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INTRODUCTION

The House of Commons Standing Committee on Industry began this long term study in October 1997 to review the important issues raised in a brief by several research groups to the government in September 1997. The Association of Universities and Colleges of Canada, the Canadian Association of University Teachers, the Canadian Consortium for Research, the Humanities and Social Sciences Federation of Canada, and the Canadian Graduate Council highlighted their focus in the opening paragraph of their submission Sustaining Canada as an Innovative Society: An Action Agenda.

Canadians realize that innovation is vital. It is the foundation for our economic and social prosperity and our ability to compete in a global market. To be successful, we need a steady stream of new ideas, a well-educated work force for the knowledge economy, and mechanisms to transfer effectively ideas from the laboratory bench to the marketplace. And we need to ensure that the innovation process is built on a strong and healthy foundation.

While recognizing the efforts of governments, research councils, universities and business to improve the national innovation system and to reinvest in the research infrastructure, the group saw that underfunding of basic research is a danger.

[T]here must be knowledge to transfer and discoveries to exploit if Canada is to reap the full benefits of our enhanced capacity to innovate. Our ability to produce knowledge and feed the innovation cycle is the weakest-and at the same time, the most crucial-link in the innovation process.

They noted that the United States is on course to outstrip Canadian funding of basic research in relative terms. If this alarming situation persists, Canada will lose its best and newest researchers. Although the natural and health sciences are the wellspring of innovation, the humanities and social sciences provide an understanding of our nature and of the societal changes we are facing.

The 1998-99 and 1999-2000 federal budgets increased funding for the Medical Research Council (MRC), the Natural Sciences and Engineering Council (NSERC) and the Social Sciences and Humanities Research Council (SSHRC) as well as for the Canada Foundation for Innovation. The Association of Universities and Colleges of Canada (AUCC), the Canadian Consortium for Research, the Humanities and Social Sciences Federation of Canada, and the Canadian Graduate Council summed up their reaction to these changes when they appeared before the Committee in May 1999:

[T]here is no doubt that the key investments made in the last three budgets in support of research, students and research facilities will go a long way to shoring up Canada's national infrastructure for innovation. They are encouraging signs that our country is again willing to pay attention to the fundamental elements of a successful knowledge society that we outlined in our 1997 brief: people, research, and education.

They pointed out three stress areas in the innovation system: the tendency to think of innovation only in terms of the natural sciences; the availability of personnel; and weak partnerships between the government, private and academic sectors. As well, the level of university funding was still a concern.

Most countries today are pursuing goals of economic growth and higher living standards by focussing on the strength of their national innovation systems and research capacities. The modern view of the innovation process has moved away from a linear model (beginning with basic research, continuing to applied research and to product development) to more circular feedback models. Case histories show that technology advances interactively with major breakthroughs taking place after the initial basic research has been completed. Researchers also benefit from feedback from those who would commercialize the product.

Basic research is experimental or theoretical work undertaken to add to fundamental knowledge. Basic research is often the foundation for future basic or applied research which then creates new knowledge to develop better products and processes. Governments have tended to see basic research as a public good, because the eventual exploitation of the benefits of basic research may be made by different researchers with more market-orientated skills often much later in time. Being an idea, more than one person can work with it at one time without reducing the other investigator's capacity to extend the research. As an individual or a firm cannot easily appropriate all the long-term benefits from the initial basic research project, this fear that the private marketplace would tend to underinvest in basic research has led governments to fund basic research to maximize the benefits to society at large. However, closer to the marketing of the eventual product, intellectual property rights can be assigned to inventors through the patent system to allow sufficient market exclusivity to recoup research and development costs.

This Committee recently studied Bill C-54, Personal Information Protection and Electronic Documents Act, which aims to establish a legal framework to support e-commerce and encryption. This technique to make electronic transactions secure is based on a body of abstract research in number theory undertaken by mathematicians who had no idea that their work would lead in such useful directions.

The original direction of basic research comes from investigator curiosity. Research funders have to be convinced that the inquiry has merit and journal editors have to be convinced that the results have sufficient merit to be disseminated. The two principles of peer review and timely publication have served the scientific community well by ensuring research quality. The shortcomings of any research (e.g. cold fusion) are soon discovered as independent researchers attempt to replicate and extend results.

Universities educate and train. Up-to-date technologies and techniques are more effectively transferred in the skills and knowledge graduates carry to the workplace than by reading published results. Exposure to research is an important part of training for postgraduate students. Industry benefits from university R&D by hiring students who have been trained at the frontiers of knowledge.

University research is funded by grants from the federal and provincial granting councils, and by the universities themselves. Faculty are hired to both teach and conduct research. Therefore, some of the costs of research come out of general salaries. University facilities are often used for research purposes without compensation. In this way, the federal and provincial governments indirectly fund research through their contributions to the core university budgets.

Relative to other countries, the level of R&D expenditure is low in Canada. Research and Development as a share of national income is second to last in the G-7, but Canada has the highest ratio of university R&D to total R&D. In addition, Canadian industry sponsors a larger share of university research in Canada than foreign industry does abroad. Although the strength of the industry-university linkage bodes well for increasing commercialization, the narrow focus of industry on projects that are close to marketability raises concerns of an unbalanced relationship between basic and applied research, as well as increasing the amount of research that is patented and therefore not in the public domain.