ink is dry and we're actually working together in a partnership, what can we expect to emerge from it? Well, a common expectation might be the development of new products and services generating new and profitable business, or businesses, and leading to the creation of new jobs.

More typical in laboratories like CANMET - and here perhaps we're a little different from NRC and some of the other federal labs - is the development of process innovations, which lead to increased productivity or cost reduction in industry. These in turn help to maintain the competitive position of Canadian companies and protect existing jobs.

This form of innovation is less visible, less exciting and less sexy, frankly, than that which leads to the creation of new businesses and new jobs, yet how many communities across Canada have been jolted by the closure of local employers no longer able to compete?

You may ask - and I'll answer for you - where is the hard evidence that government laboratories like CANMET and others in the department really are having a significant impact on the competitiveness of their client base? To answer that question, in 1994 CANMET undertook a survey of some of its mining and energy industry partners in 121 completed partnership projects. These projects represented a total CANMET R and D investment of $100 million and an aggregate partner investment in R and D of $264 million. Partners were asked to quantify the impact of these projects on their operations.

Impacts totalling $3.2 billion - mostly, as I say, in cost reductions and productivity improvements - were identified and endorsed by the industry partners. Again, these are industry figures, not ours, and they are available in the public domain in this document, copies of which I've left for your edification. That's $3.2 billion from $100 million of R and D investment. By any reasonable measure, we believe this is innovation in action.

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In conclusion, I would like to return to the earlier theme of finding the partners. The successes we have had and the impacts we have generated are not widely appreciated and known. We in the government laboratories continue to be a well-kept secret to all but our closest partners. I believe if those successes were to be made more visible, we might expect to elicit more industry curiosity and interest in partnering with us. Success is its own best salesman, but we recognize that government scientists must learn better how to blow their own horns.

The Chairman: Thank you very much. That was a very lively presentation.

Our style is to open it up for members' questions. There's a certain formality that we have on the committee, but we try to keep it as informal as possible. We don't take a break, so if any of you want to get up and stretch, you're not being rude. Please feel free to do that.

As well, you might like to add your own answers. Sometimes members direct questions and sometimes they don't. Feel free to indicate to the chair if you'd like to contribute to an answer.

Mr. Schmidt, would you like to start the round table discussion.

Mr. Schmidt (Okanagan Centre): Thank you very much, Mr. Chairman. As in the past three meetings of expert witnesses, it's been a major education.

I had to leave for about half an hour, so I missed some of the presentation. My apologies to you. The same thing happened last week when all of you went to NRC. I wasn't able to go because I happened to be in another part of Canada. I did have the occasion, however, to meet with NRC before that. I really commend everybody who's been here and made the presentations.

I want to ask a couple of questions. One has to do with Dr. Carty's presentation, and the other has to do with Dr. Shugar's presentation.

With regard to the first NRC presentation, I'd like to ask Dr. Carty to perhaps explain in a little more detail exactly what is meant by the infrastructure we're talking about. I think there are a variety of different ways in which infrastructure is used. I'd like to ask you to articulate specifically what it is we deal with when we're talking about infrastructure.

Dr. Carty: Infrastructure is, of course, a very broad term. I would perhaps put infrastructure into two categories. There is the physical infrastructure that enables you to carry out research. That would be laboratories, equipment, even libraries, as Steve Shugar has mentioned. They are major facilities, national facilities. That's the physical infrastructure.

There's also the underpinning infrastructure that would include national resources, for instance, national libraries providing scientific and technical information, such as the Canada Institute for Scientific and Technical Information. Although perhaps this is more questionable, I think you could, in the infrastructure programs that basically support the diffusion of technology, include the access companies have to technology and even the support for that kind of access and development. Those are really two classes.

Mr. Schmidt: They are very definitely. I was wondering whether you meant the two of them. I'm glad you clarified that.

Following up on that, my question has to do with this coordination function I think you alluded to. There seems to be a lack of coordination among the different directions and foci, if you will, of the various science and technology departments within government, of which I think there are about 13.

Often decisions are made in isolation, and they do have policy implications. In fact, sometimes the decisions are in fact policy-type decisions, so they sometimes are in direct conflict with a decision made elsewhere. In other instances, perhaps they run parallel. The result is a duplication.

In practical terms, recognizing the turf wars that exist among bureaucrats and among scientific endeavours, how would you practically bring about this coordination?

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Dr. Carty: That's a $100-million question, of course, and a very difficult one. Others around the table have more years of experience in the federal government than I have, so they can perhaps give their perspectives.

At the very least, I think when decisions that are affecting S and T infrastructure are to be taken by individual departments, before the decision is finalized there must be some mechanism of sharing that information so that it is seen ultimately to be in the best interests of the overall S and T community in Canada. You could say that is really coordinating the activity.

I know in the past there have been periods within Canadian history when science and technology perhaps has been under one roof. There have certainly been a number of commentaries in the last year that it would help if one person was in charge.

Of course, the difficulty of individual departmental mandates and the need for departments to make their decisions about how they fulfil their mandates in a given area is a complication.

The Chairman: Mr. Morrissey.

Dr. Morrissey: If you read the literature about organizational design, it really speaks about how you coordinate the effort that's taking place in a given organizational structure. They outline four basic ways of designing and coordinating organizations. One is by product, one is by process, one is by place and one is by people. The two most common ways are by product and by process.

Right now the Government of Canada has chosen to organize primarily by product. All the food research is primarily in one place; forest is primarily in one place; fish is primarily in one place; minerals, and so on. It could just as easily have chosen to organize by process, in other words, all the research in one place. I'm not saying one is right or one is wrong; it just hasn't chosen to do it that way.

The key point to remember is that you cannot simultaneously choose to do both the same way. In other words, if you've chosen product, you've spent your coin and you cannot simultaneously organize by process. If you've chosen to organize by process, you can't organize by product.

That's the trap question. If you're organized by product and a minister or the Prime Minister is asked how they coordinate or organize by process all R and D versus the products, the answer is that you can't simultaneously do it the same way under both headings.

The second point that's worth mentioning is we've seen efforts since 1917 to centrally plan the end results of economies - in other words, the big pieces. Do we invest money in heavy industry, as the Soviet Union did, or do we invest it in farming or other things?

What I think we've learned is that it hasn't worked very well. There are simply too many variables out there for somebody centrally to plan them. If you can't plan the ends in an economy, how can you plan the means of achieving those ends? Science is simply a means of achieving the ends in the economy.

The Chairman: I will say, before I turn to Mr. Sulzenko, that you're facing three members of Parliament from the west. Some wags in the west say that the research is organized by place.

Mr. Sulzenko: My comment wasn't going to be on that, Mr. Chairman.

In response to the member's question as to lack of coordination, we're really coming at this on a number of levels. I can recite four main levels, but there are presumably a lot more that are informal.

Speaking at the moment for the industry portfolio, Dr. Carty is leading the exercise in the industry portfolio. It still has about 35% to 40% of the total federal activity. We're doing that in that portfolio. I'm sure Dr. Carty can speak at length in terms of the number of projects we have. There are some 40 that are cooperative. We're trying to reduce, at least in our own family, any overlap or duplication, but also creating synergies. That's one level.

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A second level would be groups of departments that have gotten together. Dr. Morrissey's department, Dr. Hargreaves's department, Environment.... I've left someone out.

Mr. Weisenburger: Fisheries.

Mr. Sulzenko: Yes, Fisheries. They have a memorandum of understanding in terms of their own research activities. So they are actively coordinating.

We have an ADM-level committee on science, which I co-chair with a colleague from the Treasury Board, and through that process we're going to be proactively addressing some key horizontal science and technology issues in the federal government. So that's another level of coordination.

Finally, there is the cabinet process itself. The changes we've put in place as part of the strategy will give cabinet, on a regular basis, the opportunity to have the information base to see where its activities are, what the performance has been, and allow it to make more informed decisions about where they go from here, all within the framework Dr. Morrissey outlined, which is still with individual ministerial responsibility. Nevertheless, they can now be put in the position of having an informed discussion on some of these cross-cutting issues.

Mr. Schmidt: I'd like to refer to Dr. Shugar my other questions with regard to the relationship between basic and applied research. We're using those two words. There are two parts.

First, the proportion of money that should be spent.... Roughly $6 billion has been spent by the federal budget on research and development of one kind or another, S and T. What proportion of that ought to be in basic research, and what proportion in the more applied? I recognize there's a continuum here, but administrators ultimately have to make a decision, and somehow they're going to do that.

With your expertise and background, since you raised the issue of basic and applied research, what proportion would you apply?

Mr. Shugar: Thank you for the question. There's a further complexity I'll throw into it - that is, NSERC no longer talks about applied research. We've chosen to talk about basic research and project research.

Mr. Schmidt: I really don't care what it's called. It's the same thing.

Mr. Shugar: Not to overly confuse it, I'll adapt to the terminology you used.

First of all, there's no magic answer to your question. I'll tell you what NSERC does. The way in which our research dollars have been divided between basic research and project research has evolved over the years, and certainly in recent years the proportion and amount of money that's been devoted to project research has increased.

The answer lies somewhere in that magic word ``balance''. As I said at the beginning, there is no magic number. I think one has to constantly look at what you're doing, look at the results, understand the environment you're working in, and fine tune.

In 1996-97, the current fiscal year, NSERC is spending in the order of $240 million in the area of basic research; in project research, which is the type of research done in partnership with industry and government departments, $112 million; and in direct support to students through scholarships and post-doctoral fellowships, about $55 million.

What does that mean in terms of the overall $6 billion expenditure? I can't help you on that because I'm not sure anybody really has the answer. If you have $6 billion - which NSERC doesn't, although it would be nice if we did - what's the right way to portion those funds? I think you have to look at what's coming out of what you're already doing and keep on fine tuning.

Mr. Schmidt: The reason for the question is very simple, Dr. Shugar, and I think you made mention of it. Unless we have a good solid base of new knowledge being generated, all of these project research things just don't go anywhere because there's no basis from which to move.

I recognize Dr. Hargreaves's position, too, which suggests that a lot of our research really perfects what is already out there. So these are all very fundamental things, and sometimes those so-called perfections actually come out of some curiosity-driven research. So I fully recognize the complications here.

The Chairman: Three more people want to respond to your point. I'll give Mr. Bodnar a chance and then we'll come back to you. We have lots of time.

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Dr. Morrissey, please.

Dr. Morrissey: There's a paper written by someone called Foster entitled ``Improving the Return on R and D: Measuring and Improving the Performance and Return on Research. We've cribbed the methodology here. Basically what they're saying is that with any piece of research you're doing, whether it's applied research or project research, only three variables really come into play.

One, how attractive is it? Is there a big return for this country?

Second, how feasible is it? It may be very attractive, but we may not be able to do it, or the probability of success may be low. That really is the benefit - how attractive it is, how big is your benefit, and feasibility, or how likely you are ever to get it.

Third is the cost. If you only get $2 back for a $100 investment, that's not too good, but if you get your $2 back on a $2 investment, that's a 100% return and that's very good. So what you're really getting is a cost-benefit ratio. If you look at any research project - it doesn't matter whether it's basic or applied - and in terms of a scale of 1 to 10 you ask how attractive it is, how feasible it is for Canada to do and capture the benefits, and what the cost is, you start getting an idea of whether this is a dog or something we should invest money in.

If you take it further, you can actually plug financial numbers into that and discount them back to present value. That's the key point. We try to do that on each of our studies. By just imposing that discipline, a lot of them go away, but I think it answers the question about whether you do basic research or applied. What happens is that when you discount your stream of costs over the few years you're investing, and you discount your stream of benefits over the time the country gets its payback, and you bring them all back to present dollars so that you can compare apples to apples - it doesn't matter if it's a one-year or 21-year project, you're discounting those back to present dollars and you can compare them.

What tends to happen is that the longer you go into the future, the more risk there is, because it's more uncertain. The private sector tends to stay away from the longer-term projects simply because they're riskier, there's more unknown, and they tend to take the shorter-term ones because they know more about what will happen next year. So what we're left with is not whether we should do long-term or short-term projects. It's that we have to do the things the country needs that the private sector won't do. From the list of them we pick the ones that give us the best-looking numbers. Some of them may be only a year into the future and some may be 21 years, but by using this system you overcome the problem of whether you're doing basic or applied.

The Chairman: Dr. Carty.

Dr. Carty: I think this debate and the apparent dichotomy between basic and applied research has been quite divisive. I think it's counterproductive and we should drop it.

I don't know how many people are aware of the debate in the United States, where the Republican Congress seized upon the word ``applied'' and decided that anything applied was a subsidy to industry so they weren't going to support it. The National Academy of Sciences in the United States has dropped ``pure'' and ``applied'' and is using ``fundamental science and technology'' as their term to describe research.

The Chairman: That's very helpful, and so is Mr. Shugar's comment on how they do that.

To the committee members, I think we should come to some of these definitional questions when we write our report and see if there is a way of restructuring it. It's very helpful for us.

Mr. Turcotte, a final comment on this.

Mr. Turcotte: My comments come from 10 years working on the bench in industry, so bear with me. I think we're talking about an innovation process, and it's basically chaotic. You cannot guarantee anything in that game. The real differentiator is what we call ``highly trained manpower'', the ability to see opportunity. To see opportunity you must have competence in what you're talking about.

Canadians produce a very small percentage of the technology of the world. Industry makes its money by pulling together appropriate technology to make competitive products and services that go out and net return on the world markets. I think the key issue is to know what you're evaluating so that you can do it. A key example would be Bombardier with the stainless steel technology they got from the Japanese, and then they took on the same corporation that provided it - Kawasaki - and beat them in New York.

This is the issue - to be able to find what's appropriate to a particular circumstance you're dealing with. That's a high skill that requires an understanding of basic principles.

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The Chairman: Mr. Bodnar.

Mr. Bodnar (Saskatoon - Dundurn): Thank you, Mr. Chairman.

Mr. Sulzenko dealt with the matter of productivity and productivity not really increasing in this country despite what's happening. I'll zero in on one industry, which is the agricultural industry. It's close to my heart, my being from the west.

Productivity in the agricultural industry can be divided into two areas. One is the grain producers, and then there are the others. Grain producers have generally operated in a competitive market, even with the Canadian Wheat Board, which is only a selling agency.

Then we have the other areas that are controlled by marketing boards, where productivity is stifled, controlled and not allowed to increase above certain levels, thus protecting prices and certain members, who are privileged to have quotas. This gets to the area of innovation.

Does such a system, where you have marketing boards and the control of production, control of supply, reduce productivity? Does it reduce innovation? Does it reduce R and D?

The Chairman: Mr. Weisenburger.

Mr. Weisenburger: That is a very interesting question. I guess you're comparing the dairy industry and poultry industries in Canada with their counterparts in the rest of the world.

My observation is that the individuals operating in these industries tend to be very profit-motivated, as would be the case with our competitors. I think what has happened is that regardless of the management of the total supply of product that people put out, when you get it back to the individual farm or individual farm operation, being profit-motivated, they are very innovative. I think we'll find that if we look at our dairy industry at farm level and the way it's evolving now, particularly the newer operations that are going in, they are pretty darned competitive on a world basis.

Similarly, on the poultry side - I do some travelling across the world - yes, they are. Part of the thing in poultry is that when we get into the broiler side of it, while they are in business they are doing pretty well, but for most people the down time between cycles, when the barns aren't full, is the real cost side of it.

The one that's perhaps more interesting is that when we take that side of things into the processing and convert that product from raw product into food, at that stage of the game I believe we are not as competitive as we are at farm level.

The Chairman: Dr. Morrissey.

Dr. Morrissey. The data I've seen indicates that the animal sector has been at least as productive as the crop sector. In other words, productivity has grown at least as quickly in the animal sector as in the crop sector.

Two reasons come to mind. One is that the record of performance program measured which animals grew or produced best across the country after World War II. We knew exactly where the best genes were. When the Russians invented the artificial insemination system, they gave us a technology that allowed us to take those genes and distribute them very widely and quickly across the country. So there was a rapid growth in productivity in the animal sector.

The question that's begged is, given that this new wealth was created, how was it redistributed? But that's a separate question.

The Chairman: Thank you, Dr. Morrissey.

I haven't read Peter Hall into the record yet, so I'll welcome you too. Feel free to contribute to this round table exercise.

Mr. Peter Hall (Acting Director General, Strategies and Planning, Research Branch, Department of Agriculture and Agri-Food): Thank you, Mr. Chairman. I'm here in support of Dr. Morrissey.

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Mr. Weisenburger: I have a quick and supplementary comment. I'm struggling for some numbers, but if I remember correctly, in the beef sector, or cow-calf, in this country, I believe the productivity per cow has gone up faster than our productivity gains have been on the crop side. Supporting what Dr. Morrissey said, we've actually done pretty well.

I guess that was my comment earlier on, that generally speaking, where prices in agriculture have tended not to go up, people have been forced to be innovative and adaptive on the cost side. Generally speaking, that has been cutting per-unit costs of output.

Mr. Bodnar: And the beef industry is wide open, just as the grains industries are.

The problem I struggle with.... When we look at productivity, and we can take this to the dairy industry, the production of milk, etc., where we have provinces in this country that are primarily agricultural - and again, this is pointing at western Canada - and are largely excluded from the production of products such as industrial milk, where one province in Canada has almost half of the quotas, yet the agricultural provinces cannot get into production.... That's on the milk side. If you get into other controlled products, we cannot get into production in those areas in certain provinces, thus increasing the export trade in those particular commodities.

This comes to mind because it's my understanding that Canada was recently unable to get involved in trade involving chicken in some Asian countries because we did not have the supply, nor could we guarantee the supply of chicken meat to certain Asian countries. Of course, those countries then go to steady suppliers like the United States.

Are we in fact benefiting from marketing boards, or is this holding back innovation in Canada and productivity in those areas?

Mr. Weisenburger: As you go across the agriculture industry, not just in western Canada but across Canada generally, you'll find wide divisions in philosophies and belief on those two. I believe it gets back to the philosophy of the individual operators. Are they comfortable doing the best job they can of producing a product and letting somebody else worry about marketing it, or do they want to be involved right through, develop their own markets? By and large I think we're seeing the newer generation of farmers and professionals in agriculture tending toward the latter. The folks in the older generation are basically saying they like the security of having somebody else do the marketing for them.

I think the single biggest issue within the ag industry that needs to be addressed is the ability of innovators to be able to develop and market products. It's very important, and I don't have a clear-cut answer for you. I wish I did.

Mr. Bodnar: My problem here was dealing with the productivity end, not the marketing end. Productivity, being either through boards or otherwise, but opening up productivity...and of course interprovincial trade, which seems to not exist in many of these areas. Trade seems to be easier between certain parts of Canada and other countries rather than among provinces. There seems to be more barriers among provinces than there are between Canada and other countries.

Mr. Weisenburger: If we bring this one back, as I said, to the productivity side of things and to the application of science and technology within it, I believe we're probably in a better position to face change than most people think.

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In other words, I believe the dairy industry and the poultry industry in particular, and to an extent the grains industry as well, because even with the selling through the Wheat Board from western Canada, it does have an impact, do produce it to be competitive, to be innovative, to pick up new products. I believe the people within the industry are going to be in good shape to do it, if and when change happens.

The Chairman: Thank you.

Before I turn it over to Mr. Murray, as scientists, has it ever been on the government's agenda how regulatory frameworks may in fact cut down on research in the desire for research and productivity? Has that ever been on the agenda, or discussed?

It might be something we might want to mention in passing in our report. It is something I hadn't thought about before.

Maybe Mr. Sulzenko could comment.

Mr. Sulzenko: Mr. Chairman, going back to my former remarks about productivity, the data we have, and they are preliminary.... In terms of the resource sector, you may recall, I mentioned that resource sectors have been generally outperforming manufacturing and services. Within the resource sectors, though, there's a significant difference.

The agriculture sector - and this is the whole sector, not carved up, as you were suggesting - has been averaging about 1.5% per year. That's still better than the 0% for manufacturing and services.

Fisheries is in about the same range in terms of total factor productivity. If you look at logging and forestry and petroleum and natural gas, they're more or less in the 2% range. Mining is in the 3.5% to 4.5% range.

So in fact within the resource sectors you have different performance over the last 10 years or so. To get underneath that and explain on a sub-sectoral level what's happening will be part of our general research program on the whole productivity question. But then to tie it back to policy is another whole dimension.

The Chairman: Mr. Weisenburger, a quick comment on this one.

Mr. Weisenburger: In reality this is one of the reasons in my opening comments I remarked on where we're at relative to terms of reference.

We believe innovation is not complete until it's put in place and being applied. The science that's used to develop that technology in the first place is one part of the equation, but a lot of what needs doing, or what happens within this country and in any country, is that there are also necessary regulations in place on how and when that technology can be applied.

We need to keep that side of the process as streamlined as is possible. Certainly we absolutely need to protect the public interest, the public safety, in terms of when and how new technologies are applied, but we need to do it as expeditiously as possible in order to be able to keep up.

Once the technology is developed, that's one big step of the way through the whole process, but it's certainly not the whole thing.

The Chairman: Mr. Morrissey.

Dr. Morrissey: My understanding, Mr. Chairman, of one of the drivers in countries around the world on deregulation over the last few years was in fact not really deregulation, per se, but ensuring that the country in question had a competitive regulatory process that didn't put it out of step with its main trading partners but that absolutely ensured safety, purity, potency and efficacy of the product.

The feedback we've had from the biotech industry is that they do not want any regulation that doesn't ensure safety, purity, potency and efficacy of the product, because consumers won't allow them to sell such a product, and competing countries won't allow them to ship it across borders.

My sense of the regulation issue is that it's a very important one, because you won't get investment in R and D in a given sector unless you can register your product in a competitive way at the end of the day.

The Chairman: Thank you.

Mr. Murray.

Mr. Murray (Lanark - Carleton): Thank you, Mr. Chairman.

I was just thinking about how cows' productivity has increased while human productivity has remained flat. Perhaps we should talk to the cows.

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Some hon. members: Oh, oh.

Mr. Murray: Sorry to be so flip, but....

I'd like to come back to this idea of clusters. Both Dr. Morrissey and Mr. Turcotte mentioned them, and I'm convinced of the importance of such clusters. Mr. Turcotte mentioned Jane Jacobs's work, Cities and the Wealth of Nations.

Just as an observation, I think one of the reasons for the decline of Montreal as a city has been the failure of the Quebec government in particular to grasp that this is the way economic activity happens - looking at what we as politicians can do to encourage more scientific research and development in Canada and accepting that we tend to be rather parochial in our outlook.

I throw this out to anybody, really. I'm just questioning whether government has gotten in the way of such clusters developing in the past. Again, as an MP from the national capital region, I can think of the example of the Space Agency being moved out of this area as something that caused an awful lot of chagrin when it was done by the previous government.

I'm asking whether there are lessons we have learned through past experience, and whether we should just step back and let these clusters develop organically or naturally on their own, and then support them along the idea of supporting winners.

Gerry, maybe you'd like to start on that.

Mr. Turcotte: First, I think Jacobs stresses that exact point. She says those that were ``planned'', where a big company goes in and it looks like a huge success because you've implanted some sort of manufacturing capability or whatever, and then surround themselves with services, as that loses its place in world markets.... All markets are cyclic, as competitors come on board. But in most cases she cited, that type of area lost its dynamic.

She quoted, as you know - or I guess it was Marcel Masse - a small area down in Quebec with 10,000 people or something, which has generated four world-class organizations. The only thing I can trace as being the common thread in all that is the attitude of the people. I think attitude is everything, as you know, because we've talked about it before. That's why I relate to the whole push on entrepreneurialism and trying to help our young people particularly - and some of our older folks, like ourselves - understand that they should be looking for opportunity as opposed to problems.

Too often what we do focuses on what the problems are. The problems are always going to be there. We should be focusing on what the opportunity is, and getting out and taking on our competitors. That's what we did when we built this country, I might add; that's where it came from.

I think it's a serious issue. I really support the SchoolNet initiative and those types of things - the type of thing NSERC is doing, linking people through into industry, and letting it be more organic. I think it's less programmed, and a more chaotic process, but that's also my nature. I believe if you really honestly study it, that's where it lies.

The most dynamic economy in the world, by any measure, is still the Americans'. They are much more ``let it happen''. They have all their faults, and we can get onto that if you wish, but underlying it all is the belief that anybody can do anything. So the belief system is much higher.

I can tell you from personal experience that we are every bit as good as they are - period. I know that, okay? So why aren't we taking them on in a little more of a headstrong way? I think we just have to push a little harder on developing the attitudes, the ``can do'' attitudes that built this country in the first place.

The Chairman: Mr. Sulzenko.

Mr. Sulzenko: Industry Canada, in collaboration with the National Research Council and the Western Economic Diversification department, has done a joint study with the four western provinces on clusters. That study will be available very shortly, I understand. As soon as it is, I think it might be helpful for the committee to see it. That will be, I believe, in the next few weeks. It might fit within your timetable.

As well, the member referred to Montreal. Montreal actually does have some very important clusters. There's the aerospace sector and the pharmaceutical sector, to name two.

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Again, on that point, the federal government has been very instrumental, frankly, in those clusters growing at a very healthy pace, and in representing a substantial portion of the total industrial R and D in this country.

I won't take on the Montreal issue with the member, but I think there is still some strength there in those areas.

The Chairman: Mr. Carty.

Dr. Carty: Some of you may know that I'm a chemist, and even further to that, I'm a cluster chemist.

Mr. Turcotte: What's a cluster?

Dr. Carty: I was going to explain what a cluster is, because I think it's educational. A cluster is an aggregate of atoms of a specific kind. You only have a cluster when there are bonds, linkages, between the atoms. You can bring the individual atoms themselves together, but if they don't bond, if they don't link, they don't form a cluster. That actually is an essential component of an industrial cluster.

You have to build the linkages, remove the barriers, so that the individual entities can interact and gain synergy from the interaction.

The Chairman: Do you have a question, Mr. Murray?

Mr. Murray: Mr. Shugar was talking about the state of disrepair of research facilities. Is this an area where government should step in if there are finite resources? Should government be identifying which universities, for example, should be receiving the funds to upgrade the facilities?

We have a recent example of Carleton University deciding to specialize a bit more, and perhaps that's the way of the future for a number of universities in this country. How would we decide on who gets how much to upgrade their facilities?

Mr. Shugar: If you just focus on the university situation, the federal government is already involved in NSERC. For example, just on the scientific equipment side of what we mean by infrastructure, NSERC, on behalf of the federal government, already supports scientific equipment at some 60-odd universities across the country.

Decisions on who gets what equipment is on the basis of the peer review system, the excellence of the proposal and the people who are presenting the request for funds for that equipment. So the government does have at its disposal - for example, through the research granting councils of NSERC, the Medical Research Council and Social Sciences and Humanities Research Council - agencies of government that are constantly reviewing the work that's going on in the universities and providing funds.

I believe the mechanism already exists, if the will is there, to do something about the state of repair of equipment and facilities across the country. It's already going on. The problem has been that it's simply not going on to the extent it ought to be, in our opinion, or to the extent it was in the 1980s, for example.

Mr. Murray: Is it a question of not having enough money, essentially, or is it also a question of perhaps having some specialization beyond what we have today?

Mr. Shugar: There's no doubt that across the country different universities are already thinking along those lines. You cited the Carleton case. Certainly the universities in Nova Scotia have just gone through a very difficult time over the last few years of getting their act together, in a sense, and of thinking about specialization.

So that type of thing is going on all the time. Whether or not the federal government ought to be involved in that is perhaps a question that's outside my own area of expertise. Certainly when you have funds available, you can exert a certain amount of leverage.

I'll give you a very small example of the type of thing that's happened in this regard at NSERC in terms of our own scientific equipment funding program.

Over the years we've received applications for major pieces of equipment from various universities. There's certainly been more than one instance where we've taken the application, gone back to the proponents and said there are people in universities X, Y and Z who are in the same region, who are working in the same area. Why don't you get your act together and come back to us with a proposal that makes the most effective and efficient use of the limited dollars available?

Those sorts of things have happened, and you've ended up with that type of clustering, for example.

Mr. Murray: You mentioned that 98% of the NSERC post-doctoral fellows are employed. Do you have any idea of how many of those are employed in Canada or how many have gone abroad?

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Mr. Shugar: For those former post-graduate scholarship-holders, a significant number of them held jobs outside the country. It was in the order of about 15% or 20%. It was a number that we felt was a little bit too high. The question was asked of those people whether or not they intended to or wanted to return to Canada. Certainly a significant portion of those would have liked to have come back if and when the job opportunities were available.

Mr. Murray: Thanks very much.

The Chairman: There are two more participants who want to jump in here - Dr. Morrissey and then Mr. Weisenburger.

Dr. Morrissey: I have two comments, one on paying for infrastructure and one on clusters.

On infrastructure, we have shifted the emphasis within Agriculture Canada from paying for inputs, meaning giving people salaries for 30 years and giving them more money for buildings, to paying for outputs. In other words, we're saying you can have a dollar of our money provided you can get a dollar on the outside. What we're finding by putting emphasis on results rather than on inputs is a lot of issues like buildings are being resolved in a way that we didn't see in the past.

For example, the Province of Quebec cohabitates in our building in Saint-Hyacinthe. We're about to cohabit with the province a building in Guelph, because it's cheaper than building it ourselves.

The second comment is around clusters. I really like the analogy about the bonds that hold the component pieces together, the environmental glue that keeps them together. My sense is that this glue is probably built around one of four things: they're close to markets where they all come together; there's manpower, a computer industry, a source of highly skilled people; the materials are available in that location; or the money to make it happen is available. So it's markets, manpower, material or money.

You asked whether the government has done something that has aided or hindered the forming of clusters. From a purely parochial point of view, it has done something to aid them for us. The cuts in 1995 forced us to recognize that we could not do everything ourselves. We knew that before, but we saw it in spades in 1995. So far we've cut 1,000 people. We're actually moving 400 people from one laboratory to another across the country into cluster areas where we can piggyback on somebody's else expertise.

For example, in Saskatoon with the National Research Council, we don't do gene sequencing ourselves. We've simply given up trying to do that. They have a lab just round the corner from us where they have equipment humming away and expert people. We contract with them. We buy that service. On the other hand, they get things from us that they probably couldn't do for themselves. So we've become interdependent. We're short of money, so we can't afford to be otherwise.

The Chairman: Mr. Weisenburger, and then Mr. Shugar and Mr. Hargreaves.

Mr. Weisenburger: Getting back to the currentness of equipment, one of the observations I would make is that many organizations do not have in place a plan for replacing and updating equipment on a regular and ongoing basis. As budgets have tightened over the last decade, in reality, one of the things that has happened in a lot of places is that the replacement or updating of equipment has been the area of cutting.

It may sound mean, but in general we need to have the philosophy of saying that we're better off, say, with 90 well-equipped people working properly rather than with 100 under-equipped people. We get more productivity out of the system with 90 people and with the remaining money being there to equip them properly to do the job than the other way around.

The Chairman: Mr. Shugar.

Mr. Shugar: On the whole question of clustering and what the federal government ought or ought not to do, I'd like to point out that notwithstanding the importance of bringing people together and developing the bonds Dr. Carty was talking about, the federal government has itself engaged in a very interesting and successful experiment, through the network of centres of excellence program, of bringing together virtual clusters, as it were, of being able, on the one hand, in a country that stretches for thousands of miles, to leave people in their regions, doing their research and doing their teaching and training of students, and also being able to develop long-distance bonds, in a sense, and developing those sorts of clusters while not physically moving people. That's been a very important, successful experiment of the government.

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The Chairman: Dr. Hargreaves.

Dr. Hargreaves: I have a comment on how at the laboratory level on a day-to-day basis we are contributing to this whole concept of clustering. By managing projects and programs for impact and having to address up front the issues of how you get the technology out, not just how to develop it, it forces you to address who the partners should be within the consortia you're operating that are going to have the role of supplying the technologies being developed.

Certainly, the mining industry generally does not manufacture a lot of products it needs. It buys them. Therefore, to ensure technology development in projects we undertake with the mining industry, we have to address what are the consulting companies, the supply companies. We have to be actually a part of the supply process.

That means that in fact we invite these people to sit with us in the consortium. The price to them is relatively low, the leverage is high. They're sitting down with their clients. They're building the linkages with their clients that will eventually lead to new sales.

It's not a hard sell, actually, at the project and program level, to contribute to this clustering concept. It does, as I mentioned earlier, tend to ensure to a higher degree that at the end of the day you're going to get some actual technology transfer in place.

The Chairman: Mr. Schmidt.

Mr. Schmidt: I'd like to follow up on the other points we had before. I'd like to address this question to everyone who is here this morning, because I think each of you probably has an input here. It has to do with I think the useful formula Dr. Morrissey gave us just a moment ago: attractiveness times feasibility divided by cost.

There's an assumption built into that formula that you can reduce feasibility and attractiveness to some type of number. Cost you can always reduce to a number.... Well, you can't always do that, either. I'd like to know how in the world you actually put numbers to those three, the A, the F, and the C. That's one question.

The other more important question, which is really where I want to go, has to do with the predetermined bias, if you will, that lies in making funds available in certain kinds of areas, which in themselves begin to suggest a certain attractiveness.

For instance, research will not likely be done in life sciences unless there's a predisposition on the part of government or somebody to say that we ought to do some research in life sciences, that if we're going to go into high-tech industries, we want you to go into life sciences high-tech industries, or if it's in agriculture, the gene structure, if you will, and those types of things.

I would like to ask to what degree, then, can we drive curiosity research when in fact there's a built-in bias ahead of time as to the direction of that research? The same thing of course applies to the project research we do.

The Chairman: Dr. Morrissey, do you want to start.

Dr. Morrissey: Mr. Schmidt, your point is perfectly well taken. The point, as I understand it, is how do you put numbers on these that imply a degree of certainty that in fact isn't there? You're perfectly right. What you're putting in is a subjective number. While a number looks objective, it's built on a subjective foundation.

What we found it does for us is it removes a degree of the argument around which study we should put money in. As we discuss it, it at least gives us a common language, first of all, that we understand. Second, it gives us three common principles that we've all agreed we're managing in our minds, or we had been managing in our minds in the past. At least we've now made transparent to each other what the variables are.

We found there are two ways you can handle this. One, you can take each of those variables on a scale of one to ten. They're purely subjective, but at least you're telling other people what subjective judgment you're using. It's surprising how high a degree of consensus we found about whether this is a really risky piece of research where the probability of success is a long shot, or whether it's something we've done four times before, it's the same process, and we can repeat it. We're pretty sure what the costs may be of developing a new variety of wheat. You're looking at about ten years; we know from experience.

The other way we've done it is to actually cost these things out. That's even more subjective. The market you're looking at may not even be there in 10 years.

So probably the biggest pay-off is doing it on a scale of 1 to 10, and using it as a way to give you language. Because we redo them every year, if you get new information you come up with a new, quite subjective, number, but at least it forces you to look at them each year and change them and hit the bad ones on the head earlier than you might otherwise have done.

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The Chairman: Thank you.

Maybe I'll go to Mr. -

Mr. Schmidt: Does no one else want to answer that one?

The Chairman: I'm sorry, I'm not trying to hurry people on.

Mr. Schmidt: I thought there would be at least more than one person who'd be interested.

The Chairman: Okay, let's go to Mr. Weisenburger.

Mr. Weisenburger: I'll pick up where Brian left off. The approach he's talking about has been used if not explicitly, at least implicitly, in reviewing research applications for quite a number of years. In my deep and dark past, when I was closer to the research side of the world than I am these days, when we got into this the part that was always the trickiest and probably the most fun was, really, the whole weighing of potential benefits against the possibilities of success.

Generally speaking, my counsel would be that you end up having to take some high-risk research, particularly if the potential benefits that come out of it are really exceptionally high, if all or part of the expectations can be met.

So I agree with Brian that it's subjective on those two things on the top line he was talking about. I guess by and large, if we're going to go ahead, we probably have to be a little bit disproportionate in the amount of potential high-return, but relatively high-risk, research we do. The quantum leap comes from achieving the unexpected.

The Chairman: Mr. Shugar, and then Mr. Turcotte and Dr. Carty would like to say something.

Mr. Shugar: Mr. Chairman, I tried to focus my comments because I think I could go on with this for hours. There are probably a lot of systems you can develop in terms of trying to assess a research project or a research area, some numerical, some not. But the point I'd like to leave you with, I think, is that it has to all eventually come down to good judgment. No matter what sort of mathematical system you may or may not develop, what you need is a body of wise people around the table to make the judgment, finally.

I've recently come back from an international conference in Italy on the whole question of research assessment. Certainly, one of the conclusions that came out of the opinions of people from a number of different countries is that whatever system you develop, you need some good, wise peers around the table to finally make those sorts of decisions.

On the other question of how you focus or bias research, because it depends where the money is and everything, NSERC has been involved in this sort of exercise. Because we support research in approximately 25 different disciplines, there's always a very tough question we face, which is how much money do you put in life sciences versus engineering, and that sort of thing. Those decisions are made, once again, with human judgment around the table, but the type of information that feeds into it has to do with the quality of research in the discipline, the supply and demand projections for highly qualified people in the area, the cost of research, and arguments that the communities themselves bring to the table in terms of how Canada can ultimately benefit by putting additional dollars into support for a particular discipline.

I think we heard this morning a lot of discussion about the importance of people in terms of partnerships and getting research done. I'd like to emphasize that people are also important in this sort of decision-making side of it.

The Chairman: Dr. Carty.

Dr. Carty: I don't know that I'm adding a great deal here to what Dr. Morrissey and Steve Shugar have already said, but in terms of risk and potential reward, I've seen a number of R and D organizations that have a plot with risk going up one axis and return along the other. You can divide this plot into four quadrants. In the upper right-hand corner, of course, you have high risk and potentially high return. On the bottom left, you have lower risk, lower return and shorter return. I think that's really what R and D organizations have to try to do.

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The unfortunate thing at the moment is that there's evidence in much of the developed world that the companies are actually opting for the low-risk, high-feasibility short-term return. They are looking almost exclusively at the bottom line.

In the United States, for example, you've seen the dismemberment of AT&T Bell labs. You've seen organizations like Amoco and Mobil get completely out of long-term research, and there have been cuts at Du Pont. This is a really dangerous sign that companies are increasingly looking to have incremental steps on technology rather than what I would call the great leap forward.

There's also some evidence, and even economists are supporting it, that this is the wrong philosophy. Major organizations will get caught because they won't be able to add 25 megahertz incrementally forever. They'll have to have a new technology.

I don't know whether that adds too much, but I agree with the measures.

The Chairman: Mr. Turcotte.

Mr. Turcotte: I'd like to make one other observation. We must never forget that research that doesn't work still advances our knowledge. As far as I know, Mr. Edison tried 1,000 times before he got a light bulb that worked.

The Chairman: Mr. Hall.

Mr. Hall: If I could perhaps add one more dimension to the formula Brian was putting forward, attractiveness and feasibility over cost, it would be the dimension of time. I think it directly relates to the mandate of this committee, which is closing the innovation gap. If you take a shorter time to develop and transfer the technology, it can drastically alter the formula. I think it will change the numbers dramatically.

Specifically, if you're looking at research being a tool to solve problems, let's say you needed a new disease-free crop variety, then the time you take to do that can drastically alter those numbers. I wanted to point that out.

The Chairman: Mr. Shepherd.

Mr. Shepherd (Durham): Thank you. I'd like to address my question to Dr. Morrissey. I'm still trying to grapple with how we organize our science and technology.

You talked about organizational structure in Canada being by product. We've also had a lot of discussion about prioritizing our research. We've talked about biotechnology, communications, etc. Is the choice of using an organizational structure by product consistent with a prioritization? Is the state of our science and technology on a governmental scale prioritized?

I just listened to Mr. Shugar talk about their making all these judgment calls over a vast array of scientific fields. I've listened to Dr. Carty talk about how we should be more focused. Are there some inconsistencies between prioritization and the way in which the whole science and technology industry is organized today?

Dr. Morrissey: If I understood the question correctly, it was around always priorizing by product. In other words, what is it you want to develop? Is it a food or is it a window? My perception of NSERC, if I can speak about NSERC, is that it grants money on a study or project basis, based on what the output of that study will be.

A submission comes in saying, I'd like to study X, Y, Z, and here is what I think the output may be. The output is in fact the product of the study being funded. If you look at the work being done in Japan and Germany now, my sense is they're moving significantly from funding the process research, meaning, here's a block of money to a university or government laboratory, put buildings up and hire people and we'll come back in 30 years and see how you've done.

They're working very significantly to try to break that culture where they're trying to fund by product, saying, we'll pay you for this project that has a beginning and an end. They may produce a piece of knowledge as their product, which is the input to someone else, or they may produce a widget, but they're trying to fund outputs rather than inputs.

I don't really see a conflict in terms of the way it's being done in this country. My perception is we're primarily funding by product. My personal opinion is that this is probably the best way to go, because at least you know what it is you're trying to get out.

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If I could make one other comment on this little formula, it is only a means of thinking rather than a number by itself.

Going back to your comment, Mr. Schmidt, one of the things we found useful on basic work - on environmental work, for example - is that some of our scientists who work on soil-water sustainability said this is really going to disadvantage us, because you can't see the effect of our work. When we ran some environmental products around sustainability of soil or purity of the Abbotsford aquifer, we found that they got the highest ratings. The reason for that is easy to see if you think about it a little. Everything we produce on the prairies, for example, is dependent on the fertility and health of our soils - the crops and the animals. So they were at the bottom of the pyramid and got the big base of the benefit.

On the other comment about who should make this judgmental decision - whatever language you use to describe it - we've come to the conclusion that it should be our clients insofar as possible, whether they are people in the social world, the environmental world or the industrial world.

We've tried to split this formula down the centre and we've said let's each put our dollars on the table to back what our beliefs are about where the winners are and are not. In terms of the attractiveness, industry is putting a dollar in and saying we know the market better than you do. In terms of feasibility, we're saying we probably know the science better than you do, and we'll back our opinions with our dollars. So we're each coming to the table with what we know best, and backing it with our money rather than our arguments, and we're sharing the costs.

Thank you, Mr. Chairman.

The Chairman: Thank you.

Last question from Mr. Shepherd.

Mr. Shepherd: Just on a point of clarification, maybe I didn't make my question very clear. We're going to pick the areas we can do well at. We're not going to get involved in all aspects of science and technology. I see a grant here for making environmentally better poles and railway ties, and I'm trying to tie that into our priority for research and development as a nation. Is that consistent? Are we all singing from the same hymn book or are we not?

The Chairman: Dr. Carty.

Dr. Carty: I want to try to answer Mr. Shepherd's question from a different angle. I believe in order to have focused research programs that are important to the wealth and prosperity of a country you must have a broad base from which to operate. It's crucial that we have a base of excellent research in the university that is sufficiently broad that if a new development comes along, you have the opportunity to actually play a role in it. Once you have that excellent base established - and I believe we do have that excellent base in the universities in Canada - it does enable you to make strategic decisions about investing in certain areas that are key to the economy.

The networks of centres of excellence, the provincial centres of excellence, do that, and NRC has chosen to focus its activities on certainly technology areas that are crucial to wealth generation. So the two things are not inconsistent. They're entirely consistent as far as I'm concerned.

The Chairman: Mr. Shugar.

Mr. Shugar: I'd like to make the observation that there are different levels of looking at this whole question. I think one also has to bear in mind that universities have a particular mandate and function, and it's different from government departments and from industry. While I would agree with the general statement that it's important to prioritize and to focus, I think one can also argue that it's important to make sure there's some strength in all of the natural sciences and engineering at Canadian universities. That doesn't mean there's going to be a researcher at a particular university who's involved in every aspect of a particular discipline.

That was the point I wanted to make - that focusing and prioritizing in the university context is not exactly the same as it is in other sectors. At NSERC we focus by ensuring that we fund only the best-quality research, which means we fund approximately only 50% of eligible researchers around the country in natural sciences and engineering.

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We focus, because in our partnership programs and our project programs industry has to put money on the table in order for a project to be funded. This is following up on what Dr. Morrissey said about the fact that if industry is prepared to come to the table with money, that tells you something about the priority for that company for Canada.

So I think the answer tends to be a little bit different depending on the particular type of research or the discipline.

The Chairman: Dr. Morrissey.

Dr. Morrissey: I go back, Mr. Chairman, to the railroad tie analogy. Again, if I understand it correctly, why do research on environmentally safe railroad ties? My sense is if the purpose of research is the well-being of Canadians, wealth is just one aspect of it.

The railroad tie example, for me, is if any practice you're undertaking is not environmentally safe, then you may damage the environment and you may put yourself out of business. You may go broke over the long term. If the piece of research in the case of railroad ties is not economically useful as well, then you may put yourself out of business in the short term. My sense is that this is a good example of sustainable development. You want the development so you can create wealth; you want it sustainable so you can stay in business over the long term.

Thank you, Mr. Chairman.

The Chairman: Mr. Murray has one very specific, factual question for some member of the panel.

Mr. Murray: I don't know if anyone can answer this. Do we know what the average age of researchers in government labs is? I was wondering if anybody has any idea what that would be.

I'm not trying to make this go on too long. The reason I'm asking is, there's been quite a bit of pressure on government labs for a number of reasons in the last few years, partly because science and technology seem to have speeded up an awful lot. It's not like it was after the immediate post-war period, when government labs didn't seem to be facing the same kinds of pressures from the public to prove they were producing or performing.

I was wondering as well if they're still able to attract young people to work in government labs while industry is able to cream off the top graduates from the best schools. I wonder if you've noticed an aging of the research cadre in government labs.

The Chairman: Dr. Carty first, then Mr. Morrissey.

Dr. Carty: Two things. First of all, it is true that many government labs recruited heavily during the 1960s and early 1970s and that a number of those people are now retiring.

I think also there's been a major change in recent years and that is in the balance between continuing employees and what I'd call the ``contingent workforce''. The contingent workforce is made up of people who bring new blood into the organization. They don't stay necessarily for a long period of time. They could be students or post-doctoral fellows or visitors. Certainly in our organization the number of those young people is significantly higher than it's been in the past. In fact, while our continuing employees have probably aged in terms of the average, the average age if you count the term employees is probably lower.

The Chairman: Mr. Morrissey on the same point.

Dr. Morrissey: Mr. Chairman, I'm guessing, but the trend we've seen is probably repeated through other science organizations across government. What we've seen in the bar graph of age distribution of scientists is it's now about 35 to 55 years old. There are about equal slices in each subsegment of the 35- to 55-year-old age group.

What has changed over the last few years is that the shoulders of this graph on each side have just about disappeared. We have hardly anybody on permanent staff under 35 and we have hardly anybody on permanent staff over 55. The reason is the 1995 budget. A lot of the over 55 group simply left, and downsizing has prevented us from hiring at a time when we're laying off, in our case, 1,000 people. We can't hire at the other end.

The NRC comment is exactly reflective of what's happening in our case. Because we have cut about $30 million but we're getting in about $30 million in this partnership program - in other words, staff, costing about $30 million, have gone, but cash is coming in for partnership-type work and we're hiring people for one- to four-year contracts - it has brought in very big numbers of scientists on contract.

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For example, at the Sainte-Foy laboratory in Quebec, we have about 95 people working there permanently. Another 90 people are working there in some type of contractual relationship, of whom 40 are doctoral or postdoctoral students - Université Laval is right there - and about 50 others are coming in on these matching investment contracts. An awful lot of young scientists are there, but the contractual relationship has changed.

The Chairman: Thank you very much.

I think I speak for everyone on the committee when I say that this has been a very useful time. It has been almost three hours. People like yourselves, who are either scientists by training or committed to the work of scientists, are very much appreciated.

We're trying to develop a group of parliamentarians who appreciate what you do. I can tell you from personal experience that I spent 15 years teaching what we modestly call the master science: political science.

I very much appreciate the contribution you've made to this country. Thank you again. I hope our report will move this debate along a little bit.

The meeting is adjourned.

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