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CHAPTER 6: BUILDING A KNOWLEDGE-BASED ECONOMY

Knowledge and innovative ideas will increasingly be the keys to Canada's economic success. The Finance Committee has always recognized the importance of sustained investment in R&D. For example, in last year's report the Committee wrote Canada needs a fresh stimulus to adapt to the new economy, which will be characterized by ``haut savoir-faire," if we want to maintain and improve the economic well-being of our citizens"19 In the 1995 pre-budget consultation report, the Committee wrote "that Canada's ability to compete in the knowledge-based global economy is central to our future prosperity".20

We've lost just this fall at UNB, [our] senior paper and pulp and paper chemical engineer to the University of Maine... And we've lost that person's expertise because the University of Maine was able to come up with the funding to supply his laboratory and technical assistance that UNB was having to curtail because the sources of funding that we have are drying up.

John Thompson (Past President and Member of the Board and Chair of the Department of Mathematics at the University of New Brunswick)

There is no doubt the government shares this view. In fact, the federal government has been supporting research at Canadian post-secondary educational institutions and research hospitals for most of the past half-century.

Productivity is an important determinant of economic growth and our future standard of living. Our future wealth depends on Canada's productivity performance. It is the foundation of our economic and social prosperity and our ability to compete in a global market. This is why supporting R&D, a vital component of productivity growth, is so important.

In the last budget, the federal government announced significant increases in the funding of the three Canadian granting councils which provide financing for Canada's best and brightest researchers. This initiative is particularly important to support advanced research and graduate students as they develop the leading-edge skills needed for a knowledge-based economy. The measures announced are such that by 2000-2001, the three granting councils will have received more than $400 million in additional resources and their budgets will be at their highest level ever.

Now that our fiscal house is in order, the Committee recommends new financial initiatives that will facilitate basic and applied research in Canada. If adopted, the set of recommendations will increase our ability to capture productivity gains, attract and retain highly productive researchers and successfully adapt to the knowledge-based economy. More funding will increase our capacity to carry out leading-edge research and technology development. It will allow us to foster an environment that will sustain and build on Canada's research strengths.

... the price of scientific books and journals has been rising at well over 10% per year for several years.

Tom Brzustowski

Two years ago this government announced its renewed commitment to Networks of Centres of Excellence and the creation of the Canadian Foundation for Innovation. All the witnesses were unanimous in applauding the government for these very important initiatives.

The Foundation was established to provide financial support for modernizing research facilities and equipment at Canadian post-secondary educational institutions and research hospitals in the areas of science, engineering, health and the environment. Tied into this and as seen in the previous section, the Committee recommends important new funding initiatives for health research in Canada. As we said, the outcome of improved health research will be innovative ideas that will inevitably lead to better health care for all Canadians.

The highly successful Networks of Centres of Excellence Program is an innovative approach that leads to better research collaboration between the academic, private and public sector. By adopting a larger vision, these research institutes contribute to improving our productivity performance and quality of life. The Program also contributes to developing Canadian scientists and engineers and keeping them in Canada. As quality proposals in search of funding exceed the supply of funds available, the Committee believes that increased R&D funding should be a high priority. We believe that the capacity to effectively and efficiently employ this additional funding exists in Canada.

The decline of the dollar this summer has decreased the purchasing power of NSERC's equipment budget by more than12%.

Tom Brzustowski

The Committee recommends that the annual federal government funding level of the Networks of Centres of Excellence Program be raised so that more high-quality research proposals be financially supported.

Technology Partnerships Canada is another important government initiative. By making strategic investments in near market technological development projects, this program helps Canada improve its economic performance. It also speeds up the commercialization of new technologies in Canada and levels the international playing field for Canadian firms. Here, like the Networks Centres of Excellence Program, demand for funding coming from high-quality proposals greatly exceeds the supply of funds available. The Program is heavily oversubscribed, indicating a strong demand. The lack of additional funds leads to foregone opportunities for Canadian companies as they are not able to commercialize new productivity-enhancing technologies. This can mean lost employment opportunities for highly skilled professionals in Canada.

Within all of the industries that are represented by the CATA Alliance, there is a strong sense that there is a significant brain drain. Many of the companies can point to examples of losing valuable staff, very often their best people.

David Patterson (Canadian Advanced Technology Association Alliance)

The Committee recommends, as it did last year, that the federal government increase its financial support of the Technology Partnerships Canada so that more strategic, targeted interventions in high-growth sectors, where Canadian firms can become world leaders, can be made.

Not only the private sector is involved in leading science and technology development. R&D undertaken at federal facilities contribute significantly to basic and applied research. The results of high-risk research initiatives can then be shared with the public and private sector. By investing directly in R&D, the federal government is taking on risk that the private sector cannot. For example, the National Research Council of Canada (NRC) supports national science and engineering activities, performs and stimulates investment in R&D, and develops vital expertise and knowledge. The Research Branch of Agriculture and Agri-Food Canada improves the competitiveness of the Canadian agri-food sector through the development and transfer of innovative technologies. There are other important federal scientific and technological initiatives benefitting Canadians such as the Canadian Space Agency, the National Water Research Institute, the Institute of Ocean Sciences and the Transportation Development Centre.

Tax credits claimed by industry for R&D in recent years have amounted to about $1.2 billion annually, and more than half of all large manufacturing firms (firms of more than 500 employees) conducting R&D claimed them. - Manley Report

The Committee recommends that the government enhance its financial support for federal government science, in particular the work of the NRC.

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19 Finance Committee, Keeping the Balance, December 1997, p. 36.

20 Finance Committee, The Next Steps to Fiscal Health After a Year of Historical Progress, January 1996, p. 36.