Industry Committee on Nov. 2nd, 2006

[The Chair, Conservative, James Rajotte]

Thank you, Dr. Raymont.

I know Dr. Frise has indicated, but we're well over time. Is it possible to...? Okay, let's go on to Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

To continue with the automotive sector, it's a good comment to note that a number of vehicle assembly productions are hanging in there to a certain degree, but we're losing our market share and are being climbed over by a few other countries.

Industrial strategies and sectoral strategies are some of the propositions that have been noted by the industry to be there. What's happening in other countries? I know that you speak abroad. What's happening with some of those countries that are now competing for the share of the market that we're losing over here?

[Dr. Peter Frise]

Again, I'm afraid I'm not an expert in policy abroad, but from what I see, they seem to have a systemic approach to everything. I had a minute with the former prime minister of Finland in Kyoto a couple of years ago at a conference, and I asked, how did you transform Nokia from a company that made tires in 1988 to the world's leading cell phone company now?

He said, we got our biggest company together with all the leaders of the country and we decided that in the future it would be better to be rich than to be poor, and the way to be rich would be to ship products that are worth dollars per gram rather than pennies per tonne, so that's what we did. And he said, it's our money, it's our country, and we did it.

I think that kind of bold approach is really what's needed. They created a system that was directed to create a certain set of outcomes.

I totally agree with Dr. Raymont that if you get the researchers working on the right issues, industry will jump right in. I think that's been the problem in Canada's innovation system. We've let our people.... Oh, let's not go there. I think it's important that researchers direct their energy to important problems.

[Brian Masse, NDP, Windsor West, ON]

You noted that you're 21 of a group of projects that have worked over the years and the sunset clause is the current mandate. What happens to those projects when they enter into their second phase, they're being successful and their private proponents support them? What happens after two or three years in their second phase? Is it then that the operations start to wind down on everybody; is it like air out of a balloon?

[Dr. Peter Frise]

Different things have happened, I think, but from my questions of networks in their second phase, they generally wind down fairly quickly after the end of the second phase. A lot of activities continue, which is very worthwhile, but I think it becomes difficult to maintain the tight focus on key problems, because people then seek other sources of funding--which is the norm for research people--and perhaps the other programs that they work with are not as tightly focused on a sector's key issues.

I think things begin to diffuse, and I think that's the problem. In fact, I was told by an Australian official that that's why they didn't do that, because they want to keep that focus.

[Brian Masse, NDP, Windsor West, ON]

Is it fair to say that applies not only in terms of partners, but also even the staffing, the researchers themselves who have been leaving these departments, who start to look at other options as well because it's concluding?

[Dr. Peter Frise]

Well, that's right. I think that's likely, and it may even be that they could leave the country for better funding elsewhere.

[Brian Masse, NDP, Windsor West, ON]

Mr. Raymont, going to the Canadian innovation scorecard that you have, in many of our industries...in manufacturing there are some winners, but there are also negative challenges that led to the study here today. Some of our industries have had record profits and have done quite well. Why aren't we doing better in terms of research and development and being able to capitalize on those businesses that have done well during some of these times?

[Dr. Michael Raymont]

I don't think it's only a question of an industry making profits as to whether they choose to reinvest. If they can continue to make those profits, why would they invest more in R and D? So some industries and some sectors are more R and D intensive than others.

As I said before, where industries won't move--because if they're private sector they have shareholder responsibility and fiduciary responsibility to those shareholders--is back into projects that are such high risk that they cannot see a return. Simply because they have more money doesn't mean they'll go and blow their shareholders' money because they can't think of anything else to do with it. So they will buy more certain production and expand and so on and so forth. It doesn't necessarily mean they'll move into riskier and riskier areas.

The only reason they're going to move into risk is that they have some kind of partner to work with who will share that risk with them and/or they're forced into those risky areas because, in the case of the energy industry, conventional supplies and reserves are running out, and then the risk does come high.

[Brian Masse, NDP, Windsor West, ON]

That's an excellent point. With that, do you believe there is a sufficient role? The public obviously wants a return on some of their research and development, especially if they do some type of incentive or subsidization or taxation policy. Whatever you want to call it, wherever you want it to be, whether it is Canada or the United States, it's all the same stuff. It's about supporting industry, or at least developing or providing some type of assistance to it.

With regard to infrastructure, for example, as an incentive, if there were a public role to those organizations or companies that are looking at developing increased R and D facilities, would that be seen as a linchpin or a way to get at more research and development? I know the public supports a lot of that. How would you think that would go over in terms of attracting more R and D? It's something that we used in Windsor to get DaimlerChrysler as part of the research and development. It was land as well as some servicing, specific things that also had other public-good purposes.

[Dr. Michael Raymont]

I think some of those can work. I'm always a little concerned about too much capital going into buildings and equipment, because people are probably one of the most critical resources of all. I'll come back again to the importance of making certain you have that complete supply chain. I really do want to emphasize that; if you have a facility in a building that focuses on research, but there isn't any thought as to what's going to happen to the output of that research, there's no point in doing it.

Call me non-Canadian if you want, but I have personally, as an entrepreneur, taken Canadian companies south of the border because, although the research was done up here, it couldn't be commercialized up here. And boy, when I got south of the border, could I make money for my shareholders, and they were the people to whom I had the obligation. There was one particular company that we later sold to Smith and Nephew for $180 million; I couldn't even get it financed in Canada.

[Brian Masse, NDP, Windsor West, ON]

So it's like Michigan does a series of products a company can look at to pull off the shelf that the government might be supportive of, whether it's human resources, infrastructure, or other capital.

[Dr. Michael Raymont]

Correct. What we're doing in this country, in my view, right now is planting an awful lot of wheat and not harvesting it. We need to figure out the complete system, from planting to fertilizing to harvesting to upgrading to pasta or bread or whatever. If we just plant the wheat, others come in, harvest it, and use it to compete against us.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go now to Mr. McTeague.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

There were some very interesting points from both of you, and I want to thank you for those.

I will refer to two comments. You made one, Dr. Frise, about our country, our money, with respect to Nokia's experiment in Finland and success around the world with respect to cell phones. Dr. Raymont, you made the other, with respect to having had some success in commercializing south of the border.

I've often been tested, and we find ourselves struggling as a committee, to wonder whether it's a question of economy of scale in Canada or whether it's a lack of coordination, as you've suggested, Dr. Raymont, between the various programs that are out there--or might it just be the fact that it is impossible to build the kind of strategy that would see coordination among many of the sectors of industry, simply because the industries, to a large extent, are controlled by decisions made well outside of Canada?

This not a cry to the good old days of nationalism, but to respect the fact that almost every country you've used as an analysis here has leader industries. Their head offices are located in those countries and their decisions are made in those countries to the largest extent. There can be the kinds of synergies in which new products are brought forward. I've often looked at the drug industry to recognize that very few world mandates are coming from them, yet there is research and development; much of it is done in order to correspond to Canada's drug patent laws as far as being able to put forward your product goes.

In relation specifically to energy and to automotive, having worked with and been public relations director for Toyota Canada for a number of years, I find it passing strange that there, while they may not have direct government subsidies and protection of their market, which is a whole other issue, they do deal with the paradigm of the keiretsu, in which one company trades within a variety of other companies. There is a trade relationship that you can't penetrate; it serves very much as if it is almost a strong state-related organization or operation. I don't see how Canada can get around something like that, given that many of the decisions with respect to its automotive industry--and I speak from first-hand experience with my company--were made in other parts of the world.

Specifically on the question of innovation, if a company were to come forward and, for instance, be able to dim those lights by 50%, you wouldn't be able to appreciate the change in terms of the light that it emits. It seems to me that kind of technology could be backed, but the reality for companies that may have those kinds of inventions is that most believe they should in fact commercialize south of the border, where there are capital markets and access to the capital to do these things.

How would you grow or coordinate Canada's economy, given the current economic landscape in terms of who controls what in our key sectors? How do you coordinate such an outcome when decisions and capital markets tend to be outside this country?

[Dr. Michael Raymont]

I'll speak to one aspect of that and I'll leave my colleague to address other aspects.

I'm really glad you've raised this, because I think this is a critical issue for Canada too. One, with 32 million people, we have to give up on the idea that we can be everything to everybody and be competitive in every sector of the economy globally. We have to focus. I know the expression “picking winners” is not a popular one. We don't have to do that. What we have to do is back excellence, which we already have in this country.

When I was in Ottawa, I wasn't the most popular person advocating the following view. As I grow older and my hair gets thinner and greyer, social policy that says we should help those who can't help themselves makes complete sense to me. That's part of Canada, great, and I fully support it. But an economic policy that says we should help companies that can't help themselves strikes me as daft, except for maybe transitionary issues.

If we're going to compete globally, we have to help those companies that are already the strong pillars of our economy, to make them continue to be the best in the world. I heard “the best in the world” mentioned earlier. If we can't be the best in the world, then let's accept that we're not going to win that one and back those things where we can be.

Let me take the energy industry.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

If I could hold you for a moment there, the only industries that I see that have that kind of scale and have those kinds of decisions are ones that are regulated. Outside of those, we're not talking about a lot of industries that are indigenous to Canada.

[Dr. Michael Raymont]

Absolutely, the energy industry, for one. I would say it is one of the strongest energy industries in the world. We have superb schools and superb research facilities. We have companies that are looked to around the world. We have the world's greatest energy resources in Canada, plus the endowment of those energy resources. And I'm not just talking about oil and gas, or even oil sands. I'm talking about renewable opportunities and I'm talking about hydro opportunities.

We're a world leader in hydro. Instead of saying, “That's fine, then we're going to support some industry that's a loser”, why don't we continue to support being the best in the world in hydro and support continuing to be the best in the world?

What it argues for is putting technology behind what you're already good at, what is a great strength of your economy, not for trying to do a little bit of everything and being mediocre at everything by trying to do that. I would argue that for energy.

Forestry is another example. We talked about Finland, but forestry is an example of where we haven't put in any effort. If we put our biotech effort behind pine-beetle-resistant trees, Douglas fir that will grow twice as fast in British Columbia's climatic environment, and trees that have longer and stronger fibres, then we would have a highly competitive forest industry. Instead of being sold to Sweden and Finland half the time, we would be able to reclaim that industry.

We haven't backed the industries we had that were strong. We ignored them and we've lost out. So I would argue strongly for a focus on things we're good at.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. McTeague.

Dr. Frise.

[Dr. Peter Frise]

Very briefly on Finland, Finland has 5.6 million people who speak a language nobody else speaks. They are really isolated. They are economically dominated by huge countries all around them. Their weather is even crummier than ours. But they've done really well because they just decided to do it. So I'm afraid I can't accept that we can't do it because of economies of scale and things like that and, yes, we're small. We're not small. I'm sorry, we're really big, and I think we have to think of ourselves that way.

I agree fully that we have to back the strongest, back quality, back agility, back speed. Those are all really important. In all things, balance--balance in working with new sectors on new imaginative ideas and in working with existing established sectors, because that's where most Canadians work, and that's not likely to change very soon.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Shipley.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, Mr. Chair.

Thank you, Dr. Frise and Mr. Raymont. I found this intriguing, and I actually wish it was a lot longer.

I think you touched on something just now, in that a lot of the things we do are about balance. Sometimes politically we forget the balance of what we have to actually deal with.

On regulatory change, one of your recommendations was the elimination of the 14-year NCE sunset clause, the funding. What other barriers do you see there, and what can we do to help?

[Dr. Peter Frise]

Frankly, I don't know why that clause is there, and I don't know within whose control it exists. I'd like to know that, and I'll try to find out.

But in terms of other issues, I would say that in general Canadian programs—not just the NCE program—take a long time to decide to do something.

Mr. Raymont mentioned this as well, where you have somebody having to write a 44-page document to get a couple of hundred thousand dollars. In research circles, it's often suggested that hundreds of people are competing for dozens of dollars.

The full proposal for the Australian CRC, the AutoCRC, was about 20 pages long, and the proposal for AUTO21 was three telephone books. Now again, I don't mind a searching, rigorous process, but it takes an awfully long time to get any answers on anything.

We're up for renewal next year, and I'm confident we're going to stomp all over this thing and do a great job. But it's going to really stall the progress of our organization for many months, going through the whole process of creating a new proposal and so on, and we have to kind of stop everything while we do that. Then there's a long decision-making process, and then the decision is announced.

The whole process will take almost 20 months. Yet we have a five-and-a-half-year track record; we have external audits, which are clean; we have an independent board of directors that's very demanding; and we have fully peer-reviewed researchers at 40 universities across Canada, supervising 500 graduate students who depend on this funding. Yet we're going to stall everything for 20 months while we decide whether or not to do it some more.

That's the kind of thing we run into.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Yes, you talk about those types of things as others—whether it's municipalities, in terms of the regulatory.... Getting grants has become very cumbersome, and I'm hoping we will be able to do something about the efficiency with which these things move forward. That would be our objective, I believe.

Do you also believe that in terms of private sector funding and research and development, they carrying their weight?

[Dr. Peter Frise]

They certainly do in AUTO21. Our federal grant—and let me say I think it's a superb program, that the NCE program is absolutely great—is $5.8 million per year, which, when it was awarded in 2001, was 96% of what we asked for. So we were absolutely thrilled to get it.

At the time, industry was committing $2.99 million of the funding to our suite of research projects. This was a ratio of $3 million to $5.8 million, which was good. Of the $2.99 million, about 60% was cash, and the rest was valuable in-kind contributions. At the present time, I believe the industry contributions are about $6.5 million, up from $2.99 million, and our grant has remained the same at $5.8 million.

I'm not complaining about the $5.8 million, but it seems a shame that we have to turn down projects that industry would like to fund. Again, one of the goals of government programs is to get industry to invest and partner with the public sector, and help educate people and so on—get researchers working on relevant projects. We have had to turn some of those down because our grant money wasn't sufficient to partner with them.