EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, November 28, 1996

.0909

[English]

The Chairman: Order, please.

I have just one piece of business, Monsieur Leblanc, before we begin.

[Translation]

We will have a meeting tomorrow afternoon on the Bell Canada bill. You have submitted a list of witnesses and none of them wants to come. You can discuss it with the clerk afterwards

[English]

and then make a decision about whether this is okay with you. If so, we'll do the bill.

To the witnesses, my apologies for being late this morning. We're all suffering from the transit issue, and I'm one of them, so I apologize for keeping you waiting. We try to start on time.

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

.0910

To the witnesses, we have been in this study now for several weeks and we've had some excellent round tables. I welcome you to this one.

We're at the stage now where we're trying to focus on what should be done. Today represents not the last of the witnesses, but the last of the round tables.

We very much appreciate your agreeing to spend a couple of hours with us. As I said to other witnesses, we are generalists who, by your definition, are people who have a very superficial knowledge of a very difficult field. We're trying to steer our way through it. We appreciate your expert testimony to give us some advice on how to proceed.

We're not a full house here yet.

We would like to welcome Dr. John Baldwin from Stats Canada. We would also like to welcome Mr. Paul Hough and Dr. John Service from the National Consortium of Scientific and Educational Societies.

We normally like to have one person from each group make the opening statement of about ten minutes, and we're not too strict about this, and then we open it up for questions. We generally find there's a really good interest in the committee. Over the two hours, if there are other people who have something to say, there are lots of chances to jump in and respond.

Mr. Hough, perhaps you can begin.

Mr. Paul Hough (Chair, National Consortium of Scientific and Educational Societies): Thanks very much, Mr. Chairman. Just to give you a little bit of background, I am here representing the National Consortium of Scientific and Educational Societies, which I will describe in a moment. I'm also the executive director of the Canadian Federation of Biological Societies, which is an organization that brings together a lot of the societies in the biological and biomedical area.

Dr. Service is the executive director with the Canadian Psychological Association. He is with me on the steering committee on the national consortium.

The consortium itself brings together over 25 organizations representing 50,000 or more researchers and university-based teachers across the country. It's the only such organization of its type in Canada. It includes all the various university disciplines as well as having significant numbers of people in the government laboratories and in the private sector. So there is a very strong constituency behind us that is concerned about what's happening in the science area these days.

As chair of the consortium I have the privilege of bringing to you today a few of our thoughts and ideas concerning Canada's S and T direction and capacity. The approach that I propose to take is based on the premise that innovation and the application of technology is critical to the Canadian economy, as articulated in the government's S and T strategy document. In our view this premise requires a sustained investment in R and D. We will put forward specific suggestions designed to meet those real needs.

Several of you are already aware that the consortium has worked very closely with the Association of Universities and Colleges of Canada, AUCC, which appeared before you earlier this week, and with the Canadian Association of University Teachers to develop very specific proposals for the government to consider. These were presented to the House of Commons finance committee on October 22 in a joint presentation. I urge you to consider our document prepared for that, entitled ``Putting Knowledge to Work: Sustaining Canada as an Innovative Society''.

The Chairman: On that point, Mr. Hough, we are working closely with the finance committee in sharing with Mr. Peterson the presentations on the same theme.

Mr. Hough: I'm pleased to hear that, sir.

As a starting point, I would like to say that English is sometimes a very imprecise language, as demonstrated by our use of the word ``science''. Most people take this to include only the natural and the physical sciences and engineering. However, when I use the term today I would like to include as well the health sciences, the social sciences and the human sciences. They all have an important role to play, in our view, in developing and sustaining an innovation-based economy.

What is an innovation-based economy? As I understand it, several people have appeared before you and have had a certain amount of difficulty perhaps in describing exactly what an innovation economy is. There is no hard and fast formula, and I don't have one either. If there were, perhaps some of the questions the committee is asking would be easier to address.

However, what I propose to do is to step back a bit to look at some of the realities of innovation and then to look at whether we are implementing measures that will provide a better climate or context for innovation to happen.

The recent Conference Board report, ``Performance and Potential'', 1996, notes several important realities about innovation in general and in the Canadian context.

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First and foremost, knowledge underpins technology and innovation. Secondly, a developed country, which I assume all of you would agree Canada is, has the capacity to generate, acquire, absorb and apply knowledge. In reality, Canada has a low level of R and D investment compared to our major competitors, as I know a number of witnesses have already underlined.

According to the Conference Board report, which we basically agree with, innovation includes not only R and D but also the application and diffusion of knowledge. Canada's high-tech sector compares very well with similar industries in other countries, but some of the other sectors within Canada do not.

An important factor in the diffusion of technology and the innovation process is the availability of highly qualified people. Canada has approximately 47 researchers engaged in R and D for 10,000 in the labour force. This compares to 99 in Japan, 74 in the U.S. and 58 in Germany. In my view, this shows that Canada is not producing too many highly qualified personnel at all.

Besides researchers, Canada requires in the innovation economy literate, numerate and highly trained workers, technicians, scientists and managers who are able to understand technology and use it effectively. The key message, in our view, is that the creation, dissemination and use of knowledge is what defines an advanced country such as Canada. Thus, any programs, policies and mechanisms that are proposed or implemented should enhance any of these aspects related to knowledge. They are really investments in the future.

I'd like to go over a couple of current trends and then get into some specific suggestions on where to go.

It may be stating the obvious, but innovation has long been a major factor in the industrialized countries and is becoming so in virtually all other ones as well. Several examples come to mind.

Canadians, for example, basically expect to have access to nutritious and safe food, low-cost energy, housing that lasts and is easy to maintain, goods that will endure, transportation that is reliable and cheap, state-of-the-art health care, medicines and procedures, clean air and water. As well, they can expect a whole lot of other things in the entertainment field, a reliable weather forecast, an infrastructure that works, communication systems that are reliable and cheap, just to name a few.

All of these require research and development and innovation. Areas that are not commonly highlighted in this context, but which are also important to Canadians, include expertise in language, cultural awareness, history and law that enable Canadians and Canadian companies to effectively interact and work with overseas companies and individuals. I say this because everybody does not start from the same point of departure when they're dealing with collaborations.

The information highway is often highlighted as a real innovation, and it's really a whole series of innovations. It has certainly altered the way in which we can do many things, including the way we communicate with colleagues and customers. But it's really a tool that enhances the research business and the cultural possibilities. It does not replace people or the work that needs to be done. We must be aware of what technology does to society. That's where the social sciences come in, very definitely, by way of altering the traditional methodologies or patterns of working and living.

All this is to say that expectations have been raised to even greater heights. At the same time a fundamental change has occurred in society. Not so many years ago goods were expensive and time was cheap. Now goods are cheap and time is expensive. The development of knowledge, be it through R and D or through the application of ideas, processes and concepts in novel ways is a labour-intensive activity. It is thus perceived as an expensive one, certainly by the current levels of government. Instead I would suggest it be viewed as an investment.

There are definite trends going on at the government level. In response to the fiscal situation governments at all levels are dramatically limiting their expenditures in the belief that deficit reduction will ultimately allow for renewed economic growth. A major target of these reductions has been the science activities supported directly or indirectly by government, as they all fall within the discretionary category of spending. These reductions in the support of science are generally described as regrettable but necessary, without there being any apparent consideration of the impact or longer-term effects on their country's ability to renew economic growth.

.0920

I would suggest, sir, that the university and government sectors have been particularly affected in this regard.

One reality of the S and T strategy is that science is compartmentalized to an even greater extent than previously within the individual federal government departments. With the overall budgets of these departments decreasing, the science activities are being slashed as vigorously as in other areas, often without evident plans to ensure some level of continuity or to verify that the cuts really are in the best interests of the country.

Some programs have been implemented in recent years to bring the different sectors together in ways that promote innovation, technology transfer, and economic benefit, for example, the national centres of excellence. However, even these programs are currently in very real danger from the overriding imperative to meet budget targets.

This is not to say, sir, the government sector is the only one that has diminishing resources applied to R and D or innovation. The private sector has also retrenched in a very massive way to focus on what they term their ``core'' business and activities, and away from long-term commitments to those that provide short-term incremental change for products or processes.

This presents a challenge - an opportunity, actually - for university-based researchers to link with the private sector in areas that the latter require. However, it is not reasonable, I would suggest, to expect the private sector to assume a given research responsibility just because the government, whichever government, says it does not have the funds to sustain that area of work.

Canada therefore runs a substantial risk of paying for short-term gain with the loss of the opportunity for innovation requiring long-term development and having greater potential for economic return.

Basically what I'm saying, certainly with respect to the S and T strategy, is that there is a primary missing element. That element is a sense of where we need to go and any plan as to how to get there. Everyone - government departments, universities, the small, struggling companies in the private sector, and others - is left to defend their share of the available resources as best they can. That's not a vision of creating a truly innovative society, I would suggest, in which the different sectors all play important and complementary roles.

So where do we suggest we go from here? It's transparently obvious to us that the massive reinvestment in science and R and D in the short term will not occur. However, there are a number of positive steps that we feel can and must be taken by the research community, by government and by this committee. A few of these are as follows.

Recognizing that a knowledge-based economy requires highly qualified people and that support of the research function at universities is a primary and low-cost means of developing this base, as expressed by the House finance committee in the last two reports, we urge that the industry committee add its influential voice to the support for the research granting councils.

Within the research sector a relatively recent approach, as I indicated earlier, has been the creation of networks of centres of excellence. These bring universities and the private sector together - over 600 private sector and NGO groups have been brought together on these - near the beginning of the innovation process so that both become effective partners in whatever developments ensue. Therefore, you avoid the ``not invented here'' syndrome that often comes into play. We urge this committee to articulate its strong support for the renewal of this very important program as well, certainly within the innovation context of its mandate.

There are many aspects to the conduct of research, not the least of which is infrastructure. This aspect has been left to deteriorate throughout the university and government sectors, making it ever more difficult for researchers and scientists to achieve what is expected of them and what they know they can accomplish.

Just by way of example, there are numerous graduate students in this country who are actually working with equipment that is older than they are.

We would hope that this committee would support the proposals in the ``Putting Knowledge to Work'' document, calling for the new infrastructure program and having a large component of that program devoted to the renewal of university infrastructure.

There is one important area that I think may not have been expressed by previous witnesses to this committee. This has to do with the oversight possibility. Government departments are mandated, or are expected, to produce both a detailed business plan and an outlook document. These are supposed to provide details on their activities and directions, including in science, within each department.

I realize that departments report through different committees, but at the moment the only oversight mechanism that is feasible is through parliamentary committees.

.0925

I would urge this committee to fulfil an oversight role, focusing on ensuring that the departments do indeed provide adequate details to define their priorities in science for their longer-range objectives, the suitability of plans proposed to cope with program changes, and the cumulative impacts of the cuts and other changes in the different departments that have science activities.

I would suggest, sir, that only in this way can we obtain a comprehensive understanding of what is really going on within the different departments.

In conclusion, I would say that in the absence of a massive reinvestment in Canadian R and D, real measures need to be taken. We've outlined some of these. This can only be achieved through collaboration among the different sectors. I think you've already witnessed that through the very consistent messages received from AUCC, CAUT, the consortium, and other groups. In other words, the science community really is getting its act together.

This can only be achieved through the sustained support of programs that provide highly qualified people and innovative ideas if they're going to fuel the economy.

I realize that there is a certain amount of zeal that exists now to extract information, ideas and anything else from the universities and from government labs for commercialization and benefiting society. I have no problem with this. I suggest, sir, that perhaps this is being a little bit overdone.

The very R and D that must be conducted to allow us to commercialize down the road is in jeopardy. The real source of these concepts, developments and processes that are being exploited now is the more basic exploratory research that was conducted in the past.

There was an analogy given to the caucus group on commercializing government science. Oil wells and pipelines are basically what we're talking about. Pipelines provide the technology transfer and the information flow, but it's the oil wells that provide the material to go in those pipelines.

We would suggest that the universities really do need to be sustained much more than they are now in order to provide a sustained flow of oil.

Thank you very much.

The Chairman: Thank you very much, Mr. Hough, for your presentation. I'm sure the committee will come back to you with questions.

I'll turn now to Dr. John Baldwin, who's from Statistics Canada. Perhaps you can introduce the work you do and your presentation.

Dr. John Baldwin (Director, Micro Economic Studies and Analysis Division, Statistics Canada): Thank you very much.

I'm a director in the research division at Statistics Canada. The basic aim of this division is to make use of the large amount of data that the agency has and, in an important way, to address public policy issues.

I was invited here today as part of a round table. I understood that the purpose of it was to essentially allow you to ask questions of me with regard to some of this work and perhaps its relevance to some of the issues you're addressing.

So what I prepared for you is a brief description of the research pieces that have been prepared over the last two and a half years that deal with some of the issues that I think are germane to the problems you're addressing. I will speak briefly to those simply to outline some of the issues we've addressed so you can indeed put questions later if you so desire.

The research falls into two different domains. They're clearly related. On the one hand, we've been trying to address the lacunae with regard to science, technology and innovation statistics. On the other hand, we've been using longitudinal panel databases at firms and enterprises in the Canadian economy to try to understand how technology and innovation relate to their success.

Let me start first with a brief summary of what I regard as some of the important findings. The first set of findings comes from a set of surveys on innovation and technology.

The most important finding is derived from a survey of growing small and medium-sized enterprises. I already addressed this committee with some of those findings some two years ago.

This was a survey that broadly focused on the activities and strategies of small and medium-sized enterprises, but it linked it to longitudinal panel data that allowed us to analyse, in effect, the differences in success rates across firms and then relate it to the various activities they were pursuing.

.0930

The key finding was that it wasn't the strategy on marketing or human resources that was the most important determinant for the difference between those firms that were most successful and those that were least successful; it was the various aspects of innovation. This of course points out the great importance of the interest of this committee and others in the innovative process in Canada.

Subsequent work asked whether or not we could find distinct patterns that differentiated those firms that were innovative - these were the ones we found to be more successful - from those that were less innovative. What exactly distinguished firms that appeared to be succeeding when it came to adapting to what has always been an innovation climate in effect?

A series of studies was completed on this. They all addressed the issue of the importance of human resources and training in various companies. We found that perhaps the most complementary policy to innovation, the one that seemed to enhance the success rate of innovative firms the most, was an emphasis on the human resources and skills that went with these firms.

The emphasis differed across industries. We clearly have a complex world out there. Skills and skill training that are associated with the extensive use of machinery and equipment occur in manufacturing industries because that's where a lot of machinery and equipment is utilized.

Elsewhere, human capital improvement is clearly also important, such as in the service industries, but it's a different type of human capital improvement. This has to do more with producing new products and finding new ways of doing things and much less with finding ways to make machines run.

We then proceeded to ask whether or not there was a larger set of skills that differentiates innovate firms from non-innovative firms. In effect, this was an attempt to answer the question of whether there was a simple Grail out there that we can find to distinguish the innovative firms from the non-innovative firms.

The answer we found here was that there wasn't a simple lever that could be pulled. In effect, innovative firms differed from non-innovative firms across a wide variety of strategies and activities.

The difference between these two groups requires a quantum leap, in effect. Human resource skills are clearly the most important, but many other skills became important. Differences in financing strategies and other management skills were clearly evident in the data we produced.

We then turned to work that we'd developed from the first Canadian innovation and technology survey. As you're going to hear, I guess at 11 a.m., there has been some worry about our science statistics base within this country.

For a very long period of time, we focused on a small number of summary statistics, one of which is R and D spending, of course. Two or three years ago, the micro-economic analysis division, which I run, pioneered a new survey on innovation and technology use to see whether indeed we could collect information on this so-called innovative economy that provided us with a better picture of what was happening.

The first part of this survey looked at the implementation of advanced computer-based technologies in the manufacturing sector, how quickly they had spread and what their impact was. We found that the inspection and communications area of computer-based technology, as opposed to the shop floor fabrication and assembly area, had received the greatest attention from the private sector. It was in these areas that our technological base had made the most rapid progress. Interestingly enough, firms that had adopted these technologies were making the most rapid advances in terms of superior performance.

We were able to link the information that we obtained from this survey to longitudinal data on actual firm and plant performance. We discovered that the firms that had indeed adopted these technologies were paying higher wages, had wages that were increasing more than elsewhere, and showed a greater increase in productivity.

What was of course most interesting was that most of this advance was connected with the use of this broad range of inspection and communication, or what is called soft manufacturing technologies, as opposed to the hard manufacturing technologies of machines controlled numerically by computers, robots and other computerized assembly processes.

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We also did some work linking our interest in human resources, which I discussed previously, to the pattern of the usage of technologies. As you probably know, there has been a polarization of earnings in this country over the past 10 to 15 years, and we wanted to ask whether or not the polarization of earnings at the plant level seemed to be associated with the application of these new computer-based technologies.

We found that there does indeed appear to be some link between the increasing divergence of wages at the plant level and the use of technologies there. Those firms that have been using and applying these new technologies have been increasing their wages relative to those that are not using technologies at a relatively fast rate.

More recent work - we have not made reference to this here, as it is still in draft form - tries to separate out the extent to which this polarization is an effect both of technological change and of changing exposure to international trade. At the same time as these computer-advanced technologies have been increasing in importance, we have moved to a world in which globalization is the buzzword that is used constantly and in which people worry about the extent to which some of these polarizations are a result of the increased globalization we've experienced.

During this process, we've also examined differences that exist between small and large establishments both with regard to the use of these technologies and the effect of these technologies. Our results here show - this is something you probably already know - that small establishments tend to use these computer-based technologies less frequently. But interestingly, when we linked it to the longitudinal databases we have and looked at performance, we found that small and large firms or establishments have very different levels of performance when they implement these technologies.

Large firms tend not to increase employment a great deal as they implement these technologies. In fact, if anything, these technologies lead to virtually no change in their employment base, whereas, in opposition to this, small firms tend to increase employment far more frequently when they use these technologies, even though they use them less frequently.

We focused also on the key competencies that firms said they required when it came to adopting advanced computer-based technologies. We found that these firms tended to stress engineering and production capabilities rather than R and D capabilities. We place a great deal of attention in this world on pure research and development.

The firms we surveyed clearly place a great deal of importance on the competencies in their engineering and production groups. Those competencies, of course, also come from universities, but they're a different set of competencies than what we usually talk about when we talk about the white coats and the R and D labs.

We've had a productivity slowdown in the manufacturing sector in the last 15 years, at least relative to that of other countries. Some people have worried that the implementation of computer-based technologies may be a cause of this. So when we put this question to plant managers, we found they felt that all of their technologies and the implementation of them had considerably enhanced their productivity.

When we asked them what the key problems were with regard to the implementation, they talked about skill shortages, again, as being the most important problem. As well, there was a need to solve organizational problems within their own firms. Also - this was rather interesting - there's a lack of software and people to develop and program that software to make the machines work.

Technology does not get incorporated simply through machines these days because of the computer revolution; it also gets incorporated through the use of appropriate software packages to make these machines work. This was clearly seen as one of the major barrier areas these firms faced.

As I said before, this was part of a larger study of innovation in Canada in which we looked not just at the application of specific machines, but at the extent to which Canadian firms were making and introducing new products and processes.

We produced - I brought one of the documents with me - the first study from that innovation survey, which looks at the extent to which Canada is innovative. That study points out that the innovation process is multifaceted. Some Canadian firms produce world firsts in the products and processes. Many produce just Canadian firsts. Many others produce what are called imitative innovations, which means they're neither world firsts nor Canadian firsts, but they clearly have a very major impact on the institutions or firms that introduce these both in terms of productivity growth and profitability growth, and on changes in the nature of skills that are required by these firms.

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I think we have to remember, as we talk about an innovative economy, that innovation takes place in a complex way. You may think of it as a pyramid, with a small number of firms at the top doing frontier-type work, but with the vast majority of production and employment being in firms below that part of the pyramid, where, if progress is not made, overall average levels of economic welfare simply do not progress.

So understanding the innovation system as a complex one with different levels of innovation was one we focused on. In our first study, we showed that there are very different types of innovation regimes in these various areas. The world firsts and those with a highly novel innovation tend to rely more heavily on R and D labs and on intellectual property rights than others.

There are, however, many areas in which all of the groups resemble one another. All of them require more skilled workers as a result of innovation. All of them rank the various impediments to innovation in a similar fashion: a lack of skilled personal, a lack of market information, government standards and regulations, and a lack of technical support. So while these firms do indeed differ by innovation type, their perceptions of the problems they face are relatively similar.

We also looked very carefully at the differences between the innovation regimes of small and large firms. Small firms tend to use R and D less frequently and tend to produce world-first innovations less frequently. They also tend to indicate that they produce innovations per se less frequently.

But when you evaluate very carefully the difference between large and small firms, there is a way in which you can argue that small firms are actually more dynamic than large ones. They indeed produce more output and innovations per unit of input per percentage of time they actually implement R and D labs.

There are other differences between small and large firms that suggest that the fact small firms do less R and D is a somewhat misleading view of the importance of small firms in the innovation process. The primary difference is that small firms tend to network and link with large firms. They tend to become part of the R and D process of large firms. They make use of large firms for new ideas. There's an interaction between these two groups that's of substantial benefit to the small firm population.

Having said that, however, small firms do indeed see that certain impediments to their innovation process make them quite different from large firms. They're more likely to worry about a lack of information on technologies and a lack of external technical services. Also, barriers to inter-firm cooperation tend to be greater in their case.

The second body of research that -

The Chairman: Dr. Baldwin, just before you get into the second body, we sort of asked people to summarize things in about ten minutes so we could have some discussions.

Dr. Baldwin: Well, that covers the first ten minutes.

The Chairman: That's the only reason I was interrupting you at all, sir. Again, I appreciate your research, and I have that background.

We're going to have a bell somewhere around 10:30 a.m., which will go on for half an hour. I just want to make sure we give our members a chance to talk, because they get involved with this, and so forth. That's the only reason I interrupted you.

Dr. Baldwin: That's fine.

The Chairman: Is that fine? I'm sorry.

Dr. Baldwin: That's a good point to break.

The Chairman: Thank you.

Mr. Broadmore, are you going to make a presentation?

Mr. Peter Broadmore (Vice-President, Government Relations, Information Technology Association of Canada): Yes.

The Chairman: I just encourage you to give us a chance to get involved.

Mr. Broadmore: Absolutely.

Good morning to you all. My name is Peter Broadmore. I'm vice-president of government relations for ITAC, the Information Technology Association of Canada. With me today is Norine Heselton, who is our vice-president of policy.

The association we represent, along with our affiliate associations at the provincial level, now comprises some 1,200 firms, which are engaged across the full range of the information technology industry. Our members are engaged in the full range of commercial activity that's made possible by the convergence of telecommunications and computer technology. This includes, accordingly, telephone and telecommunications carriers, network service providers, computer and telecommunications equipment manufacturers, software developers and systems integrators. Our members are the kind of household names you would know and recognize: Bell, Nortel, IBM, Digital, etc.

Collectively, these firms generate about 70% of the more than $53 billion that the industry now contributes to Canada's GDP each year. They also account for about $2.5 billion in research and development each year and more than $14 billion in exports.

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As you've just heard - I'm sure you've heard this in your earlier hearings, tours and round tables - the industry we represent is now the largest industry in the world. By the end of the century, this will be - there are understandable differences in views because of definitions and what you count and what you don't count - at a trillion dollars U.S. annually. That's the most frequent estimate I hear.

Canada, of course, is a relatively small player in this global IT market, but we are nevertheless a significant one. Building on our traditional strengths in such areas as telecommunications technology, Canadian firms like Nortel, Newbridge and Mitel have carved out a significant niche in this very large marketplace.

They are joined by our increasingly successful software developers, a world-class cluster of systems integrators, and an extremely capable group of young entrepreneurs who now range across the frontiers of cyberspace looking for new opportunities for their creativity and innovation.

I will not dwell on these accomplishments, nor will I spend a lot of time dealing with our economic contributions or whatever. I'm sure others have done that, so there's no point in doing it myself.

I would add, however, that ITAC has produced a number of papers in recent years on things like the enabling effect, which covers the impact on the economy generally, and on the knowledge-based society, which talks about our vision of what Canada's economic prospects might look like, and so forth. I will be pleased to send them to you, if you're interested.

What I would like to do this morning is focus on two large and looming problems that call into some question our ability to maintain the rather spectacular growth records that we've racked up in the last five to ten years.

The first is raised directly by question 5 of your mandate, which deals with how well Canadian institutions are meeting the skill needs of high-tech industries.

As you just heard this morning - I'm sure you've already heard this from many people who have appeared before you - the fact of the matter is that the quality of the graduates in those disciplines from which we draw most heavily ranges from merely good to absolutely outstanding. Unfortunately, we are not producing enough of them. In such disciplines as mathematics, computer science and software engineering, the supply does not even come close to meeting the demand.

The Software Human Resources Council - I represent our association on its board - recently conducted a study demonstrating that literally thousands - I think the number that actually came up was 30,000 - of highly skilled, professional, information-technology-related software jobs could be created if the skills were available today. That's not to say that the jobs are sitting there waiting to be filled, but if the talent was coming into the job stream, jobs could be created to work on those opportunities already identified.

Not only are we not producing the kind of graduates we need in sufficient quantities to meet our domestic needs, but our members tell me increasingly that they are competing against recruiters from other markets, most notably in the United States, who recognize the value of the skills that our universities and colleges are producing.

A reference was made earlier to the recent Conference Board study confirming that the turnover rate for highly skilled workers is between 30% to 40%, many of whom head south to warmer climes, friendlier tax climates, and larger salaries. That is certainly consistent with the experience of our membership.

I don't know if you look at the Report on Business Magazine from time to time, but increasingly in our industry, the preferred method of recruitment happens at high-tech job fairs. If you look closely at the jobs described in those job fair listings, there are as many jobs being advertised in Omaha, Atlanta, Ogden in Utah, and Silicon Valley as there are in Montreal, Toronto, or Atlantic Canada.

I would also add that some of the situations that are taking place in that recruiting process are kind of indicative of the problem we face. Not only are those recruiters offering higher salaries than Canadian firms typically can match, but they are offering signing bonuses that in many cases are more reminiscent of softball than software.

Anecdotally, there was one case about a week and a half ago in which one of our members in Vancouver was losing people he had trained for two years. These are graduate software engineers who spent two years in training and were being hired away to jobs in Washington and Oregon at a 25% to 30% higher salary and a $50,000 signing bonus. This gives you some sense of what these jobs are commanding.

A growing number of our firms, based on these kinds of developments, are telling us that the number one constraint they face in terms of growth is access to critical skills, to which you've heard a reference already this morning.

.0950

More recently I came across a survey that suggests this brain drain I'm talking about is more imagined than real. It focused on some interviews with about 65 CEOs, I believe it was, who basically said they're not getting raided; their senior and middle management ranks aren't being depleted by overseas recruiters.

That may well be true, but I would suggest that looking at that kind of data is looking at the wrong end of the telescope. That's not where the raiders are coming at us from. They're coming at our seed stocks, our young graduates coming out of universities who are not finding jobs in this country that are perhaps as well paying as they'd like and who are very attractive recruitment targets for offshore firms.

Let me move to the second problem, because I think you've probably dwelt on this quite enough with other witnesses and other people. Let me turn your attention to something I think totally different, but it's something that's going to create even greater pressure on our skill shortages in our industry over the next 36 months.

What I'm talking about is the year 2000 problem, the millennium date change. I'm sure this issue too has been raised in earlier discussions. Usually when I raise the matter, I get a series of knowing nods from around the table.

Indeed, most of the people involved with our industry are very familiar with the issue. But to refresh your memories in case you're not quite clear how it works, the problem arises in the way in which software has traditionally coded the year and date. Usually it's been a two-digit field: 96 for 1996, 97 for 1997 and so forth.

Originally this was done because memory was expensive and it was a way of conserving space in systems. That's no longer an issue, but there's a great deal of software still in use that continues to use a two-digit code. This is just fine until you enter the year 2000, at which point the system is likely to interpret 00 not as 2000 but as 1900, or 1600 for that matter, or anything else.

The end result is that you're likely to face severe systems failures, crashes, or, even worse, insidious miscalculations that don't show up until much later in the process.

Nor is this problem related, by the way, to software alone. Data-sensitive code is often built into the hardware itself, for example, the BIOS code resident in PC ROM chips.

It's a significant problem. On the other hand, let me tell you very quickly that there is some good news here. Fixing the problem is not difficult. Simply find all the date-dependent variables in any given system or database that use a two-digit code, rework them to operate in four-digit mode, and then test the system. It's a simple process. The problem is volume.

When I was at a conference last month in the U.K., I heard a gentleman who suggested that fixing this problem is a little like wallpapering. He said it's very easy to do. You just hang the paper on the wall. The problem is that you have to wallpaper the entire world in about 36 months.

Typically, systems operated by most of our businesses have in excess of 10 million lines of software code, all of which must be checked, changed and tested, more or less line by line. There are a variety of automated products that will help you do that work on specific platforms and with specific kinds and types of software. But there's no silver bullet that will fix the problem universally with the push of a switch or a nice piece of software you can just plug in, fire and forget.

The end result is typically about a $3 million to $5 million conversion cost for, as I say, a fairly standard software portfolio.

On a worldwide basis the Gartner Group has estimated that the global cost of fixing this problem is somewhere between U.S. $300 billion to $600 billion.

Now, we don't have hard data on what Canada's share of that is, but we estimate it at somewhere between $35 billion to $50 billion. To size that for you, that's about the total revenues from our industries for a year. So it's not an insignificant problem.

Moreover, I should say that this is displacement spending. In other words, this is not spending that's already forecast in people's budgets. It's money that will have to be found from other budgets and reallocated, money that won't be spent on R and D, money that won't be spent on acquiring new technology or developing new software applications, which brings me back to the skills issue.

You may have noticed an article in The Globe and Mail yesterday that talked about job creation that will result from the year 2K problem. The flip side of that is not only job creation, it's skill shortages.

One of our members recently announced, I think it was just last week, that it was creating 500 new jobs in Montreal alone, specifically to work on the year 2K project. That's 500 jobs it will take out of the regular stream and put to work on what fundamentally is a very simple process and simple problem.

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Although this problem is critical in every organization we've looked at, the skills needed to do it will not be needed once we get to the end of the job. Once you've made the conversion, you don't need those people working any more. Year 2K skills are fundamental, basic skills, in fact in many cases in obsolete disciplines and software languages.

While the year 2K projects are not rocket science, the skills we will be needing in the next decade are rocket science, skills in things like object-oriented software development, in client-server and network management. The design of graphic user interfaces, for example, will be at an even greater premium than they are today.

Instead of doing work that will enable them to acquire these new skills that we'll need in the next millennium, programmers and software developers will be mired down in the reworking of existing technologies. Vital though it may be, the solution to the year 2K dilemma will only exacerbate our current skill shortages.

Now, quite apart from the skills dilemma, which is significant - in the interests of time I'll compress my comments so we can get to some discussion - this problem is a fundamental business problem for all industry. Note I say business problem, not technical problem. Certainly it has a technical dimension, but fundamentally failure to step up to the problem will result in failures in business continuity. I'll tell you right now that businesses are going to close.

A forecast I heard about a week ago from the Electronic Banking Economics Society predicts that bankruptcy rates will increase by 3% to 5%, directly as a result of costs stemming from failure to fix the year 2000 bug.

With only 150 weekends left, because that's exactly what we have to update and test systems - and remember you can't test systems while they're running; you have to do it while there's down time - we are quite literally running out of time. Many organizations that have not yet got a handle on the problem may find it's already too late now to achieve a 100% solution by 2000.

Ironically, it appears, in the U.S. at least, that fewer than one-third of all firms are actually addressing the problem, another third are still trying to figure out what they should be doing, and another third haven't even started. We don't have any data in Canada to match those things, but I don't think the situation is a far cry from that.

One of the questions you might be asking yourselves, and you may want to ask your colleagues in the House and within the public service, is what the status of the federal government's year 2000 problem or program is.

Let me tell you that I understand that at this point fewer than half of all federal government departments and agencies have yet even to assign responsibility for fixing the problem, much less devising a plan or allocating resources and budgets to fix it. I'm told that currently less than 50 people in the entire federal public service are actively working on this issue.

Other countries, however, are moving very rapidly to deal with it. In the United States, a special interagency committee has been struck to deal with the matter. In Britain, a major collaborative effort is under way, which involves both the Department of Trade and Industry, trade associations and major IT firms. It's sponsored by no less a person than the Deputy Prime Minister, Mr. Heseltine, and Mr. Taylor, the Minister of Trade and Industry. In Australia, we see a similar joint private-public sector task force at work on the matter.

If it's in the purview of this committee, it might well be worth exploring a similar approach here in Canada. ITAC itself is already developing a public awareness campaign designed to bring this matter to the attention of senior managers and decision-makers, particularly in the very vulnerable SME area, but we do not have the resources to do this job alone.

Let me close with two or three very specific suggestions of things you might want to do.

A joint private-public sector initiative in my view is key. We need to get rapid joint action and we are moving to do that. Industry Canada folks and Treasury Board folks are already working with us on this, but we need more help. We also need a faster track procurement process to make sure we can get into the federal government, for example, year 2000 compliance solutions and year 2000 services that will help to fix the problem.

Anyway, I'll close that for now and let us get on to discussion. Thank you for the opportunity to raise these matters with you. I know they don't entirely speak to your mandate, but I think they are important as a context-setter, if you will, for many of the issues you are considering. Thank you.

The Chairman: Thank you very much.

On your latter problem, you're right. We do know about it in general, we do need to light a fire, and I appreciate your testimony because it will allow us to approach the ministers and do it.

[Translation]

Mr. Leblanc, would you like to start with the questions? We have 20 minutes.

[English]

We'll leave ourselves ten minutes to walk over, so we'll go to 10:20 a.m. The vote is at 10:30 a.m.

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[Translation]

Mr. Leblanc (Longueuil): Of course, there is a lot of talk about partnerships between companies, universities and research institutions. They are a very good thing. People have realized they are necessary and they are being done more and more.

Should we not also have more and more partnerships with other countries, since we are tied ever more closely to them? Free trade in goods and services and the opening-up of international markets will require that we adjust. It is already being done, but should we not establish more partnerships with other countries, other research institutions and universities throughout the world?

[English]

Mr. Hough: Mr. Chairman, I very much agree with your colleague's point of view that we do have to increase the interaction internationally, not only among universities but among institutes, the private sector, etc.

That does happen. It largely happens through individual knowledge, awareness and expertise, because in order to be involved in international collaborations, you have to bring recognized expertise to the table. Otherwise you don't get invited.

An awful lot of individual researchers and groups in Canada, in a whole host of areas, are invited and involved in international collaborations. I must say, though, they are finding it rather difficult these days to continue, because in no small measure, the means to bring these people together to plan, organize and actually conduct such collaborations have basically vanished from the federal government in Canada. The Natural Sciences and Engineering Research Council has eliminated its international fund, for instance. Most departments in this country have had some support to encourage people to be involved in international collaborations. That money has gone.

I don't know the precise nature of the meeting, but there was an international meeting in Washington about six months ago to which some key Canadians were invited. They finally got back to the organizers and said they didn't have the funds to come. The National Academy of Sciences called back and said, ``We will pay for the Canadians to come, because we want them there, but be it known that everybody else from all the other countries - Brazil, India, Singapore, etc. - is paying their own way.''

This is a real problem.

[Translation]

The Chairman: Another question, Mr. Leblanc?

Mr. Leblanc: Mr. Broadmore said earlier that many of our skilled people do not find jobs here but that we have a critical shortage of skilled workers. I would like him to explain this apparent contradiction.

[English]

Mr. Broadmore: I'm sorry. My earpiece wasn't working and I didn't catch the question. You want me to make the distinction between skilled workers and job skills?

[Translation]

Mr. Leblanc: No, no. You said clearly that we have a shortage of highly skilled workers and everybody agrees. But at the same time you said that skilled people have a hard time finding jobs. You said these two things at different times and I wrote them down. Is it because theses skills are not in the right disciplines? Is there a mismatch? I would like you to explain exactly what you mean.

[English]

Mr. Broadmore: Let me try to do that anecdotally, if I can.

One of our members runs a very large software laboratory here in Canada. Last year he had the opportunity to bid on a project that would have created about 300 jobs in Canada, and these were very professional, very well-paying jobs in the $80,000 to $150,000 a year range, just to put some numbers around it for you. For these jobs you're typically looking for folks with qualifications at the master's or PhD level.

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He had to turn away the jobs and the project because he simply could not gain access to the specific skills he required to do this particular piece of work.

What we have is not so much a gross shortage of skills as some very serious mismatches. There are some disciplines where you literally will pay the earth to get people to do the jobs, and there are others where the shortages aren't as great, but there are mismatches, as I say, in terms of what companies need what skill sets.

The situation I'm talking about with respect to offshore recruitment is for what I would call almost journeyman-level programmers, project managers, software analysts and so forth - people who are very skilled at what they do but are not highly specialized.

So you really have two separate but related problems: critical skills shortages in some very key areas and an overall competition, if you will, for the highly skilled but journeyman-level practitioners of software development and programming.

I must add that part of this relates to differences in wage scale. In what a programmer gets paid, for example, it's been estimated there's about a 20% difference between India and Canada and about another 20% difference between Canada and the United States. We are in the process of seeing a shake-out take place in what we pay people in these areas. What's going to happen, basically, is salary costs are going to go up in this country with respect to software jobs generally.

The Chairman: Ms Bakopanos, welcome to the committee.

Mrs. Bakopanos (Saint-Denis): Thank you very much, Mr. Chairman.

I have two questions. The first one is for Mr. Broadmore.

I was amazed. That was the first time I'd heard about the Y2K problem. But my question has to do with an area I am interested in, which is immigration, since I chair the immigration and citizenship committee for the House of Commons.

Some people are promoting that immigrants take away jobs from Canadians. In your presentation you made the opposite statement, that fast-track immigration procedures for critical skills are needed in order to solve the problem. I would like to know how we can balance public opinion with the need for skilled immigrants in this country and what the government should be doing to attract more skilled labourers from overseas.

Mr. Broadmore: A number of our members have discovered that there are pockets of skills they'd like to get access to around the world. Two countries in particular are referenced most frequently - India and the Ukraine - where there are very well-educated, very well-qualified software professionals who would love to come to Canada to work.

What is happening is that in some cases our firms are actually taking the work there. I don't know whether that's taking jobs away from Canadians or not. It's certainly taking work out of Canada that might better to done here, I suspect. Those firms are saying, ``Gee, it would be much simpler if we could find a way to fast-track folks with those sorts of skills into Canada to help us with some of these areas''.

I'm not really sure how you balance the public opinion question. Part of it is education, having people recognize that the skills we're looking for simply don't exist here. Nor, by the way, is the retraining solution necessarily the right one. You can't always take a programmer with 20-year-old skills and make him into a Java programmer, a C++ programmer, an Internet web developer, or whatever it might be. There just isn't that capacity sometimes.

Sorry, I didn't mean to go on.

Mrs. Bakopanos: Thank you.

Do I have a second question?

The Chairman: Make it the last question.

Mrs. Bakopanos: Thank you; I appreciate it.

Since I'm not a regular member of the committee, I really do appreciate it, colleagues.

My other question is for Mr. Baldwin from Stats Canada.

I have a lot of small businesses in my riding that were in manufacturing, and some of them are still in the manufacturing sector, and one of the biggest problems they have is exactly what you outlined, the fact that to be able to buy high-tech equipment, which is often not even produced or manufactured in Canada, they have to go overseas. One in particular had to go to Germany to buy some equipment, and then he had to train his own son overseas to be able to use that equipment.

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What should the government be doing more of in terms of developing even the equipment that some of the manufacturing sector people need here in Canada? You've already covered the skilled labour issue. I'm more interested in the other aspect of the problem.

Dr. Baldwin: Some of the information we have that would relate to this would be on the extent to which small, medium and large businesses find different problems generally when it comes to adapting equipment from domestic sources as opposed to foreign sources. Interestingly, we did pose that question to them in the technology survey. We asked what were the problems they faced in bringing equipment into their plant from domestic suppliers as opposed to foreign suppliers, and we didn't find a lot of differences. That is, the problems you just outlined - the problems in bringing the equipment in and finding people who would make it work after they got it into the plant - seemed to be quite similar for both sources.

Thus, while the example you give is of course obviously correct, those problems also exist for domestic suppliers. It's just a very difficult process when it comes to implementing these new pieces of machinery into plants. It involves lack of information, problems with finance, and problems with skilled workers and training.

So I can't answer directly how you establish more domestic manufacturers, but I can answer it indirectly by asking whether the problems that the businesses face are greatly different and whether government policies need to address these differences. At least our first and preliminary results suggest no, the problems are very general. So if you have something that deals with these information and technological acquisition problems, it will handle both areas.

Mrs. Bakopanos: Thank you.

The Chairman: Mr. Shepherd, perhaps just one question in the time that's left, because I want one question too.

Mr. Shepherd (Durham): You talk about the problem of skills moving south of the border, what I would call a siphoning effect, and you think a possible solution to that is basic economics, that somehow the salary ranges will increase in Canada to offset that. What if that is not the analysis? What if in fact the siphoning continues to the effect that those industries in Silicon Valley or whatever continue to get wealthier and wealthier and have more and more of a competitive advantage over other industries? Is there some way that government policy should intervene to make it more difficult for these people? We can say, look, in recognition of the Canadian taxpayers paying $8,000 a year for every year you're in post-secondary education, they should be repaid or something. Can we do something to inhibit the outflow of labour?

Mr. Broadmore: I certainly would not advocate impediments. I genuinely believe that our industries in Canada are able to compete. We can't always compete with the climate, but you can compete with dollars. I think most of our firms are beginning to recognize that they have to pay more, particularly in these very critical skill shortage areas. We've heard a number of our members in recent months tell us that they are taking a whole new slant to their compensation approach. I would certainly not suggest that you put up some sort of artificial barrier or impediment to prevent people from leaving. I don't think that's in anybody's best interests. I'm not even sure NAFTA would let you do that, would it?

Mr. Shepherd: Possibly we could find a way. I respect what you're saying about free-market forces. I'm just wondering - because we keep investing our own labour in foreign innovations - whether in fact Canadians will have the ability to compete. Obviously, there's a point at which inertia is created.

Do you feel that the retained earnings or whatever of these companies in Canada will allow them to increase the salaries and allow them to be competitive in a world environment?

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Mr. Broadmore: We may not be able to compete in every niche across the full range of activity. What may happen over time is that natural selection will determine who survives and who doesn't. I suspect our software companies - for example, Corel, Hummingbird, and Delrina - will do very well and will continue to grow and prosper. Likewise our telecommunications firms. There may be some shake-out in some other areas, and that's basically what the competition is all about right now.

The other thing that's not clear at this point is what the impact of convergence on the so-called information highway will be both in terms of creating job opportunities and whole new sets of skill requirements. It's changing so rapidly that it's hard for us to even forecast. There are jobs today that ten years ago did not exist - LAN administrators and WAN administrators, etc. How do you train people for jobs that haven't been invented yet? My sense is that the smart thing for us to do is to put more emphasis on creating spaces in our universities in these critical areas of science and technology, creating some pull, if you will, within the system to make these jobs attractive, because frankly I think computer workers are still seen as a bit nerdy and dweeby by a lot of our young people. They need to recognize that computer workers today aren't folks with 14 pens in their pockets and slide rules on their hips. They're making a lot of money and making a very good living.

The Chairman: I wanted to say that the vote has been pushed back by ten minutes, so we can go until 10:30 a.m. now. If other members have been sitting on questions because of lack of time, please go ahead.

Mr. Hough would like to jump in. Please proceed.

Mr. Hough: I was going to mention that in any study I've seen about what prompts people to move from one location to another, money is not normally the number one factor. I believe it is having an influence in some of these areas. But I think it also demonstrates that the output, the quality of people the institutions of whatever description, be it universities or colleges, are producing in Canada is top-notch. These are the ones who the other countries are going after. I would suggest that if anything the government might want to look at ways and means of promoting greater interaction between institutions in the private sector and other groups so that the people who are coming out see there are real jobs there; there are opportunities in this country to go in the directions they've chosen.

I don't think it's entirely a money issue. I think it's opportunity, facilities, and infrastructure; it's a whole ball of wax. I would agree with Mr. Broadmore that putting up impediments to movement is not the way to go.

The Chairman: Thank you. Mr. Regan.

Mr. Regan (Halifax West): My question is related to that. I think it's true that you cannot put up impediments, partly because of NAFTA, but what about incentives to stay as opposed to incentives to leave? What kind of incentives to stay would you suggest? You've answered that in a sense, but perhaps you can help me out some more here.

Mr. Hough: I think by recognizing that we do need to enhance the number of people in specific areas. These things are going to change. As Mr. Broadmore has said, there are jobs today that weren't even on the list ten years ago. A PhD in a natural science area coming out tomorrow, for instance, would probably be obsolete in three to four years, if not shorter, without retooling, retraining, and getting into a new experience.

Again, the institutions as I see it are really trying to produce people who can adapt, can change, can provide skills to the economy. They have to have the background in order to be able to do that sort of thing. Again, if they have an idea as to what the opportunities are, it would help. That's why in one of the proposals in our joint presentation to the finance committee we refer to what we call the transitions program, which really promotes people doing graduate work to get involved in the private sector or other sectors outside the academic world prior to actually finishing their degree. There are a number of incentives like that that one can consider, yes.

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The Chairman: I wonder if the committee members mind if I just keep moving along.

Ms Brown.

Ms Brown (Oakville - Milton): Thank you, Mr. Chairman. This is a puzzle, and we keep getting more pieces to put into it. I would like to apply two questions that are being thrown around in other problematic areas of our government's policy.

The question is, is there enough money in the system to solve some of these problems? We applied that to the health care system and we did a lot of analysis based on that question. The other question is, who does what?

Let's just take a couple of the problems you've raised. There is a shortage of workers for the jobs that either are available or could be produced, were the people there. We also have other countries raiding our workforce.

Should the government, for example, be creating more scholarships and financial help to students and trying to get an agreement out of them to stay in the country for a number of years after they graduate as their payback for this upfront education money?

Is it the government that should be doing that, or is it perhaps the private sector, which has already identified this need - might they do such a thing and pick some star students coming out of high school or coming out of an undergraduate program, and say ``We will put you through the next stage; we will pay for everything and you will sign on to stay with us for five years''?

The question is, who does what? Is it the government's job to do that or should the private sector be doing that themselves, and would it work? The other question had to do...well, maybe we should go with that one first.

The Chairman: This is going to be about our last intervention. If you want to put your rhetorical question on the record, you can do it now, but then we're just going to do one last intervention.

Ms Brown: No, that's okay. Let's get at the answers.

The Chairman: Okay. Please go ahead.

Mr. Broadmore: The way training does take place in many of these exotic, highly skilled software and IT jobs is in fact a joint training process. Many of our members now are using the co-op programs offered by a number of the universities in those disciplines that are key to us, as a way of auditioning, if you will. You bring the kids in on a work term -

Ms Brown: Excuse me; I'm aware of that. What I'm suggesting is this: do you think the private sector will pay to get the workers they want, educated to the level they want?

Mr. Broadmore: But that's what I'm saying they do do, because when they come in on a work term, they're getting training.

Ms Brown: Of course, yes.

Mr. Broadmore: Oftentimes, the larger companies are investing $25,000, $30,000 or $50,000 in training, over a three- to five-year period. That training is taking place conjointly with what they're doing academically.

Mr. Regan: But they aren't getting a deal to keep them there after that.

Mr. Broadmore: No. There's no guarantee that the student or the graduate will stay with the company once he's hired, nor should there be. It seems to me we have as a fundamental principle freedom of movement, freedom of mobility.

The Chairman: Is there another intervention on this issue from anybody else? Dr. Service, please.

Dr. John Service (Interim Chair, National Consortium of Scientific and Educational Societies): In the health care system governments have done that in the past. They've paid for psychiatrists, psychologists and the like to go to rural areas. I think it's an intriguing idea that a student would come out of grade 12, be financed through a number of years, and then commit five years to whatever Canadian company. That seems to have worked in the health system. I don't know why it wouldn't work in the private sector.

Ms Brown: That's the analogy I'm getting at. I was selecting that sector as an example. That's how we have serviced northern communities for a long time. Students who didn't have the money to pursue the area of study they wanted to were financed by a foundation, or perhaps some kind of government grant, and then spent their first five years in the north.

Dr. Service: Exactly, and they could always buy themselves out if they chose to. There was always an amount that they could then choose if they wanted the mobility side.

Ms Brown: That's right. So the question is, should the government do that in this sector to provide a sufficient number of workers, or should the private sector see this as a vehicle? If there is this payback possibility that allows the person to get themselves out of the deal, it seems to me that the private sector could investigate this as well.

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As Mr. Hough has pointed out, across the board there seems to be a shortage of government money, and if in fact the basis of all this is that we need knowledge, it seems to me the government labs and the university labs are where we should be putting our money. But the net result, which is the workforce - it seems to me that if the private sector wants them, it should put some money in too.

The Chairman: There are about ten and a half minutes to go, and people are starting to get a little bit crazy here.

Dr. Baldwin, in just a very quick answer, is this a well-researched field, or are we sort of on the edge of it? Would you say there's a high level of consensus and a high level of research being conducted on the question of innovation in Canada, or is this just sort of ``edge'' work?

Dr. Baldwin: I think we're very much at the beginning of the process. A quick answer.

The Chairman: Thank you very much.

I'm sorry. This is our life as parliamentarians. We sit down and have a good conversation and somebody starts ringing our bells and off we go. Thank you so much. I hope you will appreciate that the curtness of it is no reflection of our interest in what you've had to say.

I will follow up on Mr. Broadmore's point. I think the immigration issue is very important too. We can raise these issues with our ministers without making it part of the report. I know how difficult it has been to get people's attention on this.

Thank you very much. The committee reconvenes here at 11:30 a.m. for the final round table with other witnesses.

Thank you very much. The meeting is suspended.

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The Chairman: We're starting a little late, as we all know, and Dr. Howard Alper, who is here with us today, has to leave at 12:10 p.m. I'm going to ask him to speak for ten minutes. Normally we wait to hear from everybody before there are any questions, but perhaps I'll turn to the committee at that time. If there are any immediate questions of Dr. Alper, that will be our opportunity to ask them.

This is our final round table. It's a continuation of the work we started this morning. We're not quite into wrap-up, but this is our final round table in this series. We appreciate the three of you coming out today to join us. On behalf of the committee, I apologize for the work of the House, which interrupts this work. That's our life. We're starting a little late.

What we ask our witnesses to do is to make a brief opening statement. When they're finished, we turn to the members to ask questions. I would encourage you to treat the opening statement as just that and to let the members ask questions. You'll find the committee members are very interested in what you have to say, so you don't have to cover everything in the opening statement.

Dr. Alper, please introduce yourself and begin this round table. Thank you.

Dr. Howard Alper (Chair, Partnership Group for Science and Engineering): Thank you very much.

I'm here on behalf of the Partnership Group for Science and Engineering. We appreciate the opportunity to present our views on the issues raised by the standing committee.

PAGSE was formed last year and brings together 20 - it will soon be 22 - associations and societies to present a unified voice to government. A draft action plan was developed in November 1995, and it included, amongst other issues, the following.

The first was responding to the document Science and Technology for the New Century. The response by government agencies and departments such as Finance, NRCan, the parliamentary caucus on higher education, NRC, and so on to our document was very favourable, as were comments by the press, including, for example, Research Money and University Affairs.

Another issue is considering ways to strengthen synergies between industry and academic or government research. A committee comprising industrial representatives at the vice-president R and D level from the pharmaceutical, mining, and micro-electronic sectors, as well as those from university and government, is considering strategies to enhance synergies among the different groups.

The third issue is plans to analyse Canada's participation in international research and to develop a blueprint for cross-agency participation.

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I should tell you my own experience is that of a chemist. I have a research group of 19 graduate students and post-doctoral fellows. Our research is concerned with the development of processes of value to the petrochemical, pharmaceutical, and commodity chemicals businesses.

Now let me address the questions raised by the committee. First, about what the critical industries and technologies are that will create opportunities for the Canadian economy into the next century, the industries and technologies we believe are or will be of significance to Canada include pharmaceuticals, such as those applied to the treatment of cancer, stroke, and other cardiovascular diseases, pain, and muscular dystrophy. We rely mainly on organic chemistry and biotechnology for the discovery and development of new drugs.

Biotechnology will also play an important role in agricultural technologies. Biomedical engineering and diagnostics will continue to expand. Software engineering is a major force in Canada, with technological development proceeding at a rapid rate. The regulations that are imposed on industries will to a substantial degree govern technological developments in the environmental sector. Finally, the automobile industry, which plays a major role in the Canadian economy, will continue to require research on different parts of automobiles, such as rims, which require expertise in materials science, physics, and chemistry.

The second question is what is the role of government in promoting emerging technologies? With few exceptions, too little research is carried out in industry in Canada. It is essential for industry to nourish creativity and innovation in order to be competitive on a global basis. Government should provide the milieu for research to flourish. This is attained to some degree by IRAP and other programs that are of particular value to the SMEs.

Third, what impediments stand in the way of emerging technologies? There are several issues here. One is the challenge to industry, especially SMEs, to manage growth and maintain competitive advantage through R and D. Another point relates to spin-off companies, which usually are created on the basis of university research, although not exclusively. NCEs have been particularly successful in this regard. The problem is that often entrepreneurship and marketing - the poor handling of them - are an impediment to the commercial success of emerging technology.

Two other points. University-industry research is an important contributor to the development of emerging technologies through spin-offs and other applications. While most universities are flexible about intellectual property management, some are very rigid in this regard, leading to lost opportunities in working with the corporate sector.

Last, S and T in Canada, whether in industry, government, or universities, must operate on an international basis. International collaboration can add real value to Canadian technological development. Unfortunately, an unintentional consequence of recent budget reductions in government departments has led to a divestment of international programs in too many cases. This subject requires urgent attention.

The next question is what steps should be taken to promote a climate that encourages both S and T? Government should support the continuum of research, from basic to applied. The key word is ``excellence'', irrespective of the classification of research. Government agencies and granting councils must set meaningful allocation priorities in order to ensure the responsible expenditure of funds.

Fifth, how well are Canadian institutions meeting the skill needs of high technology? Research infrastructure in Canada has deteriorated at an alarming rate in the past three to five years. It is crucial that government provide funding for the modernization of research laboratories, equipment purchase, and operation and maintenance in order that universities can carry out state-of-the-art research at a level competitive with that of at least some of the industrialized nations.

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There is a major shortage of personnel in certain areas such as information technology. Industry is now hiring many foreigners in order to meet its skill needs. Universities must be more innovative in developing special diploma and other programs in order to accelerate the throughput of software engineers.

Finally, I believe undergraduates, irrespective of their area of specialization, be it sociology, mechanical engineering, or other, should be required to take a one-semester course on management, entrepreneurship, and marketing. This is critical for the preparation of students for the marketplace.

The last question is how can Parliament ensure the government follows a results-oriented S and T strategy and what sort of data should be collected to monitor the progress of the S and T strategy? External review of S and T in universities, government, and industry must be pursued on a regular basis. Data collected for universities and government S and T should include publications, patents, grants, contracts, and spin-off company creation, all of this in an international context and not just a Canadian reference point.

For industry, a determination is needed of the real expenditure on R and D. Of course this is done already, but too often what is claimed as research, for instance clinical trials, is not. Also, monitoring growth turnover as well as the source of the revenue - regional, national, or international market penetration - would be of value. Clearly net wealth creation is more beneficial when it involves international sales.

The Chairman: Thank you.

Are there any immediate questions of Dr. Alper?

[Translation]

Mr. Leblanc.

Mr. Leblanc: You spoke earlier about the pharmaceutical industry. We know that an awful lot of research goes into pharmaceutical products. The changes made to the legislation provide for the protection of patents for a period of 20 years. Do you believe that present regulations applying to patents or pharmaceutical research are appropriate? That is my first question.

Secondly, we talked this morning about international cooperation with research centres and companies in other countries. Could you elaborate on how to establish more partnerships between Canadian and foreign universities and Canadian and foreign companies? How might we establish more partnerships with other countries?

[English]

Dr. Alper: To your first question, about the pharmaceutical industry and patent protection, I think it's crucial that the 20-year level of protection be kept, in order to ensure R and D continues at least at the same pace as it already does. Of course you are aware of the phenomenal costs of bringing a drug from discovery to market. I think it's very important that for that investment industry receives proper levels of duration of patent protection, not least to compete again on an international basis, not only within the Canadian context.

On the issue of international affairs, granting councils such as NSERC and the Department of Foreign Affairs have really reduced or phased out their support of international programs. I think it's very important for us to develop linkages with other units, either university-university or university-industry, with countries among the industrialized nations especially, Asia-Pacific and Europe, which are more focused, because such research in certain areas, pharmaceuticals or materials science, for example, where the U.K. is a leader, to give a specific case, or pharmaceuticals, where Switzerland, the United States, and Japan play a predominant role - we can gain a lot from collaborative ventures and therefore add value to the quality, as well as the quantity, of the research that is done in this country.

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[Translation]

Mr. Leblanc: I know that the federal government decided to no longer contribute to the Tokamak nuclear fusion project. I find that appalling, because it is an international project that Japan, the United States and Europe are participating in. Canada supplies 1 per cent of the funds required for this major international project and it reaps 100 per cent of its scientific spin-offs. I find it terrible that the government would withdraw from that since it only spent $7 million a year on it and its financial spin-offs were even greater than $7 million a year. I would like to know your frank opinion on this.

[English]

Dr. Alper: The subject matter you raise is one of a number of examples in different areas in which Canada...and not only Canada, but I would say several other countries, such as the U.K. When budgetary cuts were made in the U.K., for example, the contribution to CERN was dropped dramatically.

One has to make priorities. I recognize that. But I would have to agree the particular project in question does have significant economic potential to this country.

The Chairman: Walt.

Mr. Lastewka (St. Catharines): I have two short questions, Mr. Chairman.

Under the third question you mentioned the NCEs have been particularly successful. I'm not quite sure what you meant in that last sentence when you said the problem is that often entrepreneurship and marketing are an impediment to commercial success.

Dr. Alper: That's meant in the following context. From the discovery or invention of something new to the development of a spin-off company, the skill set needed for entrepreneurship and marketing is different from the skill set for discovery and development, so it's crucial that the spin-off companies that develop forge alliances with individuals who have these different skill sets.

Mr. Lastewka: My second question is partially what Mr. Leblanc was aiming at. It's where you mentioned divestment of international programs. I wanted to put that into an action item and ask you the question, which action items on the international scene do you believe we should be reinvesting in, of those we've lost...or a priority of investment in international programs?

Dr. Alper: I think of the bilateral programs we had with certain countries. Those should be reinstituted on the university side.

I also think university-industry collaboration on an international basis - there was no actual program - should be enhanced. I can tell you, for example, I sit on the technical advisory board of Samsung in Korea and Dow in the United States. Instead of their working with universities in the United States or Japan, I think they have to be educated in the value that Canada can give to their research enterprise, and vice versa.

Mr. Lastewka: For example, we have the NCEs, which have neatly tied in the universities...whichever is the lead university tying in with many universities right across Canada. Could we extend that to the international scene?

Dr. Alper: You definitely could.

Mr. Lastewka: Then we could still be focused, with the stakeholders being involved and the universities being involved.

Dr. Alper: I agree.

The Chairman: Dr. Alper, thank you very much for coming and making your presentation. We appreciate your involvement very much.

I want to turn now to the other two witnesses and go back to the more traditional round table. Please make your presentation. Then we'll open up for questions. When you have the questions, you'll be able to jump in if it's directed to you.

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Why don't we start with Mr. Gault.

Dr. Fred Gault (Director, Science and Technology Redesign Project, Statistics Canada): Thank you, Chairman. I'm Fred Gault, from Statistics Canada. At the moment I'm directing the Science and Technology Redesign Project, which is doing things perhaps directly relevant to the work of this committee.

We in Statistics Canada are building a program of measurement of science and technology activities throughout the economy. The program is funded by Industry Canada and it is one of the substantive outcomes of the federal science and technology review. From your perspective it's a step towards monitoring the progress of the federal strategy announced in March of this year. I would like to emphasize how the products of the program can be used for this purpose and to go some way towards answering the questions stated in the sixth paragraph of your mandate, what sort of data should be collected to monitor the progress of the S and T strategy.

You have before you two documents. One effectively is my presentation in more detail than I will give it. The other is a list of projects we are undertaking. It will allow you to question me in greater depth, should you wish. The full program therefore may also provide insights into the other questions you raise. So we need not stop at question six.

I think four questions are important if we are going to monitor the S and T strategy. While the questions may be important, the answers are even more interesting, and they're in the document, which I hope has been laid before you. They are simple questions. What does the federal government spend on science and technology? Where does it spend it? What does it spend its S and T money on? What does it get for it? Those are the four questions. As I said, they are relatively straightforward questions, but the answers are not simple. In the document I've given you some figures on S and T spending; those figures plus the forgone tax revenue, which prompted questions about what the government was getting for $6 billion-odd in the area of S and T, which gave rise to the S and T review and the strategy that was released in March.

I would like to make a point in passing, that these figures, even what the government spends on S and T, are not easy to arrive at. Of course they come from a Statistics Canada survey or I would not be before you today. We asked every department and agency in the federal government to tell us what they spend on science and technology. That is not an easy question, because an informed person has to look at all of the program spending and decide whether a dollar is mission or a dollar is science and technology. That means they have to have some knowledge. My people, who are sitting at the back of the room wondering how this is going to evolve, maintain the standards of the responses.

Once we get an answer to that question on science and technology expenditure, we then ask a more difficult question. Is it R and D or is it on a related scientific activity? That requires a bit more thinking.

At Statistics Canada it's fairly easy. We do surveys. That's a related scientific activity. So about 97% of our budget is allocated to RSA, the rest to R and D.

The final question then is, are you doing this in natural science and engineering or social science and humanities? If you're in the health business, you could be doing a bit of both, just to confuse the issue further.

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When we get answers to all of those questions, we publish them, and then you look at the results and make comments on the floor of the House.

The message I would leave you with is we in Canada do not have an evident science budget. It's not like Mr. Clinton getting up and talking about the science budget, or Chancellor Kohl. Here we discover the science budget after the fact, and that raises a question about how you deal with spending priorities, for example.

We are working to improve the quality and timeliness of our response, and we have the support of the science ADMs' committee in doing this, which is very good.

Let me turn to the next question. Where does the federal government spend its S and T resources? Once we've gone to the trouble of finding out what is an S and T dollar or what is an S and T human, it is fairly easy to identify where those resources are spent. We can do it within the federal government, since we know where the laboratories are, and we can do it for the grants and contracts issued by the federal government. That question is easy.

The following debate on where S and T money is spent is a little bit more interesting, but on the whole we can answer that question. What does the federal government spend its resources on? That is an interesting question from the point of view of priorities. We've expanded the federal survey this year to ask departments to allocate their spending across 12 categories, I think. It's in the table in the paper in front of you.

It's a bit like doing your income tax: once you understand how to respond - and it takes a while to learn - then we are in a position to say in our published documents how much money is spent on telecommunication, not just in Industry Canada or perhaps Canadian Heritage, but in Environment and other departments.

Once you know what the federal government spends its S and T money on, then you can begin to question whether or not that is how you as parliamentarians would wish it. That is the first step towards a debate on priorities.

What do you get for $6 billion or so? That's an interesting question, and it will take us some time to provide you with a complete answer. We never will, but we can make some steps in this direction.

The Chairman: You're trying.

Dr. Gault: We certainly are trying, thanks to Industry Canada, which funds us, and may it go on so doing.

The answers to this question of course have to be interpreted within the context of the federal strategy, the goals, the core activities and the seven operating principles embodied in it.

From the federal survey, as I've just said, with the list of objectives, we can talk about where the money goes. But this year we've added not just the set of objectives but three other annexes to the federal survey. One asks about financial and human resources in laboratories; another, the use of intellectual property instruments - patents, copyrights, trademarks - and the revenue derived from them; and the third, the nature and number of alliances entered into by federal government departments.

Answers to each of these questions will tell us something about support of the mandate of the department; how intellectual property instruments are used for technology transfer, which may be an objective of government; and whether or not we are capturing the benefits of partnerships through the use of alliances.

Those questions come from the federal survey. We're also looking at forgone tax revenue, but let me take you into the broader picture of science and technology. Let me take you beyond what I've talked about so far and into, in addition to research and development, invention; innovation, which is the first commercial use of invention; and finally, the diffusion of technologies and ideas throughout the economy. These are extremely important if we are going to answer any of the other questions you've asked in your mandate.

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We are running a survey of innovation in service industries. It's being field-tested as I speak. That will give us some clue as to innovative activity in an area that is driving the economy.

Some of you are looking at the little booklet we put out on facts and figures in the Canadian economy. Look at where the labour force is working. In this document I think the table is on page 14. Run your eye down the right-hand column and look at 12% growth in community business and personal services. That's actually in business services. That's where that growth is happening. That is why we want to know the innovative activities of those companies.

Also, we will be asking them about the impact of government programs. So once again, we will be able to come back to some of the questions you're asking, more specifically about what the government gets for its money.

As well as doing this and looking at the regulatory environment you provide for stable business, we are looking at R and D in software, which Dr. Alper mentioned; biotechnology, which Dr. Alper mentioned; and pollution abatement and control.

Also, we are about to run a survey on the use of biotechnologies in Canadian manufacturing. Biotechnology is supposed to transform the world. Well, is it transforming Canada? Who's doing it? Who's using it? Answers to these questions we should be able to give you in about six months.

We're looking at intellectual property and we're looking at trade in various merchandise commodities. You are preoccupied with the trade deficit. What is given to you in this document is perhaps an overly simplified view, but I'd be happy to come back to that in the question period.

We are putting together a framework to make all of these new indicators that we are trying to build easier to understand, to provide a picture of science and technology activity in Canada and to support the debate that you in Parliament may wish to have.

Thank you, Chairman.

The Chairman: Thank you very much for such a clear presentation. I'm sure we're all going to have lots of questions for you, including on your comments about the OECD report.

Mr. McLean, you come from the International Federation of Institutes for Advanced Study. Perhaps you can give us your introductory remarks and then we can proceed.

Mr. Robert McLean (Executive Director, International Federation of Institutes for Advanced Study): Thank you, Mr. Chairman.

My name is Rob McLean. I am the executive director of IFIAS, which is a network of scientific research institutions from about 25 countries around the world that collaborate on bringing advanced knowledge to global policy issues such as climate change or third world development. Among the members of IFIAS are many of the leading research institutions on science and technology and innovation policy in other countries.

I'm also the president of a small start-up company that's involved in developing specialized Internet-based services for virtual enterprises.

All of that means I have one foot firmly planted in an ivory tower and I have another foot firmly planted in what could be considered the fastest-evolving sector in our society, which together makes for an interesting life.

I'd like to suggest that if we want to learn about the innovation gap, we need to ask not only the questions that are in the mandate for the science and technology review but also another question, in addition to the ones that are proposed here.

In order to illustrate that, I'd like to make two very careful distinctions. One is between science and technology and the innovation system. If you have in front of you the handout I produced, you'll see on the bottom of the first page a simple diagram, which is my attempt to capture what I think of when I think about the innovation system.

I know that in your previous discussions various people have talked about the national system of innovation. I see it as a system in which clearly firms, business enterprises and groups are at the centre, and supporting that wealth creation activity is what happens in the science and technology infrastructure, in government, in the educational system, in the interaction of labour organizations with that part of society, what happens in communities, what happens in the financial sector, what happens in other business organizations.

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Of course this is a highly simplified diagram to describe a very complex reality, but it helps me, at least, to illustrate a couple of things: that science and technology is only one component of an innovation system, and that the creation of wealth through innovation involves the interaction of all the components. Thirdly, I think we could see that such a system is going to be only as strong and effective as its weakest component.

The second key distinction I would like to make is between federal programs and institutions and Canada as a whole. The key point I'm making here is that there is only one innovation system in Canada. There is not a federal system of innovation and an Ontario system of innovation or a Quebec system of innovation and so on.

One can recognize there are local effects. I know an earlier witness spoke about the importance of looking at local and regional systems of innovation, and I fully support that. But the actual structure and operation of Canada's innovation system has little to do with how we have structured our governmental organizations.

We can summarize the difference between these two perspectives, between S and T on the one hand and the innovation system on the other, and between the federal government and its programs and institutions and Canada as a whole, by asking two related but separate questions. One question is what needs to be done to strengthen Canada's innovation system? The second question is what should the federal government do to strengthen science and technology in Canada? I would argue that the second question is a subset of the first question, which is the broader question, how do we strengthen Canada's innovation system?

When we look at Science and Technology for the New Century, the report that was published last spring, we find it is ambiguous in the question it was addressing. If you read the first half of the report, it clearly identifies the innovation system as the issue we need to address. The second half of the report, in a sense the part of the report that deals with action plans, is much more directly focused on federal science and technology. The conclusion I draw from that is we still have to provide an answer to the question of what needs to be done to strengthen Canada's innovation system, because we have not actually addressed that question in any comprehensive way to date.

I believe that is the right question. I believe it's important for this committee not to blur the distinction between those two questions. They are both important, they are both valid, but they are different questions. I would also make the point that if this committee does not focus on the question of how we strengthen Canada's innovation system as a whole, I'm not sure who else is going to ask that question or be in a position to seek answers.

About strengthening Canada's innovation system, I think there are two basic challenges, and we can clearly see them by referring to my simple diagram. One is how we strengthen the individual components of the system: how we strengthen universities, how we strengthen research institutions, how we strengthen the federal government's interaction in the system, how we strengthen business organizations and their collaborative networks.

I think the second challenge is how we increase collaboration among the components of the system, because it is that collaboration between ever stronger components that is the foundation for enhancing our ability as a society to create wealth. Here we're talking about business-university collaboration, collaboration between universities and government laboratories and facilities, and so on.

Given those two challenges, three principal tasks fall to the federal government. I would like to refer to them briefly.

The first is that the federal government has a very important convening power to bring together the organizations that need to collaborate within that innovation system to accomplish certain objectives.

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I would like to give one specific example of that. I have argued for some time, and continue to argue, that Canada should set itself the objective of achieving 20% of the global market for multimedia educational software. In a different place I've outlined in detail the reasons why I think that's a realistic target for Canada and why it would be in our interest not only in relation to the economic value of having that kind of market share but also in relation to what that would do for our educational system and what that would do for our ability to have what we've referred to as ``lifelong learning'' in our society.

For Canada to achieve 20% of the global market for multimedia educational software would require significant collaboration among public sector organizations that are part of the educational system, government, private sector firms in many sectors, across telecommunications, software development, the film and video industry, and so on. Clearly the federal, provincial, and local governments would have to get involved.

Now, this is not a question of jurisdiction, because multimedia educational software clearly falls into a very grey area, and in fact there are aspects of that that could be considered federal or provincial. But the reality is that achieving that target of 20% of the global market would be in the interests of all of us. It is, I would suggest, only the federal government that can in a sense invite people to participate in the collaborative strategy development that would be necessary to achieve that goal.

I think a similar kind of opportunity exists in many other parts of our economy.

A second key role for the federal government, in my view, is ensuring the level of investment in the innovation system as a whole is sufficient for the future. Here again we can distinguish between two different questions. Fred has just finished discussing the question of what the federal government's level of investment in science and technology is, and that's an entirely appropriate and important question to address, but I think in addition we have to ensure the right vehicles exist to ensure the overall investment in the innovation system, which goes beyond science and technology and goes beyond the federal government, is increasing, not declining. It's a question, I believe, of the federal government using its fiscal and taxation powers to leverage its own spending, that $6 billion, in ways that attract a greater amount of private sector investment into the innovation system as a whole.

I will comment briefly on the international dimension of that. I believe there are important opportunities, which we may wish to get into more in the discussion, about how we could do so in a way that also increases our international participation, and just as a teaser, we may want to think about the impact we could have if we created a vehicle through which we could dramatically enhance the level of research collaboration in the Americas. If you're interested, I can speak more about that in the question period.

The third key role for the federal government I believe is to strengthen what I'm going to call the various ``governance mechanisms'' that collectively determine how Canada's innovation system evolves from where it is now to some position in the future. When you think about an innovation system as a whole, it's far too complex for any organization, for any government, to be able, in a sense, to give that system its direction. Far too many things are going on. What the government can do, however, is make sure all of the required mechanisms are in place to ensure there is the possibility of some purposeful evolution of the entire system towards strengthening over time.

If we look around the world, we can see that what is required to make that possible is a set of institutions, agencies - what I call ``governance mechanisms'' - that influence how an innovation system evolves from one place today to some other place in the future.

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I've provided a short initial list of what some of those mechanisms are. They include mechanisms that provide advice to government on science and technology or innovation policy, things such as what used to be NABST and is now the new Advisory Committee on Science and Technology Statistics. They include mechanisms that coordinate innovation or science and technology policy within one level of government. They include mechanisms that coordinate among different levels of government policy relating to science and technology or innovation.

They include organizations that are in effect centres of excellence of research and knowledge about science and technology and innovation policy. They include the scientific academies and societies, which play a number of roles within science and technology and innovation. They include technology foresight research organizations, the best example of which - and we very much regret its departure - was the Office of Technology Assessment in the U.S. It was clearly one of the foremost organizations of its kind in the world.

They include the research granting councils, which, through the way they disperse their funds, have an enormous impact on what happens in the overall innovation system. They include technology standards organizations, business and institutional associations of various kinds, government labs and so on.

The single most important message I want to leave you with today is if I look at that list and if I look at what I know.... I'm not claiming to be as knowledgeable as I should be about all of the examples of those institutions in other countries, but based upon the travelling I've been able to do - and I've been in 26 countries in the last couple of years in relation to my IFIAS activities - from that list, the only mechanism in Canada that I would argue operates at a level of competence equal to the leading organizations in other countries are granting councils.

I would argue - and it's a matter of serious import - that in all other respects, in relation to all of those other types of organizations or institutions, we are lagging behind the best of our competitors. This is either because the mechanism never existed in Canada or it used to exist and no longer exists, or it's because it exists but it's not as good as the best examples elsewhere in the world.

I'm not arguing that any other single country has it perfectly, but I am arguing that, taken as a whole, our governance mechanisms for the national system of innovation are not as strong as they need to be.

This leads me to a point where I think Parliament has a critical role to play. I would respectfully suggest to this committee that a critical examination of the governance mechanisms for Canada's innovation system would be an entirely appropriate task for a parliamentary body, and not simply necessarily the government of the day. I would also argue that a parliamentary body should take responsibility for monitoring implementation of the improvements that are necessary.

I believe this sort of issue is above partisan politics, I believe it's above constitutional politics, and I believe it's precisely the sort of role that Parliament, in its best days, can play.

I thank you for the opportunity of sharing this perspective and hope to participate in the discussion.

The Chairman: Great. Thank you very much, Mr. McLean. That was a very good overview.

From the list, Mr. Regan.

Mr. Regan: Thank you, Mr. Chairman.

My question is for Mr. McLean.

On your last two points, I'd like you to comment on why you think it is that our institutions in science and technology do not keep up with or are not as strong as those in other countries. What is happening elsewhere that isn't happening here? What are we doing wrong, or what are those institutions doing right? Is it a variety of things in different institutions, or is there an overview?

Secondly, do you have in mind a particular type of parliamentary body when you speak of having a parliamentary body for the examination of governance mechanisms? And how is the kind of body you have in mind the right kind of body to perform that role?

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Mr. McLean: Thank you, Mr. Regan.

In response to the first part of your question, the answer is in a sense different in relation to each type of institution. There is not one single reason we don't have, for example, science and technology policy research institutions that are the equal of SPRU in the U.K. or MERIT in Europe. We do have some good ones. We have CPROST in B.C., PRIME in Ottawa, CIRST in Montreal and a few other researchers spread out in other places.

But what we haven't done, and what the European Community has done, is used contract research in science and technology policy as a means of building up the capability and the revenue base of those research institutions so they're not simply academic organizations; they're also directly involved in providing advice on policy, for which they carry out contracts.

That's one specific example. The answers would be different for the other areas.

I would observe that we have cut funding at both federal and provincial levels for some bodies that were part of the governance mechanisms and are no longer there. I refer, for example, to the Premier's Council of Ontario, which I worked with for a couple of years, and we can look back in history at things such as the Science Council or the Economic Council.

It is important that we examine this question, because in fact a range of strategies is necessary if we are going to strengthen these institutions.

Coming to the second part of your question, no other organization I can think of in Canada can take the overview look at this as can Parliament. I recommend it be Parliament simply because I do think this is above partisan issues. I would like to suggest that it be kept at a level where we're looking at institutions we need to nurture and develop over a significant period of time. It has to be outside the election cycle and it has to be outside day-to-day pressures, because establishing, nurturing and developing these kinds of institutions takes a considerable period of time.

I don't have the expertise to suggest precisely which parliamentary body should undertake that. I would simply observe that as we look to the challenges of the future, I hope we can be creative in adapting the parliamentary mechanisms to focus on questions perhaps in a slightly different way from the way they have traditionally been focused on.

Mr. Regan: I have another question for both of you.

What strategy do you think the Government of Canada should be following to encourage young people to study information technology or areas such as biotechnology, computer sciences, computer engineering - those areas that are so important for innovation? What should be our strategy? Should it be incentives? And how do we keep them here after they graduate?

Mr. McLean: In general we're not doing a bad job on things to do with public awareness of science and the encouragement of science in the educational establishment. In a sense one could hardly imagine a better strategy of encouraging young people to recognize the opportunities in information technology than having every news announcer in Canada and every announcer on CBC Radio giving the web site address and the e-mail address for their institution. That is happening.

On the second question - how we keep them here - there is a larger gap between current performance and what we need to do. Again, I don't think there is a simple answer. I would come back to my example of setting ourselves the goal of having 20% of the global market in multimedia educational software. Again, that's only one of a number of other examples.

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If we had that as an explicit goal, and if it were recognized by a significant part of our society that we had that collective goal and that there was a role for the private sector and a role for provincial and federal governments to play there, it seems to me we couldn't help but have people recognize the opportunity that would provide and find a place for themselves within that kind of territory.

Dr. Gault: It's a little difficult for a servant of the government to provide this kind of advice to government, so if I may, I will answer as a citizen.

In order to provide some incentive for young people to work in these areas, you have to make heroes, role models, out of Canadian entrepreneurs and academics - our Nobel laureates, for example. I suspect there are many people on the street who could not name a Nobel laureate or a Canadian entrepreneur and tell you what that entrepreneur had done.

Think by contrast of the Victorian engineers who built steamship lines and railways. You could probably name one of those even now.

The Chairman: Our Minister of Finance.

Some hon. members: Oh, oh!

Dr. Gault: Good answer. I can't possibly comment.

We have other perhaps more practical - well, not more practical, but other possibilities. We lose a lot of our designers of integrated circuits to a country to the south, and one of the reasons for that is we don't have in this country a major fabrication facility for microchips. We do have the ability to make these things, but not in production runs and what have you.

Certainly this is a preoccupation of the Minister of Industry, who is not a Victorian engineer, as far as I know.

A certain amount of infrastructure perhaps would keep people here.

Those are the only observations I can offer the committee.

[Translation]

Mr. Leblanc: Mr. McLean, you recommend that the government or Parliament take charge of our country's broad technical and scientific orientations.

For example, in Germany, there is a technology and science council made up of a majority of people from the private sector. Its mandate is to advise the government and all of the players in the area of science and technology on long-term budgets and orientations.

Do you not believe it would be preferable for us to have the same type of council, independent from the government? The government would obviously sit on the council, but the council I just mentioned is made up, for the most part, of business people.

[English]

Mr. McLean: Mr. Leblanc, I agree entirely that a private-sector-dominated group of what you describe is a critical part of what I am attempting to describe as the set of governance mechanisms for a national system of innovation. In fact it's the first on my list. An independent body to provide advice on science and technology or innovation policy is an essential component of the governance mechanisms.

Just to clarify, the role I was suggesting for Parliament was not to set the direction for the national system of innovation, because I don't believe any single organization could do that. The role Parliament can play is to ensure that all of the mechanisms exist that are necessary in order that the national system of innovation can evolve in some purposeful way.

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So it's really a question of asking, as you sit here, ``Is our mechanism for coordinating innovation and science policy between the federal government and provincial governments adequate and doing its job?'' You couldn't possibly come to any conclusion today other than that it's not adequate and it's not doing its job, because the council of ministers for science and technology hasn't met for years.

Parliament could ask whether or not we have sufficient depth of expertise in research institutions on innovation and science and technology policy in Canada today that is capable not only of providing what we need here but of going out and getting business elsewhere. The conclusion you would have to come to is no, we don't have a sufficient depth yet.

We have some good places to build from. We have some strengths in CIRST in Montreal, CPROST in Vancouver, PRIME in Ottawa and some people at U of T, to give some examples, but as a country, we haven't created the critical mass of expertise that allows us to be a net exporter of advice and expertise on science and technology and innovation policy.

So the role I would see for the committee is asking questions about whether those things exist and whether something needs to be done to strengthen them. It's the sum total of interaction among all those parts of the governance mechanisms that enables the innovation system, in my view, to become stronger and more dynamic and to move forward.

[Translation]

Mr. Leblanc: Yes, but do you not believe there is nevertheless a danger, given the speed at which technological change is occurring? Do you not believe that the people directly involved, the entrepreneurs themselves, would be the best ones to decide which route our scientific and technical institutions should take?

The government is always slow to react, for all sorts of reasons that I am aware of, but companies really see the immediate needs. Technological change is very rapid. Private enterprise should have its say and it should also have the power to require of the government that it react as quickly as possible. It seems to me that this is essential in a world where markets are very open and where technology is evolving at a very fast pace.

[English]

Mr. McLean: Again, Mr. Leblanc, I agree with you entirely, but I do see it from a slightly different perspective.

In a properly functioning innovation system, all those decisions you mentioned would be made by the entrepreneurs. But at the same time, if the entrepreneurs are going to have the ability to make some of those choices, if they're going to have access to certain types of technological expertise, and if they're going to be able to find a mechanism that enables them to more easily link to resources in another country, they're only going to be able to do that if we've created an overall system that provides all of those requirements.

Creating such a system is not a matter, in my view, of any one government trying to provide all the answers, because that would be impossible, but rather of ensuring that we have put in place all of the components necessary for that overall system to be able to evolve in a constructive way.

The Chairman: Mr. Lastewka, please.

Mr. Lastewka: Thank you, Mr. Chairman.

I'd first like to pose a question to Mr. Gault.

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You explained in detail the question that's going to be asked to all departments and you talked about this survey, but I didn't hear anything - and maybe you could give us some information - as to when this survey will be completed and when it will be available for our committee members.

Dr. Gault: Thank you.

This is an annual survey that has been running since the 1950s. We publish it every year in a Stats Canada annual publication, and as soon as we have results, we bring those results out in our service bulletin.

This year, as I told you, we have additional information. On the objectives, or what you spend your money on, we should be able to have that and the rest of the information we've gathered for years on how much you spend by early 1997 and available to this committee. We would try to come out at about the same time as the budget.

The three annexes I mentioned on federal laboratories, intellectual property and alliances may take some time for departments to adjust to. I wouldn't promise them by the same time.

Mr. Lastewka: I appreciate the work being done on trying to get at the problem in different ways to make sure it's information that is usable. That becomes a key item. Thank you very much on that.

I would now like to ask Mr. McLean some questions.

For a while there, when we were having witnesses come to the committee, I was talking about the procedures or the system of innovation and so forth, and I kind of got lost. So hearing your report this morning was very refreshing.

We do have a system in place. I'm not sure many people understand it. I'm not sure many people know we're operating in this system and that we need to make improvements to it. So often people say we need to make improvements to the system, but understanding what that system is in more detail is challenging.

You mentioned strengthening the individual components of the system, which I've heard many times before.

Could you elaborate on how well the innovation system is understood and tell me which individual components need to be strengthened? I'm trying to be more specific. Where's the weak link in the system?

Mr. McLean: You're absolutely correct that we need to understand the system better than we do.

We're at a bit of a disadvantage in Canada, because it's only fairly recently that we've begun to recognize that it exists and try to understand how it works.

Some of our international competitors have the advantage, because they've been working on understanding it for a longer period of time. Particularly in Europe, serious research on innovation systems has been going on for almost 15 years now. There's a much deeper level of understanding of the dynamics of the systems and a much greater pool of expertise to draw upon.

I don't think that today I could usefully point to any one component of our innovation system and say, ``Aha! There's the problem. Fix that one and our problems are over.'' The fact is change is happening in all components of the system. It's being driven partly by fiscal cost reductions, partly by technology; it's being driven by a whole series of things.

What is important is that we create a process wherein we ask university presidents where their universities are going to be in ten years, and in those ten years, what changes are going to take place that are going to mean that, as a component of the innovation system, the university is going to be that much stronger and that much more integrated with and collaborative with other parts of the system.

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Some of these questions were in effect asked of federal institutions through the science and technology review, and there is a lot of work as people attempt to recognize the need to open up their laboratories and invite other people in to use those facilities and strike more collaborative arrangements. So change is happening.

My main message is we need to be more focused on the collective task we have to do in strengthening the system.

My recommendation for the federal government is to create more places where the representatives of the institutions themselves can come together and develop collective or joint strategies, or mesh their strategies with the plans of other parts of the system. It's only through that kind of direct interaction that we're going to see the forward progress, or that's a key part of it.

The federal government can create incentives that in a sense force institutions to collaborate, and I think that would be a good thing. I would certainly recommend that a greater proportion of the total science and technology spending be allocated in such a way that in order to get its funding, an institution would have to demonstrate the degree of its collaboration with other parts of the system. I don't mean 100%. It's a question of judiciously figuring out in each situation how much further you need to go beyond what's there.

It's strategies like that that are going to move the entire system along.

Mr. Lastewka: I want to go back to where the government needs to do some work.

We've heard witness after witness tell us about the shortage of electrical, software and various other types of engineers. If we understood our total innovation system, our feedback mechanisms or our collaboration would have told us that, rather than it coming all of a sudden: ``Surprise, surprise! We're 40,000 engineers short.''

We use the excuse that most of them are going to the U.S., but with collaboration amongst universities, business firms and the engineering societies, we should have been able to head that off. We're now going to patch it with a bandage. How are we going to get instant engineers in 12 months? That's an impossibility.

We heard this morning that the way we're going to do it is by taking the work to engineers in other countries. Is the lack of understanding of our innovation system from beginning to end and the feedback mechanism now coming home to cause us the problems? How can we fix that if we don't really understand it?

Mr. McLean: It's part of the problem.

I certainly would not recommend that we take the next ten years to study the national system of innovation before we do anything about it. But I would recommend that among the basic strategies we take, we should not only support Fred Gault and the work of his group in terms of having a better understanding of science and technology, but even go beyond that - and I know this is under consideration - to make sure we do have in place the performance indicators we need at each level and at the level of the overall system.

Also, we must have some understanding of what the performance indicators are for the various components of the system taken as a whole, and we must track them. I agree entirely that part of what we're doing is paying the price for not having invested sufficiently in the measurement systems we needed to guide the evolution of the system.

It's important to recognize that the necessary information isn't just information for government. One of the critical roles of government and ``the competitive advantage of government'', to quote Peter Nicholson, is in providing the information to the system that helps entrepreneurs make decisions, helps university presidents make decisions, helps students make decisions about their careers and so on. That is a critical function of government and one that requires and deserves investment, again, because nobody else can or will do that.

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The Chairman: Dr. Gault would like to answer on the same point.

Dr. Gault: It's a very good point.

We have laid before you the document on the information system for science and technology. Part of our undertaking is to try to understand the system of innovation in this country and provide you with enough information to talk about it in an informed manner.

Very simply, we are looking at the characteristics of the components - and you've had a system approach presented to you this morning by Rob McLean - but we're also looking at the flows between the individual components of the system, measured in any way we can: co-publication, co-patenting and therefore invention, cooperative measures, contractual relationships and all of these things. This will then begin to point out gaps and problems where things are not happening, which is exactly the point you've raised.

Mr. Lastewka: I really appreciate the fact that you're going about the measurement system in different ways, but my question back to you, then, is are the stakeholders in our innovation system involved in these measurements? Have they contributed?

Dr. Gault: They contribute in two ways. At a very basic level, they respond to our questionnaires, if it's a survey. Also, they actually do the work, publish the papers, co-author them with people from other institutions, and we then pick that up through other databases. We don't bother them for that.

On a different level, a week ago I was addressing the Conference Board, a group of research managers, on precisely this problem. They are very interested in this, because they know they can't fund or do all of the pre-competitive research that is necessary to launch new products. They wanted to know what measures were in place to look at exactly this sort of thing.

So we consult with anybody who has an interest in this kind of undertaking to make the measurements useful.

Mr. McLean: Can I comment on that as well?

I strongly support the directions in which Fred Gault is moving in trying to do this. We do have to recognize, though, that in a certain sense, in an international context we are coming from behind here. We need to ensure that we are putting sufficient resources in, and not just at the governmental level.

I also agree that it is critical to find new mechanisms to create a closer involvement of the institutions, of industry and so on, so that it isn't just our measure of how somebody else is performing, but rather there is a shared commitment to what these measures are showing and what we're going to do about it if we don't like what they're telling us.

The Chairman: Thank you very much.

There's just one final question from me. I have to go back to Dr. Gault's comments on the OECD study, because that was one of the bases that, to my own thinking, influenced the way we structured our work, though not in any formal sense.

Do you have any comment on that, just to help me out, as to its strengths and weaknesses?

Dr. Gault: I don't think I can do this briefly. I'd be happy to draft a note for your consideration, if that would help.

The Chairman: That's perfect. It would absolutely help.

Dr. Gault: Very good, then, I will do so.

The Chairman: The committee has really enjoyed your comments today. You and the earlier witness, Stats Canada, are doing some very important work, which we appreciate.

We're beginning down a long trail, and our purpose as parliamentarians, to pick up onMr. McLean's point, is to move this debate along, keep it alive and make sure that, in a different use of the word, it's more popularly understood. The people doing work in science and technology feel they have an interested constituency of listeners, not only on the political level but in the public.

Thank you again for coming out and spending time with us.

The committee is adjourned until Tuesday afternoon. On Tuesday afternoon at 3:30 in room 269 of the West Block we will be considering an amendment to a specific piece of legislation known as the Bell Canada piece of legislation.

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There will be no witnesses, just departmental people to come and explain it. If any of you have any concerns or if you need a briefing before the meeting, perhaps you can ask Mr. Bodnar. But it seems to be relatively straightforward.

I just alert you to that; it will begin on Tuesday afternoon. The steering committee will meet on Tuesday morning at 9:30 to go over the work we have in progress on this and other things, and then we'll talk to the general committee in the afternoon.

Are there any questions on process?

Mr. Lastewka: Mr. Chairman, knowing that we're into our last couple of weeks, do we have a schedule of other meetings set for the next two weeks?

The Chairman: Well, I'd like to discuss that with the steering committee, but in the meantime I would like the members to leave our normal times available. We'll see from there, if you don't mind. We'll let you know, hopefully next Tuesday afternoon, what the plans are.

Mr. Lastewka: Okay.

The Chairman: Thank you very much, and thanks again to the witnesses.

The meeting is adjourned.

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