INDU Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, April 11, 2000

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[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I now call the meeting to order pursuant to the order of reference of the House dated February 29, 2000, main estimates for the fiscal year ending March 31, 2001, votes under Industry; and performance report, Industry Canada, for the period ending March 31, 1999.

I'm very pleased to have with us this afternoon the Honourable Gilbert Normand, the Secretary of State for Science, Research and Development. Appearing with him today from the Department of Industry is Paul Duford, departmental assistant, science, research and development.

I'm very pleased to welcome, from the Natural Sciences and Engineering Research Council of Canada, Dr. Tom Brzustowski, president; and from the Canadian Institutes of Health Research, Dr. Marc Renaud, member, and president of the Social Sciences and Humanities Council as well.

I believe you may have a bit of an opening statement for us, Dr. Normand.

[Translation]

Honourable Gilbert Normand (Secretary of State (Science, Research and Development) Lib.): Thank you very much, Madam Chair. I've prepared a short statement. Since you've already introduced the people who are here with me, I won't bother to do so again. We will be happy to answer your questions following the presentation.

As Secretary of State for Science, Research and Development, I want to thank the committee for its fine work in support of a stronger innovation system in Canada.

Canada's future success and comparative advantage in the new millennium hinges on two virtually limitless resources: knowledge and skills. This next century will see the global, knowledge-based economy create tremendous opportunities for greater prosperity and an improved high quality of life for all Canadians. We must seize these opportunities and build on our strengths.

I think the last Speech from the Throne captured it well:

In the global, knowledge-based economy, the advantage goes to countries that are innovative, have high levels of productivity,...

I think I've already mentioned this.

... quickly adopt the latest technology, invest in skills development for their citizens, and seek out new opportunities around the world.

The Canadian innovation system, a term used to describe both our S&T institutions and the various linkages between them, creates, disseminates and exploits the knowledge needed to fuel a progressive society and economy.

In order to function effectively, this system depends on the presence of complementary strengths in the three key sectors: the private sector, universities, and governments. These players each fulfill a number of roles, and through cooperation and collaboration, ensure that our economic and social systems perform well, are able to keep pace with both domestic and international developments in S&T, and that the government is able to meet the expectations of Canadians.

As you know, the government has roles as both a performer and facilitator of science and technology. It fulfills these roles both by performing research, using intra-mural capabilities and facilities, and by funding extra-mural research and by fostering partnerships between government, industry and universities, as I mentioned earlier.

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In 1999, the federal government spent $6.3 billion on S&T. This figure represents 4.2 per cent of the government's total budget, a nonetheless appreciable increase in funding given that in 1996, S&T expenditures accounted for only 3.5 per cent of the overall budget. In 1999, based on expenditures, industry undertook 63 per cent of the R&D performed in Canada, universities, 24 per cent, and the government, 11 per cent.

Looking at the international picture, Canada ranks 9th in the OECD in terms of its gross expenditures on R&D. We are slightly ahead of Italy, but behind Sweden, Finland and Korea.

[English]

With this background in mind, I want to talk to you about how the government fulfils its role as a facilitator of university research.

The most visible and direct impact the government has on research, innovation, and learning is through the funding support provided by the three granting councils—NSERC, SSHRC, and MRC—for university research and the training of highly qualified people.

Between them, the granting councils provide peer-reviewed funding for more than 17,000 researchers across the country. These investments support pure and applied research to enhance our understand of the physical, biological, and social world by extending the boundaries of knowledge. These investments also support the training of the brightest young minds in our country, our leaders of the future, by imparting important skills and expertise that can be applied in all sectors of our economy.

[Translation]

The government recognizes the strategic role of Canadian university research in strengthening innovative capability and maintaining Canadian productivity. That's why the granting councils were among the first to have their budgets restored as soon as the government succeeded in eliminating the deficit. That's also why we have seen an ongoing commitment to the granting councils and research since then.

As I stated earlier, federal expenditures in R&D topped $6 billion in 1999, with federal funding of higher education institutions reaching an all-time high of $1.6 billion.

While I have no desire to return to the budgets set in 1997, 1998 and 1999, I have to admit that the federal government has continued with its latest budget to increase its commitment to university research. In fact, it has made an additional $900 million investment in the Canada Foundation for Innovation, bringing the government's total investment to $1.9 billion.

By December 1999, the CFI had invested over $450 million in research infrastructure at universities, hospitals, colleges and other research institutions. As you know, the CFI has expanded its funding to include colleges. Coupled with funds from partners, this resulted in a total infusion of over $1.1 billion in capital investments. Of course, it's no secret that the government has invested $900 million to establish university research chairs.

NSERC and SSHRC are also important sources of support for university scholarships and fellowships in the natural sciences and engineering and in the social sciences and humanities. Although no announcement was made in the Speech from the Throne, I can tell you today that over the next five years, we will be increasing our funding to SSHRC by $10 million a year. This represents an additional investment of $50 million. While this may not enable SSHRC to meet every single request, it will nevertheless allow it to approve more requests overall. We'll come back to this point later.

I don't know if you're familiar with these figures, but let me point out that in 1998, NSERC supported over 8,900 university researchers, nearly 13,000 university students and post-doctoral fellows and over 2,800 university technicians and professional research staff.

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Please excuse me if I seem to be jumping from one subject to the next, but I didn't want to read my speaking notes in their entirety since I plan to leave them with you to peruse at your convenience. This will allow us more time for questions, something that might be of greater interest to you.

One of the challenges that universities will face shortly is the commercialization of research results. This is one issue that we have begun to discuss. We are looking at ways this could be done and we believe that universities can seek out certain types of funding, without necessarily having to turn to Peru.

Let me conclude by saying that science, research and development are all about the same thing, namely the quest for knowledge, that is the discovery of new information and the development of a new understanding of how our world works.

The search for knowledge touches all facets of our lives - health and social sciences, education and the environment, business and the economy. The government will surely continue to promote the creation, dissemination and commercialization of knowledge, and to create jobs and wealth.

Lastly, let me simply say that universities and industry are very satisfied with the government's commitment to research. There are, however, some lingering concerns, notably about the indirect costs borne by universities. Mr. Renaud will likely demonstrate to you that he needs more funding to meet increasing demands for human resources.

During our talks in recent months with university representatives, we were informed - we're not making this up - that Canada faces a shortage of scientific researchers because fewer young people are opting for careers in scientific fields. This was an observation, not a discovery, made to us by university and college administrators.

Canada is not the only country in this situation. Even Germany is encountering similar problems with shortages. Three or four weeks ago, it gave the go-ahead to issue 20,000 green cards to allow foreign researchers to come to Germany for three years, with the possibility of extending their stay a further two years. Here in Canada, we are also looking for ways to facilitate the entry into the country of foreign researchers. Ms. Caplan has drawn up a program that we have reviewed together and an announcement is expected shortly. Other countries are taking similar steps.

Furthermore, there's no denying that careers in the social sciences and humanities are often more appealing to young persons, not to mention better remunerated. Careers in the social sciences and humanities have enable more women to embark on professional careers.

I think I will stop on this note. Mr. Renaud, Mr. Brzustowski and I will be happy to answer your questions.

[English]

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

Mr. Penson, please.

Mr. Charlie Penson (Peace River, Canadian Alliance): Thank you.

I'd like to thank the Secretary of State and his officials for coming this afternoon to discuss the issue of science and research and development.

Minister, what is the size of the budget that your department, in your capacity, administers?

Mr. Gilbert Normand: My department has no budget directly for the granting councils. As you know, the granting councils administer their budgets themselves. We often discuss with them the different politiques, but they are completely politically independent in the administration of their budgets.

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Mr. Charlie Penson: Nonetheless, with the different research councils, I think there's about $1 billion in total. You would agree it's a priority of your government in this area. As such, it would seem to me that there would need to be a good evaluation process in place to see if Canadian taxpayers are getting value for their money.

I have two questions in that regard. One is in regard to the industrial research assistance program, IRAP. I read recently that only about 15% of the funding decisions made under that program were actually based on the projects' listed criteria. And I guess even more disturbing is that there was really no basic assessment done as to whether those funds that were dispersed were actually needed. In fact, IRAP's own survey has shown that only about 40% of respondents felt they really needed that government money to start with.

Given that we need some kind of crucial evaluation process in order to see if we're getting good value for money, I would ask for your comments on that. That's my first question, and I'll get my other one in, and then you can answer them.

The other one has to do with the Natural Sciences and Engineering Research Council. They recently announced that their university faculty awards, which were previously reserved for female candidates, will now be extended to include aboriginal men and women. I wonder why that program wouldn't be thrown wide open, why we have gender and race qualifications there rather than just opening it up to everybody and basing it on whoever applies.

Those are my questions.

[Translation]

Mr. Gilbert Normand: With your permission, I'll ask my associates to answer that question. The criteria have been established. Mr. Brzustowski.

[English]

you can begin.

Dr. Thomas Brzustowski (President, Natural Sciences and Engineering Research Council of Canada): Thank you, Minister, and Madam Chair.

Let me deal with the question on the university faculty awards. That program was, first of all, set up primarily to try to accelerate the wave, if I could call it that, because what we have in Canada—and the same thing is found in the United States—is that there is a much smaller proportion of women faculty members in science and engineering than there is of women with doctorates, recent doctorates, in science and engineering. The number of women with recent doctorates is smaller than the number of doctoral students right now. That is smaller than the number of master students, which is much smaller than the number of undergraduates. So the hope was that even though all these numbers are rising slowly, one could accelerate that process by having faculty awards made available to women candidates who met the criteria for excellence, and that this would somehow make it easier for them to aspire to university faculty positions.

One of the criteria for one of these awards is that the university must demonstrate they feel a need for a role model in that subject, in that area. So that's another reason for doing it.

Also, as for extending it to aboriginal students, for the moment we don't expect—because we have been told—that there are likely to be candidates for this. But extending it to aboriginal students holds out an aspiration. It holds out a prospect to people to attract them to think about that. That hasn't happened. It may very well be that the university faculty award program will some day be extended to everybody, and we hope to be able to do that, but until the resources are available for such a broad opening of this program, we're trying very hard to achieve the maximum effect with that with the people who are underrepresented in our universities at the moment.

Mr. Charlie Penson: Can you tell me, was there some fundamental reason restricting the ability of these people to come forward? What did you see as the problem?

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Dr. Thomas Brzustowski: The problem was brought to our attention by people who had been looking at the issue for a number of years, and there were a number of problems. For example, university policies were making it difficult for women to develop a career with the discontinuity for taking time out to have babies and then coming back to their career. Occasionally there was simply the feeling that where there were so few women faculty members, each additional one would find it not terribly welcoming, would find it a strange environment.

I think probably those would be the strongest reasons. The idea was to be active in trying to create an attractive environment for women faculty members in science and engineering, so that the growing number of undergraduates could see more role models than they faced in the classroom. That was the main reason, I think.

Mr. Charlie Penson: I have a second question in regard to IRAP.

Mr. Gilbert Normand: We had verification from

[Translation]

the Auditor General. We are presently looking at the recommendations he made last year with an eye to implementing them.

[English]

Mr. Charlie Penson: When do you expect the recommendations to come forward to deal with this?

[Translation]

Mr. Gilbert Normand: It's hard for me to give you an exact date. Sometime in the next few weeks, we should know more. I have to say that these recommendations didn't call for any drastic changes in the way we do things.

[English]

Mr. Charlie Penson: You don't see this as a concern to you?

Mr. Gilbert Normand: No.

The Chair: Thank you.

Mr. Murray, please.

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

Dr. Normand, we've had a long history in this country of scientific advisory boards. You can go back to the Science Council of Canada, or look at the National Advisory Board on Science Technology reporting to the Prime Minister. You yourself chair a council of science and technology advisers, and they came up with a report suggesting that we need to maintain a strong in-house capability in government in science and technology.

Most of the advice from those bodies tends to...even though they publish reports, there are meetings with ministers, and I'm sure there is a variety of views expressed by people who are from outside government but have scientific expertise. I'd like to ask you how valuable you find those kinds of advisory boards. Have you found that they actually result in changes to legislation? Or do we, as a government, actually do things because of the advice that you, or the Prime Minister or anyone else, receives from those advisory boards?

Mr. Gilbert Normand: I'm sorry, I don't understand your question.

Mr. Ian Murray: I'm wondering how effective this system of having.... I'll go back a bit further. The idea of science and technology being important to Canada has been there for many years, and governments have sometimes paid lip service to it, and at other times they've been very sincere about it and really wanted to deal with the problem, which was normally expressed through the percentage of research development spending versus GDP. And Canada is always shown to be farther down the ladder than we probably should be.

I'm wondering about the effectiveness of advisory boards. Or do you find that most of the advice already exists within government? I'm wondering really if these are window dressing, if I could use that term, or if they're actually valuable advisers and result in actual changes to government policy?

Mr. Gilbert Normand: We have an advisory committee. This committee, through me, make a report to the cabinet. After that, the cabinet can make a decision about the advancement or how they must put some money, for example, for human resources or for the foundation and where the problems are.

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As I said before, we made some very big efforts in the last year, but we are not the first in the world at this moment. We have a long way to go. Working with the granting councils and the universities and their research centres, we try to continue to advance. I'm sure that the government will have to put in more money in the future years.

As I said, we've begun to have some secondary effects, such as indirect costs for the universities, for example. We will have to correct that each year as we advance in the research and we see what the results of this research are.

I spoke about commercialization too. This is another issue we'll have to resolve in the future.

Mr. Ian Murray: I'd like to ask about the commercialization, and Dr. Brzustowski may be the expert I should direct it to. But I'm interested in the current situation with so many of these...not necessarily dot-com companies, but a lot in biotech and other areas of science.

There are a lot of young people in university who are catching IPO fever, if you will. They're all looking to become millionaires or maybe billionaires. I'm thinking of the state of the stock market over the last week or so, where you've seen a lot of these technology stocks that have been, in some cases, significantly reduced in value.

So my question is, when you're looking at commercialization of research at universities, has there been a noticeable increase—just because of the influence of the stock market—in the number of young people who are trying to get involved in commercialization, and perhaps even professors and researchers at universities as well?

Then I guess the corollary of that is, if there's a significant cooling in the stock activity and the prices don't bounce back up, do you think commercialization will become more difficult as a result?

Dr. Thomas Brzustowski: Thank you for the question. This is a question where I am going to be very much stretched because so much is involved.

What we're seeing on the stock market and the influence it might have of course affects companies only after an initial public offering of the stock market. The roadblock, the bottleneck to the commercialization of university research results, those that have some potential to become a new product or a new good or a new service in the market, is much earlier than that. It lies in identifying the potential in the first place and then demonstrating it to somebody who will be prepared to put private money into starting to take it to market in many stages of investment.

The return on that investment to the public is a very interesting issue. I don't know how widely people realize—many of the people I talk to don't realize this—that the private investment required to take to market and commercialize an invention or discovery, or some innovation based on a research result, is often many times greater than the public investment in doing that research in the first place. It's the working of that private investment in the economy by the creation of jobs and through the tax revenues that really is the return to the public for the public investment at the front end. But research is an uncertain business, and commercialization is every bit as uncertain as well.

One of the problems we have—and the market doesn't change this—is that in Canada we have a shortage of one kind of professional. The Americans have lots of these people, and we have too few. These are people in the universities who know the science and who know the market, who know the investment community and know who's available, starting with angels informally at the first stage and then early-stage investors, right up to people prepared to come in with venture capital. These are people who, at the same time, know the legalities involved in protecting and licensing intellectual property or starting up new enterprises and, on top of all of those things, have enough sensitivity to the pressures of time that they move files along. We have too few such people in the universities. I think no matter what the stock market does for the near term, it is the shortage of these people that will be the rate-limiting step, the bottleneck.

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The Chair: Make this your last question, Mr. Murray.

Mr. Ian Murray: Do you just find these people, or do we grow them?

Dr. Thomas Brzustowski: We grow them. They learn on the job, and I've been told that because universities are often not able to pay high enough salaries, these people are attracted to the Canadian private sector. There are lots of them in the United States. This is a drain of these people from the universities to the Canadian private sector.

I hope business schools will take it very seriously and begin to take part in developing more of these people. That's where we have the real bottleneck.

Mr. Ian Murray: Thank you.

The Chair: Thank you.

Dr. Renaud.

Dr. Marc Renaud (President, Social Sciences and Humanities Research Council; Member, Canadian Institutes of Health Research): I just wanted to tackle your first question, because it's a very interesting one. You're asking, do we have too many of those advisory boards in science and technology?

I cannot talk of the past. I've been in Ottawa for two years. I must admit I'm impressed by what I am seeing. For example, SSHRC has a 22-member board, and the same for NSERC. Those people are not paid. We pay their travel to come to the meetings. They are extraordinarily helpful.

We're creating the future. We know we're moving into a knowledge-based economy, but what exactly does it mean? We don't know. There's a lot of uncertainty.

As far as my board is concerned, and I'm sure it's the same for NSERC's board, if we didn't have these institutions, we would not manage our shops well.

Second, there's an advisory board to the Prime Minister, ACST, the Advisory Council on Science and Technology. I'm also impressed by their output. They're trying to be very concrete and very specific. They had this report on commercialization that Tom just talked about. We may disagree with this, but at least it's getting us to think it through and debate it. They just published a report on skills, showing that the real need for skills in Canada is not so much technical skills as human skills to manage those technical skills. This report is of major importance in terms of, again, figuring out what our future will be.

So I don't think there are too many boards. Maybe there were too many in the past, but it's been quite streamlined now.

The Chair: Thank you.

Thank you very much, Mr. Murray.

[Translation]

Mr. Brien.

Mr. Pierre Brien (Témiscamingue, BQ): Good afternoon, Mr. Normand. Could you give me a status report on your efforts to establish university research chairs, as announced in the last budget? Do you intend to apply any special rules to ensure that all universities, whether small regional ones or large ones, each get their fair share? What approach do you plan to take?

Mr. Gilbert Normand: A committee responsible for administering these research chairs has been struck. The council chairs serve on this particular committee. You seem to be concerned that small regional universities will not have the opportunity to obtain funding under this program. Let me assure you that a certain percentage of the funding available has been officially earmarked for small universities. Among other things, I visited Rouyn-Noranda where research is being conducted on sleep. The foundation recently announced that research would be carried out in Chicoutimi on de- icing procedures. I can assure you that the government recognizes the importance of being able to do research in the regions when there is no need for a critical mass and when the research can be geared to the special needs of the regions.

Mr. Pierre Brien: As you know, some people are concerned that research chairs might be established more quickly in the more highly organized universities that are in a position to recruit researchers faster than smaller universities. Have you taken any steps to ensure that in regions like mine, people are not recruited first by other universities doing their own recruitment, while chairs have yet to be established in this or some other field in our universities?

Mr. Gilbert Normand: Marc can correct me if I'm mistaken, but I don't think there is any danger of this scenario unfolding where large and small universities are competing against one another. Rather, the problem will pit the social sciences and humanities against the sciences. As I recall, 20 per cent of the research chairs will be in the social sciences and humanities field. In some universities, the emphasis is much more on the social sciences and humanities than on engineering, for example. This is where we are likely to see some kind of imbalance occurring. However, there is no problem that we won't be able to correct as we move through the process. I don't think we need to be concerned about a possible imbalance between large and small universities. Of far greater concern is the particular vocation of these universities.

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[English]

The Chair: I'm not sure if maybe Dr. Renaud or someone else wants to speak to this, but when Minister Manley was here last Thursday, he did explain that he is putting forward—

[Translation]

Mr. Pierre Brien: I know what his response was last week.

[English]

The Chair: Okay. I just wanted to make sure you were aware of that answer from Thursday.

[Translation]

Mr. Marc Renaud: The whole issue of research chairs makes people very nervous. I've met with chancellors and vice- chancellors from all regions, from western and eastern Canada and from Quebec. People are very pleased that we have committed ourselves to making these investments. However, they are understandably curious about what is going to happen. Again, we are paving the way for the future. There is a danger that some universities will set about recruiting the best researchers from other institutions, but we mustn't forget that there's going to be a 30 per cent turnover rate among Canadian university professors over the next five years. In other words, whether we like it or not, we are coming to a point in time where universities will be fiercely competing amongst themselves for human resources.

Having said this, I agree with Mr. Normand. I don't believe small universities are necessarily going to come out on the losing end. If they play their cards well, they will move quickly to establish their brightest researchers in research chairs to ensure that they are not lured away by other universities.

I have no doubt that we are going to see some movement, but I think this would have happened even without the research chair initiative. The formula that we will be unveiling will, in my opinion, ensure that there is enough to go around and that it will be a win-win situation for everyone. However, we cannot eliminate the risk of competition.

Mr. Pierre Brien: Nothing has been officially announced. Have universities received any information?

Mr. Gilbert Normand: An announcement is expected in the next week or two.

Mr. Pierre Brien: When will these chairs be up and running? What kind of time frame are we looking at?

Mr. Gilbert Normand: I hope this initiative moves forward as quickly as possible. Our intention is to establish 1,200 chairs within the next three years, including 400 in the current fiscal year.

Mr. Pierre Brien: I see.

[English]

The Chair: Thank you.

Thank you, Mr. Brien.

Mr. Lastewka.

Mr. Walt Lastewka (St. Catharines, Lib.): Thank you, Madam Chair.

I have a few questions. One refers to the IRAP program and the transfer of technology. As we do more and more research and innovation in universities, my concern all the time is this. Large companies that can track university research or be involved in university research hear about it and are many times partners, while small businesses across Canada have to wait until there's a transfer of technology from wherever the research was done to small business. The IRAP program is an excellent program to bridge that. Are we doing anything different or innovative to assist small businesses to be in the forefront of accepting new technology as technology changes?

Mr. Gilbert Normand: At this moment we have no special program for that, but when we speak about commercialization from the university to the industry, many industries at this moment work very closely with some universities and can keep some intellectual property as the result of the research, like some research centres inside the government. Take for example Agriculture and Agri-Food Canada, where you have the shared fee program. The industry works with the government on this occasion.

But when we speak about commercialization for the university, this is not only the specific result of research. Sometimes during the research you can do some other secondary discovery that can be very interesting for the market. Some universities have begun to put in place their own teams for that, but the government has no special program for that at this moment.

But I think NSERC is working on something on this side.

Dr. Thomas Brzustowski: Can I just pick up on this?

Mr. Walt Lastewka: Yes, please.

Dr. Thomas Brzustowski: While we have no special program, the fact is many small companies are participating in our existing partnership programs. If you think of some very small companies that in fact are started up to take advantage of some research results with the skills of the people who were trained in that research, you automatically have small companies plugged into the technology transfer. And there are many of them.

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NSERC has, over the years, involved as partners something like over 1,000 companies of all sizes, from all sectors, from all parts of the country. In any given year that number is close to 500, of which perhaps 100 are new each year, and among those are some very small companies. There are some large ones, but there are some very small ones as well.

Mr. Walt Lastewka: We've had discussions in the past concerning commercialization of research from government labs or from university labs. It seems that many times we've come back to the situation where we really don't have a lot of good commercialization transfer offices in universities—like the U.S. has, maybe. Could you comment on that?

Dr. Thomas Brzustowski: I'd be glad to.

That has been brought to the attention of the expert panel on commercialization, as has also the fact that in our venture capital sector, compared to that of the United States, we also don't have nearly as many people who can make fast decisions, who specialize in a particular technology and can make fast decisions and provide money quickly.

These are shortcomings of our system. They may be partly the result of our history: we're getting into this game a little later. They're certainly a result of our scale. As you know, you need to have a pretty big technology population of businesses to have venture capitalists specializing in one technology or in one narrow division of a sector.

We have both of these limitations and we've very much aware of them, and I think the business sector is very much aware of them. The universities are aware of them, and I expressed this before: I really hope that the business schools will act on this.

Mr. Walt Lastewka: Thank you, Madam Chair.

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

Mr. Riis.

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

I want to say that this has been a very interesting exchange so far today, and very informative. I couldn't help but think that the Government of Canada is doing a great deal in terms of moving into the knowledge-based economy and is providing a great deal of leadership. You talked about the role of the advisory council, and obviously they're very helpful.

In light of the comments of the BCNI the other week about things that need to be done in order to enhance our competitive edge and in light of the rather simplistic recommendations they had, I wonder if you shouldn't put together a government team to advise the BCNI in terms of things they might want to be considering in the private sector to complement the government.

However, setting that aside, I want to echo my colleague's concern about those of us who represent the regions in terms of these research chairs. I know there's a sensitivity there, but in my estimation the role of government is to equalize the opportunity of Canadians regardless of where they may live. When you consider those who live in smaller communities, remote areas, or rural areas and when you consider the thought that research chairs now are going to be introduced on a huge scale, obviously in the urban centres, in the research centres, you just wonder if we're not going to exacerbate this problem again in terms of the two economies: the IT economy of the urbanized centres and the rural resource sectors continuing on.

I will just say that I join my colleague in waving a flag here, and I am pleased, Mr. Minister, that you've indicated an awareness of this concern.

In meeting with a number of university presidents over the last few weeks, they have informed me about what they perceive to be a crisis coming along, which you have just added to, in my estimation. I'm talking about Germany and their 20,000 green cards to attract scientific researchers and so on from outside—and other countries are doing the same.

Their concern was the aging demographic trends within the professorial ranks of the universities. They had these numbers—and I can't imagine that they're accurate, but they probably are—indicating an incredible shortfall coming at us on the instructional and research side of things at universities.

We're going to have to go out there and somehow entice thousands of people at the PhD level to come into our university systems across the country just to make up the shortfall, let alone to add to what is obviously a requirement. Is this well-known information in terms of this demographic nightmare that's facing us in regard to the innovation society of the very near future?

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Mr. Gilbert Normand: We will have very big competition among countries to have scientific teachers and researchers, not only in Canada but in all occidental countries. As Tom said before, in three to five years we will have a big problem in some universities in regard to having some really good teachers. I don't know if anyone wants to add something to that, but the crisis will be here very soon.

Mr. Nelson Riis: I appreciate that the crisis is imminent, but is this adequately known and are there steps being taken now to meet this crisis?

Dr. Marc Renaud: It's known. As I said earlier in French, we know that 30% of the university people are going to retire in the next five years. That's a lot. Plus, that's not considering that universities will grow because there's going to be more enrolment. There's no question that a problem is facing us.

On the other hand, a generation has been lost. There is a generation that did not come into the universities in the last ten years because the universities were downsizing. We'll have to do something vis-à-vis those people. There's nothing, as far as I know, on that front.

On the other hand, the chair program, especially the small chairs, should actually be a massive injection of money into the younger generation. Half the chairs will be for younger researchers and younger professors, and this should bring along with it a major upheaval in the university world.

Mr. Nelson Riis: Dr. Renaud, you mentioned this study that indicated that the real need of the not-so-distant future is not so much in the technical areas, in fact, but in the human resource areas. You don't hear much about that. I hear you say that, and I hear the odd person say it, but 99% of our discussion is in the more technical, scientific area. I find it refreshing that you mentioned it here, but do you think this is being reflected, for example, in how we're approaching this sort of research revolution that's upon us?

Dr. Marc Renaud: I think it's not said enough. I agree entirely with you.

I was very impressed by the reaction of the CEOs the other day, who were going against the bashing of the liberal arts. I mean, enough is enough—

Mr. Nelson Riis: Yes.

Dr. Marc Renaud: —and we have to call a spade a spade. We have to realize that a lot of big CEOs of companies are actually people who are trained in humanities and in social sciences.

Mr. Nelson Riis: Yes.

Dr. Marc Renaud: We tend to forget all of this. I entirely agree with you. We have to say this much more loudly—and not only us. When I say it, I'm not credible; it's “You're talking for your interest group”. It has to be said by people in the private sector and in the voluntary sector that we need these courses.

A couple of hours ago, we had wonderful news. The Montreal bid for the UNESCO Institute for Statistics has been recommended unanimously by a world panel. This is happening because the Social Sciences and Humanities Research Council, along with Statistics Canada, have remobilized the research community on the social statistics front. That's going to create about 100 top-notch jobs in Montreal. The World Bank is financing it. It's going to really change the approach.

Those are the things we don't talk enough about. These things are happening, and they're creating commercial ventures and spinoffs of all kinds.

Mr. Nelson Riis: Perhaps I can make a suggestion on how we can take this another step forward. My question is to the minister.

The excellent presentation we've heard today simply reminds all of us that this emphasis on innovation.... You mentioned the committee's report and so on, which we're very proud of. One way to highlight the fact that Canada is taking on this issue of getting away from the perception of us being hewers of wood and drawers of water—internationally as well as at home—is to create a standing committee of Parliament that would, if you like, have as its mandate science and technology. That would send a very clear message to a lot of people, including us as parliamentarians.

But we don't do that. It's like the point that Marc makes. We can talk about these things, but when it comes down to what we are doing, well.... To give the government credit, there are the research chairs and the additional funds for innovation and so on, but politically, in terms of a gesture, this would be very helpful.

Can you comment on when you might be able to achieve that, Mr. Minister?

Mr. Gilbert Normand: I don't know what I must answer to that, because we don't want to frighten anybody with the situation of the scientific world inside of Canada. The government has put in place many programs to improve the situation. Also, I think we must sensitize not only the government but the population.

• 1625

I spoke to some students and told them that they will have to make choices for their future careers. At this moment, when we talk about commercialization, it's interesting to see some young scientific beginners becoming stars, as in sports or the cinema. Not one week goes by without us seeing some young people become millionaires at the beginning of their careers.

More than that, though, we must put in place a very solid base, which we are doing at this moment.

Mr. Nelson Riis: Can I ask a specific question, Minister? This is my final question, I assume.

We have a standing committee on agriculture, for example. What percentage of Canadians are involved in agriculture—2%, 5%, 6%, or whatever? Fair enough. It's important. We have a standing committee on this and a standing committee on that, but the one area that I think we all agree is crucial to our future we don't have a standing committee on.

I mean, this is where the action is going to be. This is where the education is going to be. This is where we have to monitor the programs. This is where we have to bring in the private sector. There is a tremendous range of opportunities.

The question is, Minister, is there anything you can do to assist in the creation of a standing committee of Parliament on research, development, science, technology—you name it?

Mr. Gilbert Normand: Before, as you know, the Canadian government had a ministry especially for science, research, and development. Many provinces have it, and at this moment we have no formal mechanisms to have federal-provincial meetings.

Mr. Nelson Riis: It's odd, isn't it?

Mr. Gilbert Normand: But with the council we have some committees, actually. It's not the same thing, though, if we can have a special....

The Chair: Dr. Brzustowski, do you wish to add to that?

Dr. Thomas Brzustowski: Madam Chair, certainly I can't add anything to what the minister has just said, but I would like to complete the answer to an earlier question by Mr. Riis. I totally agree with my colleague Marc Renaud that there is no room for humanities or social sciences bashing.

I also want to put on record the fact that if you look at the percentage distribution of the graduates of universities in all the OECD countries, Canada already graduates the largest proportion with the first degree in the humanities and social sciences, and one of the smallest in engineering, math, and science. So let's put that on the table.

We also have to notice that a lot of the CEOs have said they can't have one-dimensional techies. They must have people who have the technical skills but who must also be able to think critically, write well, communicate well, debate, and what have you. This is very important. They must be rounded individuals.

I must also put some numbers on the table about the crisis you identified. In all universities in Canada, in all disciplines, there are about 34,000 faculty members. The 2,000 chairs would be about 6% of that. We are hearing that about 30% will have to be replaced because of the demographics—people hired in the late 1960s, early 1970s. So the chairs will not themselves be the solution to that problem.

The good news is that in the past we have solved similar problems and we have solved them extremely well, maybe with more good luck than planning. In the late 1960s we attracted some very talented people from India in large numbers, gold medallist graduate students, partly because this was an attractive place, partly because the U.S. was difficult to get into. They helped build our universities. A wave from Egypt followed about a decade later, and so on.

We will have to make a very conscious effort to attract the very best from countries around the world to help solve this problem.

Mr. Nelson Riis: At a cost to those countries, though.

Dr. Thomas Brzustowski: Well, maybe yes, maybe no. In fact, a lot of the people who are expatriates of those countries are also involved in those countries. They promote. They pull on the rope.

This is not a simple question.

The Chair: Thank you very much.

I want to thank you, Minister, for being with us and for bringing your officials. We'll let you off the hot seat now and have one of your colleagues join us instead.

Mr. Nelson Riis: On a point of order, the minister indicated that his opening statement, which was a lot more extensive than what he read, would be made available to the committee.

The Chair: Yes. We will make sure it is.

Mr. Nelson Riis: Okay.

The Chair: We're going to suspend for a couple of minutes, just long enough to change ministers.

• 1630

• 1632

The Chair: I call the meeting back to order.

We're very pleased to welcome this afternoon the Honourable George Baker. He's responsible for the Atlantic Canada Opportunities Agency.

We're also pleased to have with us, from the Atlantic Canada Opportunities Agency, Michael Horgan, president; Paul LeBlanc, vice-president, policy and program; Steve Merrill, acting vice-president, finance and corporate affairs; and Craig Rowsell, director general, advocacy and industrial benefits.

I assume, Minister, you have an opening statement for us. Am I assuming correctly?

Hon. George S. Baker (Secretary of State (Atlantic Canada Opportunities Agency)): Well, no, I don't, simply because I understand that the bells are going to ring at about 5.15 p.m., and I'm sure the committee would rather go directly to questions and hopefully answers.

The Chair: Okay. We can do that.

Mr. Penson, are you ready to move to questions?

Mr. Charlie Penson: I certainly am, thank you, Madam Chair.

I would like to welcome the minister and the officials from the department.

Mr. Minister, I see the estimates show a budget increase of about $35 million for this year. Can you explain why?

Mr. George Baker: Mr. Horgan.

Mr. Michael Horgan (President, Atlantic Canada Opportunities Agency): The principal reason for the increase is that a significant amount of those moneys that were allocated for the adjustment in Cape Breton as a result of the closure of the DEVCO mines have been incorporated in our budget for this year.

There has been no decision taken in terms of the allocation of those funds, but in terms of allocating those funds to a department for the time being, that money has been set aside and put into ACOA's A-base. There's nothing new in terms of increases apart from things that have already been announced by the government.

Mr. Charlie Penson: Okay.

I gather the spending operations, other than the administration side, are expressed in terms of investments for ACOA. Is that right?

• 1635

Mr. George Baker: About one-third of the expenditures of ACOA are toward investments in business. These are loans, as you know. Once upon a time, ACOA had grants and contributions, and there was no limit to the amount of money that could be given at that time, to my recollection. However, in 1995, on the advice of the Auditor General, the government of the day—this government—decided to get away from grants and contributions and go into just loans. There was a restriction placed on the amount of each loan, so an enterprise couldn't get more than $1 million.

Further to that as well, an elaborate system of checks and balances was put in place to make sure any loans that were granted would be paid back.

Mr. Charlie Penson: Okay. So in order to evaluate how those loans are working out, you're saying approximately one-third of the total, or $100 million, has been for loans since 1995. What kind of evaluation process do you have in place?

Mr. George Baker: We have a fantastic evaluation process, and I'll ask the deputy to outline it.

Mr. Michael Horgan: Actually, maybe I'll ask the vice-president to outline it. He's in charge of the evaluation process.

Mr. Charlie Penson: It gets more fantastic as it gets passed along.

Voices: Oh, oh!

A voice: Where's the buck?

Mr. Charlie Penson: Please keep in mind that I only have ten minutes or less.

Mr. Paul LeBlanc (Vice-President, Policy and Programs, Atlantic Canada Opportunities Agency): I'll address two of the measures. We evaluate the effectiveness at the program level with overall indicators, to look at what kind of impact it's having in aggregate on the Atlantic economy. We measure things like the rate of growth of small business in Atlantic Canada as a result of this capital being made available on a loan basis to small businesses, the rate of small business start-up, and their growth rate compared to other parts of Atlantic Canada. We track their capacity to survive. We track their capacity to export, innovate, and adopt new technologies. I heard the interest in technology and innovation earlier, from the back of the room. All those kinds of key indicators are tracked at the aggregate level.

That ensures the overall investment is sound, and there are indicators like the impact on GDP in Atlantic Canada and job growth, etc.

Mr. Charlie Penson: I'd like you to be a little more specific in terms of—

Mr. George Baker: If you could be a little more specific, how do the investments made by ACOA compare to other investments made in the economy? How do you stack up against...?

Is that what you're interested in?

Mr. Charlie Penson: No. I'm more interested in the specific loans that are given to individual companies. What kind of assessment do you have to make sure that...? What is the rate of failure? Are there internal audits? How are they handled?

Mr. Paul LeBlanc: At the evaluation level, there's a very rigorous process, particularly with the repayability policy of 1995. All of the applications have to meet the rigour of financial analysis. We require a business plan. We require matching investments from the proponents. We assess for competitive viability. We assess for financial viability, for the ability of the crown to be paid back.

Mr. Charlie Penson: Are these internal audits?

Mr. Paul LeBlanc: Yes, indeed. They're done in real time at the time of the application, and each project, once invested in, is monitored for the life of the project.

Mr. Charlie Penson: That's where I'm going, I guess. In terms of taxpayers' money of $100 million per year, I want to make sure we are getting good value and this money is being paid back. What is the failure rate? Are there audits you can make public, to show us that it's a good investment, that the money is being paid back and the program is working successfully?

Mr. Paul LeBlanc: Repayability started in 1995—

Mr. Charlie Penson: It's been five years.

Mr. Paul LeBlanc: —and it's relatively new. We have seen approximately $79 million to $80 million paid back so far, and that portfolio is still relatively young. We see a good rate of return on repayability. In this fiscal year just beginning, we will reinvest approximately $35 million that Atlantic entrepreneurs have already paid back to ACOA, in other firms and priorities in Atlantic Canada.

Mr. Charlie Penson: I'd like to ask two specific questions, one of you and one of the minister, before my time is up. Regarding business failure in terms of exposure rate, could you provide the committee with that information for the last five years since the change was made?

Mr. Paul LeBlanc: Yes.

• 1640

Mr. Charlie Penson: On the question I'd like to put to the minister, I note that ACOA is funding the trade mission to the New England states in May. In my view, this might be one of the best investments we've seen out of ACOA.

I'm wondering, Minister, if you can tell us what impediments to trade have developed that need to be addressed between the New England states and the Atlantic provinces in order to resolve longstanding problems. As you well know, it used to be a very good trade zone, and it has deteriorated over the last 100 years. What is needed to put that back in place—what kind of infrastructure?

Mr. George Baker: On the audits, I gave orders recently to release all internal audits.

How many were released? Were there 39, or something like that, Deputy?

Mr. Michael Horgan: There were 36.

Mr. George Baker: There were 36 audits, which I think you should have in your office now, if you didn't get them last week.

On the question of trade with the New England states, I can ask one of the officials to outline who will be going on that, but it's my information that the provincial premiers will all be involved in this, as well as the federal government. I think it was determined by everyone concerned that this was probably the best type of trade mission we could have in eastern Canada.

Perhaps the deputy would like to elaborate on that.

Mr. Michael Horgan: Certainly, if you look at it from an Atlantic Canada point of view and talk about export opportunities and trade opportunities, we have to really focus on where we think our best bang for the buck will be. From our point of view, that will be in the northeastern United States. We can't lose sight of the fact that there's a huge market just south of our border, and that's an area we will have to concentrate on. That, in some sense, is the reason for our supporting the trade mission to New England.

In terms of trade barriers, there are always issues in terms of trade policy between Canada and the United States. Some of those of course have particular impact on the Atlantic region, particularly some areas of agricultural trade policy. Those are issues.

The purpose of the mission is twofold. One is trade promotion, continuing our traditional economic links with the New England states, continuing to promote trade with that region, which is important economically for the Atlantic region. Second is to promote investment. Atlantic Canada is a good place for investment to take place from that region of the United States.

Mr. George Baker: You're interested in trade restrictions. We don't have some of the restrictions on trade in Atlantic Canada that we have in other provinces. An example is softwood lumber. We have no such quota system. We have no restrictions into the United States, and it's been to our great benefit.

I think most of the MPs from Newfoundland would say the reason for that is probably that our lumber is highly regarded in the United States—for example, lumber from Mr. Byrne's riding and farther up north. As one contractor in Florida put it, when you drive a nail in a piece of lumber that comes from Newfoundland, you can't get the nail out. That's because it's more condensed wood. It takes thirty and forty years to grow. So there's no restriction. Not only that, it costs twice as much—

Mr. Charlie Penson: Minister, I've been to that area and seen how good the quality of wood is. But when I talk about barriers, I'm talking more about physical barriers. Are there infrastructure problems? Is their railway adequate for linkages? Are their highways adequate? What are you going to be addressing with your American counterparts, to try to renew that important historical trade linkage, now that the tariffs that existed for so long are gone? That is my question.

Mr. Michael Horgan: Certainly the infrastructure links are very important. One of the issues we have is our highway infrastructure leading into the United States. Essentially, the highway going from New Brunswick through Saint John and linking up with the northeastern United States and the interstate system is an important infrastructure issue that's ongoing.

• 1645

In terms of rail linkages, they're actually pretty good, but ironically, in some respects the rail linkages are almost better with the midwest United States now, with CN. CN now moves into Chicago and then through Chicago down into the Mississippi Valley. We have now what I think are very first-class rail linkages with the midwest United States, which makes Atlantic Canada extremely competitive in terms of freight from Europe going into the midwest U.S.

There is an ongoing issue, of course, in terms of the port of Halifax and upgrading the port of Halifax to take account of new developments in international shipping markets, especially the post-Panamax vessels. That's going to be an issue for the future for a place like Atlantic Canada, and certainly Halifax in particular, in terms of port infrastructure and being able to accommodate those vessels in a way that's very efficient.

A third thing we would be concerned about in Atlantic Canada, not so much from a trade perspective per se, is really our international airport linkages and the viability of our airports in Atlantic Canada, the connections and the access that would be required in terms of people coming from the United States being able to access key places in Atlantic Canada very conveniently, whether those be business travellers or tourist travellers.

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

Mr. Byrne, please.

Mr. Gerry Byrne (Humber—St. Barbe—Baie Verte, Lib.): Thank you very much, Madam President.

I just want to follow up. I'm intrigued by this wood story. Charlie, you brought up the whole issue of exports and the importance of that for the national economy. Of course Canada is an exporting nation.

Mr. Minister, I have a couple of questions that I'll roll into one. They probably flow into each other, so the answers could as well.

What is Atlantic Canada's position or status in terms of contributing to the national export capabilities of our country? Are we in a position where we're on par with the nation or do we have some ground to make up there? Of course exports are the true generators of jobs and growth, and that's what has propelled our country into the economic position it's in today. I was just wondering how Atlantic Canada is doing.

Flowing from that, in my home province of Newfoundland and Labrador we have a very positive situation occurring where Newfoundland and Labrador is leading the country in terms of gross domestic product. Forecasts by some private sector forecasters, chartered banks and others are indicating that we're going to continue on this phenomenal path of growth. The interesting phenomenon is that our unemployment—or in fact our employment—doesn't seem to be keeping pace with that growth in GDP. Our unemployment rates are increasing while our GDP is growing, and that seems to be a bit of a paradox or a contradiction in terms.

Would you be able to comment a little bit on those two things, Mr. Minister?

Mr. George Baker: Yes. It's an interesting phenomenon, isn't it, that in Newfoundland, as you point out, the GDP is increasing at a faster rate of growth than in any other part of the country? The GDP of course is not as high in Newfoundland as it is in other parts, but the rate of growth is higher and the unemployment rate is going up, you're right. It's 17.8% right now. Last year it was 17.6%. The out-migration is increasing as well.

I suppose it's an interesting phenomenon. When you read a lot of these reports we put out and analyses done by economists all the time, you note that they always say ACOA is not working because the GDP is not all that high in Atlantic Canada. In an objective way, we have a quality GDP in Atlantic Canada, as they do in a great many rural areas in Canada where the unemployment rates are high. By a quality GDP, I mean that as GDP is defined, meaning consumer spending plus investment spending plus government spending, and then a bracket, export minus import.... That's the GDP.

• 1650

In a community in your riding, the GDP would perhaps be very low because there is very little consumer spending, there is very little investment, there is very little government spending if you say the employment insurance system is privatized. But you have a lot of export spending, don't you? That community is perhaps entirely based on the fishery. That's a very low GDP.

Look at the GDP of Ottawa, for example. There's high consumer spending, high investment spending, and high government spending for sure. But look at the exports. There is perhaps tourism in foreign dollars to a certain degree. But you have one GDP down here and one GDP up here. Well, the truth of the matter is, as you point out, you have to have exports. This GDP is actually allowing this GDP to be the GDP that it is.

That perhaps answers the question. It's unfortunate that in these blanket statements by financial institutions and these—might I say—right-wing economists who pass judgment on the part of certain organizations, as we all know, they are saying Atlantic Canada is not working and the agencies are not working. When they mention GDP, they should define what's in the GDP. Then we'd know whether it's a good GDP or a GDP that's living on somebody else's GDP.

Does that answer your question?

Mr. Gerry Byrne: It does, Mr. Minister, and I have one other thing.

What you're saying is that what doesn't get reflected into the equation is where the first dollar turns, where the resources come from, which really fundamentally drives the rest of the economy. If you don't have primary production in some form or shape, you will not see downstream benefits to the economy in terms of an integrated economy. Is that your opinion?

Mr. George Baker: Yes. If you don't have exports.... Of course, exports are defined as foreign dollars coming into the country. It could be via tourism dollars and so on, as we've noted.

As far as real exports are concerned, Mr. Byrne, you know yourself that in Newfoundland and Labrador, which is identified as the poorest province in Canada, with the unemployment rate going down and out-migration, you have iron ore; you have your power going into the New England states; you have three paper mills, one of them in your riding; you have all of your fish plants. Your fish exports are up to a billion dollars this year, the highest in Newfoundland history. It may be the highest unemployment rate in the fishery in Newfoundland history, but it's also the highest value of exports in our history. Everything is exported for half a million people. Newfoundland and Labrador would lead the rest of Canada in actual contributions to the economy if you defined it as being exports per capita.

Mr. Gerry Byrne: So what do we do about it, Mr. Minister, and what role does ACOA have in shaping that?

Mr. George Baker: I think ACOA has a very interesting role that's sometimes not recognized by certain political parties. ACOA is not only the grassroots organization that delivers on behalf of other federal departments and agencies but is perhaps the organization.... If it weren't there, you would have to have a bigger bureaucracy in Ottawa. That's the bottom line. If you didn't have ACOA in Atlantic Canada, you would need a bigger bureaucracy in Ottawa to do the very things ACOA is doing.

I also believe that when you look at the fishery, a primary resource like that, there's still a lot of work left to do by agencies like ACOA. Sometimes people say the future lies in knowledge-based industries. Sure, it does. It's nice to have a diversified economy and that's one of our objectives, but there's still a lot of work left to be done, as you say, with our natural resources in doing refined products, secondary processing. There's a huge vacuum out there as far as those subjects are concerned.

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

Mr. Gerry Byrne: I just want to go on record as saying one thing, Madam Chair.

ACOA has an advocacy role, but we have the greatest advocate Atlantic Canada has ever known sitting at our table and appearing before this committee. I want to thank you, Mr. Minister, very much.

The Chair: Thank you very much, Mr. Byrne. We appreciate that comment.

Mr. Riis, please.

• 1655

Mr. Nelson Riis: Perhaps we should have an evening of Professor Baker's deliberations and we can have a round-table discussion, but since I have only a few minutes, Mr. Minister—and I appreciate you and your colleagues being here—I want to take off on the question of the role of ACOA.

I think, as I travel around the country, ACOA, the Western Diversification Fund, and many different programs are not always held in the highest esteem by entrepreneurs, by those involved in the knowledge-based economy, and so on. I suspect it's because there's some misunderstanding of the role of ACOA—and I'll refer strictly to ACOA.

I think you would agree, Mr. Minister, that the reason we have a government is to provide equal opportunity for the citizens of the country, regardless of where they happen to live or their state, and so on. In other words, it's so that if you're living in Newfoundland or Labrador, you have the same opportunities you would have if you lived in Toronto. This would be the ideal world.

So ACOA was introduced to provide for the business sector primarily—the investment sector, the entrepreneurs—so that if you happen to be living in P.E.I, Labrador, or Saint John, you're not handicapped in terms of your ability to do business as if you were living in the urban areas like Ottawa, Toronto, or Montreal—the urban hinterland sort of view.

That's why, in my judgment, we have ACOA. So far, your deputy has indicated that one of the things it does is have trade promotion initiatives, like the one down to the northeastern states. Yes, perhaps that will help local entrepreneurs develop markets they normally wouldn't be able to afford. You mentioned the development of transportation infrastructure as a way of assisting people doing business in the hinterland areas of the country.

Could you be specific, either you or some of your colleagues, and identify those things that ACOA does that you don't find in places like Ottawa, Toronto, or Montreal? In other words, what special features are there provided for entrepreneurs or business people in Atlantic Canada that you don't find elsewhere, or at least not in that form, to provide this level playing field for a business person, regardless of where he or she happens to be living—in this case, in Atlantic Canada, as opposed to the urban industrial heartland of the country?

Mr. George Baker: Let me first of all answer the question generally, then I'll pass it to the officials for some specifics.

It's interesting when you see political parties, for example, who criticize the Government of Canada for maintaining these agencies that support the development of industry in high-unemployment areas of Canada. I think if you look back over your history, Mr. Riis, in the House of Commons, you'll find that certain political parties always say there shouldn't be loans or grants, but there should be tax breaks. A tax break, as you and I know, is an expenditure. So that is not always taken into account, the tax expenditures that many auditors general have noted over the years as being a drain on the economy, sometimes being hidden, that have led to many very large businesses paying very few taxes, as you know.

So this levelling of the playing field is something that I feel has to be done. Not only does it have to be done to attract new business, but it has to be done because those areas of Canada such as Atlantic Canada are rich in resources and have very little influx of private capital. The government has a role there that perhaps is not there in another part of Canada. Without that role, the business does not start.

The unfortunate thing is that with all the successes we've had, there's not much heard about the successes. You hear only about the failures. That's perhaps the downside of the equation.

Do you want to elaborate on that?

Mr. Michael Horgan: Yes. If I was going to characterize ACOA, I'd say there are six main areas we're involved in. The first is the issue of access to capital. There is a view that markets and capital markets are perfect, and therefore there's no problem of businesses accessing capital.

• 1700

I think a counter-view is that in fact, particularly for small businesses, not for large ones, there's a real problem of access to capital. What ACOA does, I think more than other federal government agencies elsewhere in Canada, is really address the issue of the access to capital for small businesses. Therefore, we have a very extensive small business loan program on favourable terms that really meets a particular gap that is extant in Atlantic Canada. So that's a major area, I would say, of our effort.

The second major area of effort is one we touched on earlier in terms of trade and trade promotion. We put a large number of resources into that area. It's very important. Atlantic Canada in some respects, particularly in the small business sector, lags behind elsewhere in Canada in terms of export and export trade. It's particularly important because you always want to benchmark yourself against the best in the world, and it's very important for the people in Atlantic Canada, the businesses in Atlantic Canada, to start looking out and benchmarking themselves against others. In ACOA, we are really trying to promote that.

I guess the third area is the whole area of innovation and technology. Again, we find in Atlantic Canada, and again particularly in the small business sector, an innovation gap. We're trying to help fill that gap, partly through our assistance to small businesses, but as well in Atlantic Canada through our assistance to things like universities and research institutes, where we're trying to develop clusters and a focus of innovation for, if you will, an investment in communities, so that the future will rely a little bit on innovation and technology.

Mr. Nelson Riis: If I could interrupt just for a second, with all due respect, because of the time constraint, access to capital that you say is available through ACOA is also available throughout all parts of Canada, through the Business Development Bank or Community Futures. There are all kinds of federal programs to assist in access to capital. There's trade promotion. You have Team Canada running all over the world, all kinds of people with the Prime Minister and the premiers and so on. With innovation and technology, it's the same. We have a whole report we've just put together, and there are all kinds of opportunities in the big cities.

So in a sense, the question I've asked is not being answered, at least to my satisfaction. What is it that ACOA does that gives people in Atlantic Canada almost an extra leg?

I'll use as an example for the kind of question I'm getting at—obviously I'm not very articulate—Norway, a country I know particularly well, where if you're a manufacturer outside of the main urban Oslo area, the cost of getting your product to the Oslo port is subsidized to give a manufacturer in town who is x distance away from the port an equal opportunity to manufacture without having to pay an extra transportation cost. That's so that not everybody locates in the Oslo port. In other words, there is special consideration for doing business outside the usual urban congregation.

That's what I'm looking for. I mean, in a sense what you've told me here is the same kind of service that exists everywhere. Now, have I missed something?

Mr. George Baker: Yes, you have.

Mr. Nelson Riis: Okay.

Mr. George Baker: What I think you've missed is that in the instances you've cited, for example the Business Development Bank, there is quite a rate of interest—pretty high, above the normal rate. They have a formula, which is 75% of.... Of what?

Then, on the other end, you mentioned the Community Futures organizations. They loan money from $5,000 up to...well, their total budgets are somewhere around $2 million each, throughout Canada, or about that.

So what fills in the gap is the organization in Atlantic Canada that actually delivers the Community Futures organizations. That's the expertise right there. What ACOA does beyond that is provide the expertise for every single other federal-provincial agreement or cost-share agreement.

In other words, if you take—perhaps it's not a very good example...well, yes, it is a good example—the Transitional Jobs Fund or the Canada Jobs Fund, ACOA is part of the consultation process before a provincial government agency or another federal government agency would participate in a business venture. Say you have—as is usually the case—the banks, HRDC, a provincial lending agency, and ACOA involved in a project, they usually take their lead from ACOA. ACOA is regarded as being the agency that has the expertise. The reason I know that is because I always get blamed when somebody has a problem with another federal agency or the provincial agency. So ACOA fills that role, and it's quite a gap.

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You mentioned the assistance to rural areas outside a part of Norway, so that a business could be carried out in a rural area just as in a highly populated area. As you know, Mr. Riis, we had quite a network of those support measures in place, and it all fell over a period of time. It fell when the Tories were in, and when measures had to brought in regarding the budget. Freight assistance, feed freight assistance, everything, it all fell, and presently it's not there.

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

Mr. Lastewka, please.

Mr. Walt Lastewka: Thank you, Madam Chair.

I have one question I'd like to get some definition on, but first of all I'll make a comment.

I've been to many of the sites and areas where you've helped SMEs in Atlantic Canada, and I think you've done an excellent job helping them to be the engines of growth in Atlantic Canada. I want to commend you on that.

The Enterprise Cape Breton Corporation works in partnership with ACOA, although not directly. We all know about the Phalen closure and the DEVCO problems, the steel mills, and so forth. Could you give us an update on how the partnership with ECBC works to make the paradigm shift in that area, to bring the mines and steel mills to small businesses, with the latest announcement with EDS, and what other things are happening in that area?

Mr. George Baker: I'll pass to my officials in a moment in case they have any additional comments, but as you know, they are the delivery agent in Cape Breton Island for ACOA programming. They are a separate crown corporation, at arm's length from the government.

You mentioned the EDS announcement. It was a good example of a real success story as far as that development corporation is concerned.

I might mention that the information I've received recently is that it's not just going to be 900 jobs, but actually upwards of 1,500 jobs, from that announcement made by the Prime Minister in Sydney. I noticed in the newspaper the two NDP members were next to the Prime Minister for their photograph to be taken after that announcement, because it was a good announcement. It was one of those—

Mr. Nelson Riis: They were local MPs.

Mr. George Baker: They were local MPs from Cape Breton Island—hopefully Liberals next time.

It is an example of a success story where the Cape Breton Development Corporation actually took the lead role in going after that business and trying to make it work so that the business would move from the United States into Cape Breton Island. It has led to all kinds of other things that are now happening in the economy in Cape Breton Island, and it looks as if we're really on the way up.

Would you like to add anything to that, Mr. Horgan?

Mr. Michael Horgan: The only thing I would say is that when the government announced that one of the mines would be shut down and explorations would be done in terms of privatizing the other mine, it was also announced that there would be a $68-million federal adjustment fund.

There was a group made up primarily of local people from Cape Breton, a panel, to consult very extensively in Cape Breton on how that adjustment fund could be used. The work of that panel is now coming to a conclusion. A draft final report has been circulated in Cape Breton. We would expect that the final report of that would guide the government in terms of the use of that $68-million fund.

Mr. Walt Lastewka: I know it's a separate corporation and it works in partnership with ACOA, but when the report is tabled, maybe the members of this committee should be able to get a copy of it.

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The Chair: Thank you, Mr. Lastewka.

Mr. Pickard.

Mr. Jerry Pickard (Chatham—Kent Essex, Lib.): Thank you very much, Madam Chairman.

Mr. Minister, thank you very much for coming, and your officials as well.

When I look at ACOA and at Atlantic Canada, I think we have a major problem there, and I'm not sure we're addressing it as we need to address it.

From my viewpoint, not living in Atlantic Canada, I can't conceive of what 17% unemployment is or the high unemployment we do have there. But that has to be addressed, and I'm not sure we're doing an adequate job in addressing that. Maybe we are, because there's no magic wand that resolves problems and solves situations. You can't just wave a wand and say, all right, now we have everything right and we'll bring that unemployment down to 8% or 7%.

But at the same time, I've seen fisheries close. I've seen major problems with our base industries. Resources have been under the crunch. We all know that. The end result is that I'm not sure I see a really bright future. What are we doing in order to create a more major change in Atlantic Canada? We can't be pessimists; we have to be positive.

I'm not sure it's totally the government's role to resolve those problems, but it seems to me I see a lot of questions even about our intensity rules in unemployment. That marks in my mind the fact that we expect the roles of a lot of people not to change over the short term, even over the long term.

We have a myriad of difficulties, but what we do need is jobs. I think we need more action in Atlantic Canada in dealing with aspects that are going to create better lives and better livelihoods for the people there.

Is ACOA's role broad enough to do that, or do we need other mechanisms there? I don't think we can survive on a resource-based economy as is suggested. Resources run out; people remain. What is happening?

Mr. George Baker: Let me answer your question in two ways. Take two examples. Take Cape Breton Island, with the collapse of mining activity and so on, and the response of the federal government in putting forward some $68 million—isn't that right, Deputy?—in an attempt to diversify the economy, and the fact that this board has come up with its recommendation and there will soon be a plan announced...for a total of close to $80 million, actually.

Mr. Michael Horgan: There's $12 million in provincial funds.

Mr. George Baker: There's $12 million in provincial funds as well.

That's one case where, yes, it was one natural resource.

In the case of the highest unemployment regions of Atlantic Canada, take the south coast of Newfoundland. According to Statistics Canada this week, there's 39.7% unemployment all along the south coast of Newfoundland.

The problem with the fish plants on that section of coastline, as is the case with a certain section of the Quebec coastline from Blanc-Sablon down to les Îles-de-la-Madeleine et la Péninsule acadienne, is that there was a great reliance on the groundfish fishery. Along came what I call the real culprit to the destruction of the fishery, the foreign draggers, allowed in by the federal government from 1985 to 1990, an absolutely outrageous record for the Government of Canada in that period of time, to destroy the environment as they did and destroy that inshore fishery all along the Atlantic seaboard.

The point is this. There are other resources in the ocean. These areas need not just close.

I'll give you an example. We recently signed with the Newfoundland government a diversification program through ACOA to diversify these industries into, say, mussel production, where you have these wonderful areas for the creation of mussels—the water has the appropriate nutrients to grow mussels better than anywhere else in the world—and the various other things in the ocean that can be harvested.

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So what's needed is what we're delivering right now, and that is a diversification program so that if the groundfish fishery is destroyed by a government that allows foreign nations to come in and ruin their fishery, if that ever happens in the future again.... It won't happen under the Liberals, but maybe some forty years hence, when the other governments take over, it might happen.

The economy has to be diversified. If it's the fishery, if that's all you have on the south coast of Newfoundland, then there are opportunities there for diversification. That's why we're trying to address that in our present programs.

The Chair: Make this your last question, Mr. Pickard.

Mr. Jerry Pickard: Okay. Thank you, Madam Chair.

Are we able to look at our progress in a way where goals and steps have been put in place in order to see this agenda move forward? Again, looking at the high numbers of unemployment and looking at the bleak scenarios, we need to be very proactive, and there's a very limited window of time to work at that.

Mr. George Baker: You're absolutely right. The unfortunate part of it is, with development, with secondary processing, with any kind of development onshore, it takes two to tango. The provincial governments of course hold the key, in that they are the ones who set the long-term goals, because they're the ones who control all of the licensing in the case of the fishery; all of the licensing in the case of forestry; and all of the licensing, rules, regulations, and goals as far as the mining industry is concerned.

So you might have situations similar to what we have encountered in ACOA since I've been here, a relatively short period of time. I've seen cases where you have this marvellous proposal being put forward by an entrepreneur, and ACOA can't help, because the province says no, that's not in their long-term plan.

So every time you look at even the fishery, the mussel production I just mentioned, you have to have the province sit down and say yes, we're going to issue a secondary processing licence for this particular plant. It has to be done in harmony with the provinces. That's why we have our provincial and federal agreements that we've always relied on over the years.

But I agree with you that the province has a real role to play here, and unfortunately in some cases they're not fulfilling it well enough.

Mr. Jerry Pickard: Thank you, Mr. Minister.

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

I have to apologize to those who weren't able to ask questions.

Mr. Minister, I want to thank you for being with us and thank your officials for joining us. Obviously we could have gone on for a lot longer, but we do appreciate your time here today.

The meeting is now adjourned.