INDU Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, February 29, 2000

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[English]

The Vice-Chair (Mr. Walt Lastewka (St. Catharines, Lib.)): We'll call this meeting to order pursuant to the committee's mandate under Standing Order 108(2), a study concerning productivity, innovation, and competitiveness.

This afternoon I have the great pleasure to introduce Thomas Brzustowski from the Natural Sciences and Engineering Research Council of Canada, better known to all of us as Tom. Welcome.

Dr. Thomas A. Brzustowski (President, Natural Sciences and Engineering Research Council of Canada): Thank you, Mr. Chairman. Thank you for the welcome. I hope that long-named organization is better known to you as NSERC as well, because we do find that our name gets confused.

I very much appreciate the invitation, and I come to you to make only one point. It's a point I feel rather strongly about, and it has to do with our intuitive understanding of productivity and how that affects our behaviour as individuals, corporations, and a nation.

I find it very interesting that productivity is a concept that most of us hold intuitively, and at the same time, in public reactions it polarizes the discussion. I think we all believe it's better to be more productive in anything we do, rather than less productive. At the same time, for a lot of people—and one sees this reflected in the polls—the words “productivity” and “productivity increases” hold negative connotations. They're usually associated with job losses, downsizing, plant closings, and so on—not happy experiences. That's very unfortunate, but one has to try to understand it, and perhaps one can do something about it by using the word differently.

I, for one, am often very frustrated that when I read some report that points out that productivity is a great thing and gives the numbers, the definition is hardly ever mentioned. Somehow one is expected to understand the definition, yet the definition found in the newspapers, for example, is generally quite vague. It's generally the amount of material or product produced per unit cost, per unit input, and the input most often is labour. It can be other things, but that's specified in detail.

In my very brief remarks, I would like to propose perhaps a little different way of looking at productivity. A number of people who distinguish the new economy from the old say that tonnes of pig iron, bushels of wheat, hundreds of tonnes of sulphur, barrels of oil, and whatever were good measures of the nation's economic health at that time, but now they're no longer adequate. They were never a good comparison because we had to express things in a common currency—the dollar. Services complicated that quite a bit, because very often the number of hours worked or even the person-years assigned to a task didn't tell the whole story. I find it much more useful to think of the value of the services provided.

Really the only point I wish to make to the committee is that a much better definition of productivity is the value of what is produced divided by the cost of producing it. Whether it's the cost of labour, the cost of land, the cost of capital, or any other cost, the stress is on the value of what is produced.

I have to admit to you right away that I'm not an economist. I do my best at times to try to understand economic concepts, but it's very clear to me that the creation of wealth depends on adding value. You don't create wealth unless you add value. In fact, the economists have a definition of added value that leads to wealth creation, namely that added value is gross sales minus the cost of inputs you have to buy, including the cost of capital you use. That then pays wages and taxes and provides profits, net of the cost of capital, that can be used to pay dividends or make further investments, if they're retained in the company.

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The business of being able to engage in economic activity and therefore produce money you can invest means wealth creation to me, even though we use the phrase without defining it very often. So if the stress is on the value of what is produced, this seems to fall right in line with an idea that is appearing more and more frequently.

In the financial papers, the investment pages talk about the concept of shareholder value as being a driving concept in a lot of decisions of boards of directors. A large and important consulting company in New York city called Stern Stewart has developed the concept, and I think they've actually trademarked the name EVA, economic value added, in which the cost of capital used, the cost of equity, is taken into account. They have also developed—and I think also protected—the concept of market value added, by which one measures the wealth creation performance of companies.

Our own profession of accountants will shortly announce they're embarking on a project to deal with the creation of value in business, rather than just the realization of value at year-end. All of these things are putting the stress on the word “value”.

Very simply, I would propose we begin to think—I'm not proposing this as the definition of the text books—of productivity as the value of what we produce divided by the cost of producing it. To me, that opens the door to thinking about productivity in a new way.

It means adding as much value as possible to whatever we export in the world markets; getting in the market first with new goods and services that meet a need and are attractive, and we call those innovations; being able to set the price, rather than taking the price determined by the balance of supply and demand of commodities; and therefore doing what we can to increase productivity, not just by downsizing the denominator of that fraction but by growing the numerator—increasing the value of what we produce.

That is really the only point I'd like to make. I make the point toward the end of my brief that innovations allow us to produce products of greater value. For me, that is the connection between productivity and innovation. If we adopt the value concept of productivity, we open our minds to the possibility of producing products of increasingly large value, so we can still increase our productivity, even though we employ more people and pay them better in the process, as opposed to just decreasing the cost of production.

With that, Madam Chair, I would be very happy to, in my limited way, answer any questions you have about this connection between productivity and the value of what is produced, and therefore the connection between productivity and innovation. Of course, I take as a given everything I've been hearing from the economists about increases in productivity being good for you. I firmly believe that. I think the data are there.

I have prepared a short paper and my remarks have been short. I will be delighted to engage in a discussion with the committee in any way I can, and maybe try to answer some questions, or maybe take away new questions to be answered. Thank you very much.

The Chair (Ms. Susan Whelan (Essex, Lib.)): Thank you very much, Dr. Brzustowski. We'll now go to questions.

Mr. Riis, please.

Mr. Nelson Riis (Kamloops, Thompson and Highland Valleys, NDP): Thank you very much, Madam Chair.

Tom, thank you very much for your presentation. It was very interesting.

You've targeted one of the problems we have in this discussion about productivity, which is that most people—many people I come in contact with—equate productivity with downsizing, lower salaries and wages, and so on, to keep that lower figure lower. So I really like what you're saying, and I think we're on to something.

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Really, what you're saying is that we need to be looking at Canada as producing—I put it in another terminology—higher-end products to get that top number as high as possible. I wonder if you can give us an example. Obviously we're competing with other countries, we're in a global market, and we're into the high-end creation. Can you think of two things: a commodity in which we do well at the high end to increase that value, and also what you'd term in your paper an “innovation”, where again we are in the upscale market in terms of global competition?

Are those questions clear?

Dr. Thomas Brzustowski: Yes, they are clear. That doesn't make them easy, but they're clear.

Let me give you two examples of value-added products, innovations based on commodities, one in which I know that Canadian industry has in fact been reaping the benefit of adding the value, and the other for which we export the raw material, import the value-added product, and pay extra for it, pay the premium for it.

If you take nickel, nickel is a commodity product. Inco produces nickel. Some years ago, I was visiting an Inco lab in Mississauga and saw a demonstration of a process by which Inco was producing nickel foams, which become the ingredient in rechargeable nickel-cadmium batteries. These nickel foams, at great value per pound, were being exported to Japanese manufacturers of nickel-cadmium batteries, as opposed to exporting just the raw nickel. So to me, that's an example of value-added product based on a commodity. The process and that particular product weren't innovation; they replaced something already in the market.

The example that makes me wince a bit is that we export wood pulp, a commodity product. We have to take the price that's offered in the world market, because so many other people can also export wood pulp, and we often import such things as high-value-added specialty filters and absorbing materials made of that stuff—with relatively simple processes. But it's made of something we export in high quantity.

So there's an example, then, of seizing the opportunity in the first case, and failing to seize it in the second.

I would say that an innovation is what I define as a new product or service that's introduced into the market. A very good example of a Canadian innovation, to pick a very visible example, would be the fuel cell stack that Ballard is producing.

Not all innovations come from research. Some innovations come from simply knowing how to do things, and by experience, solving problems. Some innovations come from a new insight in a market, producing a service or product of a fairly simple nature that happens to be needed. Some innovations can be brought into the market simply because somebody's bought a piece of technology and put it to use.

I hope that in some way answers the questions.

Mr. Nelson Riis: Thank you.

The Chair: Thank you very much, Mr. Riis.

Mr. Lastewka, please.

Mr. Walt Lastewka: Thank you, Madam Chair.

Thank you very much for your presentation.

Again, you're forcing us to go to another level to think about how we're trying to make things improve. I think what you've brought forward here is an area that is also very misunderstood: the productivity and the formula to use. What I heard you say more and more is that the value of what is produced is where we should be putting our efforts, and when it comes time to research and develop, to go beyond, as you mentioned, the raw material. We export a lot of our raw materials around the world and then bring the products back. At one time there was a sort of emphasis to be doing 10 and 20 at least, if we're not doing the whole product, to have more value added.

How do we get that message across to everybody? How do we get the message across about productivity? You mentioned the negativity of job losses, plant closings, and cost-cutting. People always seem to look at that first. That's what gets reported in the papers. It's always how many people lost their jobs, or how many fewer containers, or whatever it is. How do we get that message through to our scientific community and our media, to understand what value added is?

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Dr. Thomas Brzustowski: This is a tremendously important, challenging, and difficult question. Let's start with the word “value”. Does something have a value of its own, by itself, or does it have a value only if somebody decides to pay a price for it in the market? Well, I'm not a philosopher. I tend to believe that the value of something is established by the price people are prepared to offer for it in the market. So there's a market test.

If you're working in the commodity area, where anybody around the world can be a supplier, the products are largely undifferentiated, and the price is determined by the global supply and demand. You don't have any choice but to take that price. But if you produce a unique product—and it doesn't always have to be based on research, but I'll come back to the research because that's very important—with unique features that are desirable, and people are prepared to buy it and pay for it at a price that covers your production and R and D costs and leaves you a nice margin with which to develop the next generation, then you can create jobs, you're setting the price, and your behaviour in the market is totally different.

First and foremost, I would say to Canadian business people—I'll explain why in just a second—that they should strive to move into those businesses where they can get a really good price, good margins, in the world market for their product. Why do I say Canadian business people? I say this because I really was quite unpleasantly surprised by the recent first annual report by the Conference Board of Canada on innovation, which showed that in comparison to the United States, in the corporate boardrooms and offices of the CEOs, the percentage of Canadian CEOs who saw innovation as a challenge in their own business was something like 12% or 13% compared to the American 70%—an appalling gap.

I would say that is a group that one has to target. I wish the notion that we're happy to be the hewers of wood and the drawers of water would just go away and slip into folklore, or better yet, into legend, because it bothers me that perhaps we are seen too much like that. When the Canadian dollar goes up and down like a yo-yo in response to what somebody does, some bank somewhere, for example, deciding to sell some portion of its gold reserves.... With gold being a commodity, and the Canadian dollar being tied to commodities, that link is so tenuous when you think of the reality, and yet it's made in the minds of traders. We have to change our image.

Now I come back to your question of research. While not all important and successful market innovations depend on research, very many do. The ones that do are the ones that produce something that is entirely new and has never existed before—the laser, the transistor, and these sorts of things, and genetic engineering in all of its applications, whether in health care or in other fields. The things that have never really existed before, that are totally unlike any service or product we've ever offered, come from new knowledge and new insights, and that's where research shines.

NSERC publishes a book, which I'd be very happy to send to the committee for distribution, that is simply a documented sample of 111 Canadian companies whose roots can be traced to basic, untargeted research, not done in partnership with industry, done for 20 or 30 years, out of which have arisen products, goods, and services in many areas.

Research in mathematics is an example. Two universities in Montreal and the business school of the Université de Montréal produced two companies that sell scheduling software for transit systems and public railways around the world, and another one that sells scheduling software for the assignment of individuals in airlines around the world. This was based on mathematical research, and jobs for hundreds of PhDs were in it. It was a service that never existed before, but the research made it possible.

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Basic research produces the ideas for what I call radical innovations, entirely new things. In partnership with industry, targeted research does very important things in solving problems that can't be solved with today's knowledge and in improving processes and producing new products, but all of that is done within established enterprises. These are two different kinds of activities, but they both have their place.

I hope that helps to answer the question. We're dealing with very difficult questions here.

The Chair: Last question, Mr. Lastewka.

Mr. Walt Lastewka: Thank you, ma'am.

I appreciate what you just said, because many of us have been struggling with this topic for a long while now. I get an appreciation of it because, coming from industry, I know it's an area that is very misunderstood, as you pointed out. My concern is how we promote to the daily media a better understanding of what productivity is.

Dr. Thomas Brzustowski: Well, I think it will take nothing short of a concerted effort. We did it in terms of physical exercise through our ParticipACTION program some years ago, and the result was a boom in leisure activity, in exercise activity, and so on. It would take people who are much more expert in communications and public opinion than I would ever claim to be in order to design a campaign, but some of the themes have to show that Canadians are capable enough and smart enough to add a lot of value to products that the world would want to buy. That will allow us to create more and better jobs.

The Chair: Mr. Riis.

Mr. Nelson Riis: Can I raise a point of order?

The Chair: A point of order? Yes.

Mr. Nelson Riis: I don't know if it's a point of order, but I had a thought that's based on this last response. Maybe we need a new name for it. Tom talked about ParticipACTION. That was a new name that we hadn't heard before, and then it became something in our country. Maybe we need to replace this name, productivity, with something else in order to get people thinking in a different way.

Anyway, that's my point of order.

The Chair: I think that's more of a statement, but we'll allow it.

Mr. Jones, please.

Mr. Jim Jones (Markham, PC): Thanks for your presentation, Tom, but I'm still trying to figure out exactly what you're saying. For example, I understand added value. With a boatload of lumber, the raw logs are loaded in Vancouver, and by the time they get to Japan they're all milled into the final product. That is added value. Instead of having it done on that boat, we should be doing it onshore because that would create the jobs. The other added value comes when we send the raw material to Japan, like iron ore or whatever else, and it comes back to us in the form of finished goods.

I understand that this is what you mean by “added value”. But then I go to shareholder value or capitalization, if that's a good thing or a good indicator. For example, just the other day, somebody said here that the capitalization of stock in a firm out in Vancouver was a capitalization of $6 billion with $1 million in revenue. I guess it was in the genetically modified arena.

I don't know how we can look at this thing this way, because what I think some of these dot.com companies are really starting to do is capitalize potential intellectual knowledge that might or might never result into a product. They might never get their money back, so I'm just having a lot of trouble figuring out exactly what you're saying.

Dr. Thomas Brzustowski: Well, thank you for asking that, because it gives me a chance to clarify things.

The type of company you describe is what some people call a pre-profit company that might never make it into profit. The only reason I mentioned such things was to suggest that perhaps I'm not a voice in the wilderness.

There are a lot of people talking about various aspects of value. Your examples on value added are precisely right. For example, if we have a company in Calgary that is connected through the Internet with customers in Japan who can design their houses on-line, and dimensioned construction timbers leave in containers from Calgary, we're all set. We're adding a lot of value to the raw wood, a great deal of value, and that's a wonderful example. That's really value added.

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I didn't wish to suggest that I'm advocating shareholder value as some sort of a marching cry, because I don't know enough about the markets. Like you, I've heard of some strange things done in the name of that, such as companies folding because the real estate they occupied on a particular day was worth more than their profits for a few years, but they did so without any thought about the longer term or the people involved. All I am saying is that people are talking about value increasingly. That's the point I wanted to make. If people are talking about value increasingly, why not move it into the discussion of productivity?

Mr. Jim Jones: I understand added value, and I would say that from a Canadian standpoint we have our fair share of natural resources in the world. If Canada was to try to move from a...I still say we're a natural resource country. At least, a lot of it is still going to be a natural resource country. What would your suggestion be? We want to move into the knowledge industry, but that's not going to create all the jobs that we need to create for Canada. What should we be doing with our natural resources to add value?

Dr. Thomas Brzustowski: I think the notions of adding value and innovating are not limited to the high-tech industries, although they're extremely active and very visible there. But innovation can be achieved. For example, supposing somebody buys, off the shelf, an automated sawmill and begins to produce dimensioned timber or some new products that they weren't making before. They are therefore adding value on the spot in Canada, and that added value pays taxes, pays wages, and produces profits for investment.

It can be as simple as somebody whose mother was pretty good at making sandwiches buying a sandwich sealing machine and getting into that business; or it can be somebody in a science-based company who seizes the latest invention, puts together some ideas from six or seven different labs, comes out with a new way of doing something or comes out with a new product, patents it, and moves off to maybe start up a spinoff company. There's a whole range of possible activities. But the notion of the added value being gross sales minus what you pay for as purchased inputs and capital, because you have to pay for the capital—that, paying wages and taxes, and providing profits is, to me, such a clear guide to the sort of thinking that we should engage in.

I'm no expert, though. I couldn't possibly come up with a better name for productivity, and I couldn't possibly come up with any sort of convincing popular message to persuade people to march in that direction. Intuitively, though, I feel the stress on value opens up possibilities that aren't there if all you want to do is make more of the same stuff at less cost.

Mr. Jim Jones: Are there examples that you're aware of in the research community? Is there technology that, if it was readily applied to whatever industry it's applicable to, could allow us to create a lot of jobs and add a lot of value to whatever we're talking about, whether it's raw materials or natural food products? Do you have some examples of where Canada is not moving fast enough, whether it's through our incentive programs like taxation or whatever, to force people to move into that arena?

Dr. Thomas Brzustowski: Let me answer this in two ways. I'll provide an example of an area in which we are in fact very strong, are moving fast, and are moving in surprising directions, and then I'll give an example of some of the obstacles that stand in the way of actually commercializing many research results, if that's okay.

The first one is robotics. This is the country that produced the Canadarm. We're very good in robotics. In an investment that'll be made by PRECARN—and you would have seen that in yesterday's budget—they're moving into stage three of the spread of robotics and robotics technology. They're moving into fields such as remote-controlled mining, which is much safer, all the way to robotics in the operating room, so that you can perform surgery on a beating heart without stopping it. And there are all sorts of applications in between. So Canadians are very good in robotics, and this is an area in which we are gradually beginning to move from pure technology push to some significant market pull. I think that's what we need.

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In a lot of areas where university research produces ideas that seem patentable and as if they might be a breakthrough in something, we face the situation, as do a lot of other countries, where you start off with pure technology push, and there's just no market pull. What you have to do is, first, realize you have something that could in fact have an impact on and be attractive to the market, and second, you have to demonstrate that to investors. What you need to take to market a product that is based on research is private capital investment, which can be many times or even orders of magnitude greater than the public cost on the research project, and finding that is a real challenge.

It's a game that's every bit as uncertain as doing the research in the first place. Talking to R and D managers of large corporations underlines the fact that even for them, who are working in an environment in which the conditions are already receptive, it's still an uncertain game.

So if we had freer availability of capital and quicker decisions regarding capital, call it love money or angel money—the point where you develop sweat equity, then families mortgage houses, then neighbours and retired people in the community lend their wisdom, and finally you obtain appropriate amounts to take things to market—if that were easier, we'd do better. I don't say this from first-hand experience. I've just heard it from a lot of people.

Mr. Jim Jones: With regard to the research we do in Canada versus, say, the research they do in the U.S., it would probably be safe to say that in the U.S. a lot more corporations are doing research and that in Canada the bulk of the research is probably being done by institutions funded by the government. I could be wrong. With regard to the research we're doing in Canada, how fast does that turn into a product versus how fast the type of money that's invested in the U.S. is turned into a product? Do you know why? I don't know the answer as to who's faster. If it is the U.S., why is it faster?

Dr. Thomas Brzustowski: I appreciate the question, and I hope there can be some discussion that will add to what I know about this.

The time scale in some ways depends very much on the business. In the communications and information technology industry things happen so fast, particularly within well-established companies, that getting to market six months ahead of the competition gives you all the advantage you need. Very often you don't even take time out to patent.

At the other end, if you've found a new molecule that's a candidate to become a drug, by the time you go through all the approval processes and clinical trials, it could be the better part of 15, 16, or 17 years. It could be a long, long time.

Let me put it this way. We have some absolutely first-rate private sector research in this country, but we don't have very much of it. We have some absolutely first-rate government lab research in this country, but we don't have very much of it. That's why our gross expenditure on research and development divided by GDP is down around 1.6, where little Sweden is at twice that and Finland is right up there, and the U.S. is passing through three on the way up.

Where we are competitive with the countries with which we trade is in the capacity of our universities to do research. We have comparable numbers of students, comparable student-faculty ratios, and comparable numbers of faculty. There we're in the same league. As a result, it turns out that Canada leads on two statistics: more of our industry research is done in universities than that in any other country in the G-7, and more university research is sponsored by industry in Canada than in any other country in the G-7. Simply because they know each other and they're there, that interaction is more pronounced in Canada than in other countries.

We don't do enough research. The biggest factor I encountered in a study I did on commercialization of research results is that Canadian faculty members don't have nearly as much time to do research as their American counterparts, and when they have something that can be commercialized, the decisions on financing are much slower in this country than they are in the States. Because of the larger critical mass in the States, you have people who specialize in various products and know exactly what's needed at various stages in their development. Here we have people who have a much more generalist mandate.

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The Chair: Thank you, Mr. Jones.

Mr. Murray, please.

Mr. Ian Murray (Lanark—Carleton, Lib.): Thank you, Madam Chair.

Dr. Brzustowski, you seemed to have arrived here today in a rather philosophical frame of mind. At least that was the impression I got when you started off with your comments. So rather than get into the nuts and bolts of productivity, I'd like to address this suggestion you made that we have to change our image. I think that's what you said. You discussed with Mr. Lastewka a ParticipACTION-type advertising campaign and getting the media to understand productivity.

Let me state my bias first. I don't think it would have much effect if we tried to educate the media.

I think you're right that we have to change our image. I've always thought that changing Canada's image to that of a more exciting country would have implications beyond just economic development and could also affect, say, national unity. For example, if Quebeckers saw English Canada as an exciting place on the world stage, they'd be less inclined to want to pursue a dream of sovereignty because they would want to be part of this very special entity. If a Canadian soccer team wins a Gold Cup, for example, we get pretty excited about that. It happens from time to time.

With regard to this whole issue of increasing productivity, you mentioned the fear of job losses and the negative associations with the word “productivity”, but essentially we're talking about a fear of change, which probably exists in any society. Perhaps in Canada we tend, if not to fear change more, to support those who fear change more, perhaps to their detriment. I use as an example keeping people working in a coal mine in Cape Breton for longer than the coal mine was economic, which may actually have been detrimental to their health, not just to the economy of that part of the country. Governments often do things because they think they're supporting their fellow citizens or doing what the electorate wants them to do, so we make some public policy decisions that perhaps have negative implications.

What I'm coming to is the question, how do we reward those people who do innovate? We saw in yesterday's budget some examples of that, I think, although they were perhaps fairly narrowly focused. If we're going to be an innovative society, do we need some kind of shock to the system in Canada? Unfortunately, great things often happen after periods of war or deprivation when people are hungry and they actually have to do interesting new things in order to get on with their lives and prosper. Nowadays we find that savings rates are very low because we tend to have a very nice lifestyle and spend the money we earn. That's a phenomenon not just in Canada but also in the western world, essentially.

So my real question is, how do we kick-start this desire to innovate? I think the press would follow, rather than our asking the press to lead. We have to make it attractive to people, so do we hold out a carrot or a stick?

Dr. Tom Brzustowski: Thank you for that question. In comparison with me, I think the question has a much stronger philosophical base than my sort of nuts-and-bolts approaches.

Isn't it interesting that when the Canadian public act as consumers, they not only seek out innovations but they also celebrate them. In music, in literature, in entertainment, in the automobile they buy, in the fashions they wear, they celebrate the people who produce them.

It somehow stops at the level of the producing industries, the level of business. We somehow don't give the superstar status to those people. It's really quite interesting. Why do we do that? I don't know why that is. But perhaps there are lessons there that we should somehow seize and capture. How many Canadians would consciously seek to buy last year's fashions or not wish to have the latest record of their favourite pop star or prefer to read only old books and to ignore the recent works in Canadian literature, which in fact are being celebrated not just around the world but finally in this country, which is quite wonderful? If we could somehow extend that to our scientists, our business people who are innovators, the engineers, design engineers through whose hands any new product must pass....

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I don't know how one does it, but perhaps a clear statement of the problem is a good way to start. The boundary conditions are not a public not responsive to innovation, but a public extravagantly responsive to innovation in other areas. I don't know how one builds on that, but I would love to be instructed.

Mr. Ian Murray: You deal with extremely intelligent people every day. You are one of those intelligent people, but you mix with a group that is part of the intellectual cream of society in Canada. We've all been to NSERC functions and dinners and awards dinners and seen these people, and they're outstanding. When you're talking to them about these sorts of problems, if you ever get that opportunity, and these people have a chance to turn their fine minds to the problem, what sorts of frustrations do you see in their comments about trying to move things along in Canada?

Dr. Thomas Brzustowski: We're talking about a community, one of whose values is that you don't push yourself forward; you don't advertise. You are recognized by your peers for the work you do and you are nominated for awards, but you don't apply.

They're a very shy and retiring bunch of people, and not many of them are natural communicators. We've been fortunate enough to have a good selection of those at the Bacon and Eggheads breakfasts, but that's a small sample. This is a community in which diffidence and modesty are really values that are held dear. Somebody has to do it for them, somebody who understands what their accomplishments are, somebody who understands the public, somebody who can popularize in the best meaning of that word.

Mr. Ian Murray: I'm running out of time here, so can I ask you, what kind of recognition? Say we as a government wanted to do so something to make those people stars in the firmament, along with those who produce the novels and other works. Are gold medals enough, or do they need their own chair at a university? What is it that would motivate these people to be really excited about being in Canada?

Dr. Thomas Brzustowski: In the last few months, I attended two events in this country at which people who do these things were celebrated. In one case, at a black-tie dinner of about 1,000 people, and in another case, a dinner of about 800 people, one in Calgary and the other in Vancouver, these people were treated as stars. They had little videos about their accomplishments. The leaders of the community were in the room. Somebody had organized a major recognition event on an annual basis.

The Alberta Science and Technology Awards are an annual recognition event that attracts 1,000 people in black tie to hear about maybe 15 people and their accomplishments and what they've done, whether it's in technology or in science, whether it's pure research or innovation. It was really impressive. I wish we could do that across the country. I wish more people would do it locally across the country.

The Chair: Thank you very much, Mr. Murray.

Mr. Riis, please.

Mr. Nelson Riis: If I could pick up where Ian left off, we've seen some changes in the last number of years in our own country where these kinds of innovators in fact are being, as you say, recognized more, doing some of the things banks do in terms of recognizing things like aboriginal business innovators, and so on. We are moving in that direction, but the fact is that our soccer team won, and most of us we didn't even know we had a team. But all of a sudden we won. So I think we still have some road to go.

But perhaps this is one of the avenues. As you know, the government is in the process of setting up these research chairs across the country, which will help in that respect, hopefully, and particularly in terms of the relationship between technological push and the market pull, and perhaps we should be looking at some of these chairs that will help us in these areas.

Mine is a fairly practical question, but who is allocating those chairs, how will they actually be allocated, and where?

Dr. Thomas Brzustowski: At this stage, I don't know yet. I expect the rules will either be published or presented in a speech sometime soon, or within a few weeks. There has been a group of people working on that. There's a lot of discussion about how that should be. But presumably the universities will have a certain number of chairs allocated. They will have to produce a strategy. They will submit candidates for the chairs to the granting councils to be peer reviewed, filling spots in that strategy. I think this was on page 104 or 107 of the budget plan last night.

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If you're leading to a statement that there's lots of room for celebrating achievement in that process, I think there is. Naming these people and identifying them, making them celebrities locally, is very important. But there's another whole dimension to this, and I hope you will allow me to get this in, even though it's not in direct answer to the question.

We need to change our image outside the country, too, to attract foreign direct investment, because our share of that has been slipping even though we're becoming more and more competent in advanced manufacturing, research and development, and all sorts of things. To know us is to love us, but not enough people know us, because they look at us...and in most places we don't even exist.

I find it very frustrating to try to find any news of Canada at all in a continental European newspaper anywhere, let alone see our image as a nice place for foreign direct investment. So that changing of the image inside may spill into the outside image of the country, but we may need to do things that are specially dedicated to changing our image in the world a little.

Mr. Nelson Riis: I would add a couple of points. One is about the image you referred to in your comments earlier, the hewers of wood and drawers of water thing. I think we're over that thinking, but a lot of the international community isn't. When we talk about our securities markets and so on, people often refer to the commodities being down and therefore the Canadian economy must be taking a bit of a beating, which in fact is not necessarily the case. But there is that perception.

I have a question perhaps for my colleagues around the table, including you, Tom. I remember being astonished reading an article last month about the percentage of incomes in the province of Saskatchewan derived directly from the farming community. It was less than 2%. Most of us probably think it's 50% or 30%, but less than 2% of incomes in the province of Saskatchewan are derived directly from farming. So even we are shocked by the reality sometimes.

My last comment is that I hope to the extent that perhaps you can be helpful in allocating chairs and setting up the process and so on, we not lose sight of the fact that a lot of innovation these days is coming certainly from the universities, but also from other kinds of institutes, right down to the technical college level, which are attracting a whole new cadre of professorial research teams.

I'd hate to think we would think, well, U of T will get 10%, the others will get 5% and 6%, and we'll throw away 2% to all the other systems, when in fact they could be our chance to break out of this mentality somehow in terms of some very innovative research at that more technical and college level.

That's just a comment, so I'll leave it at that.

Dr. Thomas Brzustowski: All right.

The Chair: Thank you.

Mr. Malhi, please.

Mr. Gurbax Singh Malhi (Bramalea—Gore—Malton—Springdale, Lib.): According to your report, NSERC makes an investment that builds Canada's capacity for such innovations, both by obtaining very highly qualified people and through university-industry partnership in project research. But most professionals and business people and individuals think, due to the brain drain, we are losing our productivity. How do you specify that?

Dr. Thomas Brzustowski: You're raising a very important question. We have one business line and three programs: we invest in basic research, which gives us access to research around the world; we invest in university-industry partnerships, which solves industrial problems; and we invest in the training of people.

With the help of NSERC, something in the order of 50,000 young people in this country have been helped over the last 22 years to obtain master's degrees and PhD degrees in science and engineering. Some of them have left the country. We run surveys of graduate students and we have some very limited data on intentions and numbers. But one survey found, for example, that 17% of the respondents who had completed their studies with our support were outside of the country, and half of them were planning to return to Canada. The rest were not. So you can say that's a loss of maybe 8.5%.

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What determines whether these people leave is first and foremost—it's not the only factor—the opportunity to work at the leading edge of their field with good facilities, good colleagues, people who appreciate what they do and enforce them in it. Issues such as individual incomes and taxes enter the picture, but they come later. It's doing the work at the edge.

I'm hoping that in fact the new program of chairs that's been announced will allow us to attract some expatriate Canadians back to Canada so they can in fact increase our productivity by leading the way to these value-added activities in this country rather than doing the work somewhere else. I don't think anybody can predict with accuracy what effect there will be, but a lot of people have encountered individual Canadians abroad who have said “If there's an opportunity for me to come back, I'd like to come back.” So let's hope that this will happen.

There's a lot that nobody can control; for example, within large corporations divisions moving back and forth across the border. Those are business decisions. But what we can do, public service, government and universities, is to try to create opportunities for our outstanding Canadians to do leading-edge work in this country, to have it adequately funded, to have it recognized, and to have it supported. Then the next stage is to create some market pull for the results of what they do so that it will be used in this country to add value. It's a hope. It's not a recipe; it's a hope.

Mr. Gurbax Singh Malhi: Thank you.

The Chair: Thank you, Mr. Malhi.

Mr. Jones, please.

Mr. Jim Jones: Yes, I have a question in regard to the research chairs and where they should be located. Can you just apportion them across the country, or is it probably more advantageous that they're located where there are clusters of expertise in the public sector in that arena?

Dr. Thomas Brzustowski: That's a question that is at the moment the subject of fairly intense political activity from the maritime provinces—and I advisedly don't say Atlantic provinces; I say maritime, because Newfoundland seems not to be involved in this—and also from Saskatchewan and Manitoba. Their concern is that if, as initially planned, these chairs were handed out in proportion to the share of the funds from the granting councils given out in competition, the smaller universities would get very small numbers. This is their concern.

Against that background you have two competing hypotheses, neither of which has been proved yet. I don't know what it will take to prove them. One says that if you put the chairs in the concentrations where you have the highest achievement, the greatest concentration of people, you will achieve the most with each additional chair.

Other people say quite the contrary. They say that if you put the chairs where they will be a pinnacle of strength in an area that's otherwise weaker, they will achieve the most. And who can prove it? I don't know.

We have examples in this country of both. We have small universities that get very little research money but have gone through the very difficult political process of setting priorities and focusing their resources. The example I use is l'Université du Québec à Chicoutimi, which gets a very modest amount of funding from NSERC but has three very prestigious NSERC chairs because they focus their resources. There's one on the biology of the black spruce, which is the dominant species there. There's one on the extractive metallurgy in aluminum processing. Alcan is up there. And there's one on the impact of freezing precipitation on the performance of high-voltage switch gear and transmission lines, because they have long transmission lines.

It's absolutely untrue that an experiment we funded got out of control early two years ago and caused the ice storm. That's not true.

But they have focused their resources. So a small university can do that. It takes will. It takes guts. But we also have lots of examples of big universities with lots of research experience that have a critical mass in an important area. How do you decide a priori which you should do?

Mr. Jim Jones: The question I really have is can you put chairs in where there are no clusters, and what will the long-term results be?

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I have a colleague in my caucus who is already concerned that the Maritimes are going to get an uneven distribution of chairs, but maybe their universities down there haven't focused on certain levels of expertise. So now can you retrofit and go back and grow expertise in those universities? It's probably going to take a lot longer, especially if there's no industry there that they would have expertise of.

Dr. Thomas Brzustowski: You don't always have to go back and rebuild. NSERC gives four Steacie prizes each year. These are prizes given to an associate professor within 10 or 12 years of getting the doctorate who's really making a mark for himself in the world. One of these went to the University of New Brunswick this year. Now there, if you dig around, you find that there is in fact a cluster of small companies, some of them spin-offs from the university. You wouldn't identify Fredericton as a tower of strength, and yet it's there.

I don't know what to say, except that some universities have chosen as a mission to teach large numbers of undergraduates, teach them very well and do something very important that way, without engaging in much research. Should they get chairs? Will they use them well? That would remain to be seen. I don't know what the answer is.

Mr. Jim Jones: Quite a few years ago the Internet was started by universities for sharing information and research and all that. Hopefully when they set up these centres of excellence and the research chairs maybe they'll go a step further, because some of the disadvantage is going to be distance. So hopefully you set up all types of communications-type media so that distance is not a factor.

Dr. Thomas Brzustowski: That's a very important point. I can't speak for how the chairs will be set up, but I can tell you that in the teaching of engineering design, which is an activity in which isolated individuals around the country engage, NSERC is going to be putting in a Canadian design engineering network that will connect all of those people, so together they'll be able to develop new teaching methods and new approaches, precisely for the reasons you stated.

The Chair: Thank you, Mr. Jones.

Mr. Lastewka, please.

Mr. Walt Lastewka: Thank you. I have one question that popped into my mind after all this questioning.

I visited many universities during our commercialization of government research study across the country, and I was intrigued with some of the universities that have excellent commercialization transition departments to help the existing scientists there to get their work to market or to bring back the market feedback to the university. During our studies we've heard over and over again that we as a country are short in having good people who specialize in being the in-between person of commercialization to market. I'd like to hear your comments on that.

Dr. Thomas Brzustowski: Total agreement. You have to realize that the qualifications of such people are formidable. On the one hand, they have to know the science. They have to know the sciences so well that they can spot something of interest in visiting a lab. On the other hand they have to know the market. They have to have some sort of gut feeling about whether something will meet a need that exists in the market. Then they have to know the investment community and know the people who can provide the right amount of money at the right time, in the right amount at the right cost, and be prepared with the right amount of risk and the right exit strategy. They also have to know the legalities of licensing, setting up corporations, or whatever. And then, in between, they have to be good managers, moving the files along.

These are extremely difficult qualifications to meet. The task is difficult. Many universities have learned how to do it well and have some people doing the job. Some other universities haven't learned it yet. They don't have the people.

Mr. Walt Lastewka: I look at it from the standpoint that it's withdrawing out of the science area, out of the research area, those things that consumers eventually buy. I'll give you the example of the University of Alberta in Edmonton, where the collaboration that's going on amongst the scientists, the office, and the consumer had become almost transparent. I could see a lot of the transactions going back and forth. People would recognize that there's a hot spot there, and the issue becomes that we need to create more hot spots.

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It's almost the same analogy as when I started working with small businesses and having to help them with a system for how to make things happen. There are many people who are poor business people but great entrepreneurs. It's not any different from the research through the transition thing to market and having the proper incentives come back to the researchers for their work.

Dr. Thomas Brzustowski: I think your visit has proven to be very fruitful, because you're putting your finger on some of the key elements as to what has to be considered. The University of Alberta is one of the very best in the country at doing these things.

The researchers in our universities—and this will come as no surprise to anybody—fall into two categories on this issue: there are those who are so interested in doing research and so uninterested in learning how to deal with lawyers and the finance community that they'd like to have someone take this over and do it on their behalf. Those people need the services of the kind of staff of which the University of Alberta has a few. They don't have many. They have a few. Other people are sufficiently entrepreneurial themselves that they feel they would be the best ones to take their idea to market. At some stage along the way they're replaced by professional managers, but they bring their own entrepreneurship, an ability to work long hours, and a devotion to a task. Both people need to be accommodated. Both people need to be helped.

I for one would love to see the business schools taking a bigger hand in this and helping to educate such people. Most of them are taught on the job. Most of them deserve salaries according to the market, which are higher than the salaries of the professors with whom they work, and they don't fit comfortably into the universities. Many of them are targets for being recruited away by the Canadian private sector. The U.S. has lots of these people. It's a real HR challenge in this area.

The Chair: Thank you, Mr. Lastewka.

Lastly, Mr. Murray, please.

Mr. Ian Murray: Thank you.

I'd like to return to our discussion about changing the way others see us. It occurred to me that we could probably narrow that down to a smaller group, and that would be changing the way young people see us. If you look at all the churn and excitement that goes on leading to revolutions in biotechnology as well as in microelectronics and software development, a lot of that has to do with young people. What reminded me of this is when you mentioned that you have to have people who can recognize the technology and the market opportunities at the same time. A lot of those would be young people, I would think, with perhaps a very few years in the workforce who are up to speed on all the current literature, including popular media.

So my question to you is, again based on your experience, is there a point in life—let's assume we're talking about university graduates, say, in the sciences—where people are most creative and productive? Until what age do you have to get them excited? Do they start—I don't want to say burning out—declining in their forties, fifties, or late thirties? Is there a magic—

Dr. Thomas Brzustowski: I'm very tempted to give a self-serving answer. Let me say this. I don't know the theory of this, but I do know this. There is a program in many places in this country called the Shad Valley program, which takes students out of high school and gives them an intensive exposure over the summer, something like six or eight weeks, to advanced studies in science and the information technologies and an exposure to business in which some demands are made of them that force them to be very entrepreneurial. This seems to work fabulously well, but it only involves a small number of people, several hundred each year, across the country.

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I just couldn't begin to guess whether people cease to be productive at a particular age. I think it could be highly individualistic. We certainly see a lot of very young people among those whom one might call the dot.com entrepreneurs.

Mr. Ian Murray: When we talk about tenured professors, there's a concern in universities about when the average age becomes too old.

Dr. Thomas Brzustowski: But again, in the United States there's no retirement age for professors, and some people who are well into their upper sixties and beyond in fact continue to be productive in what they're doing. So I wouldn't wish to generalize. There may be people who have the facts on this at their fingertips. I just have some vague impressions.

But Shad Valley is wonderful. We should have more Shad Valleys.

Mr. Ian Murray: That's a good suggestion.

The Chair: Dr. Brzustowski, I want to thank you very much for being here today. It has been very interesting, and we always appreciate receiving your input. If you have any further comments, we'd be happy to receive them in the next couple of weeks.

Dr. Thomas Brzustowski: Let me just say right now that I'd like to thank the committee for what I felt to be a very interesting discussion. I very much appreciate the questions and the comments. Thank you.

The Chair: Thank you.

Mr. Lastewka.

Mr. Walt Lastewka: Could we get a copy of the book?

The Chair: What book?

Mr. Walt Lastewka: You mentioned a book of 110 companies.

Dr. Thomas Brzustowski: It's called Research Means Business. We will supply it in adequate numbers for the committee in both languages.

The Chair: Thank you very much. We appreciate that.

The meeting is now adjourned.