Industry Committee on Sept. 28th, 2011

[The Chair, Conservative, David Sweet]

Good afternoon, ladies and gentlemen. Bonjour à tous. Welcome to the fifth meeting of the Standing Committee on Industry, Science and Technology. Today we have officials from the department who have come here as requested to give us an overview of the industry department.

We have with us Kelly Gillis, the chief financial officer, comptrollership and administration sector. We also have Simon Kennedy, senior associate deputy minister, and Mr. Richard Dicerni, the deputy minister.

We will begin with Mr. Dicerni's opening remarks right now.

Mr. Dicerni, thank you very much for coming.

[Richard Dicerni, Deputy Minister, Department of Industry]

Thank you very much, Mr. Chairman, for inviting us to your first meeting.

I've been asked to do a bit of an overview of the department. I will start by noting my two colleagues: Simon has been with us for over a year now, and Kelly has been with us for two or three years.

I'd like to give a brief overview of what the department does and speak briefly about the industry portfolio, which encompasses the granting councils and so forth.

Now, first things first. We note on the first slide that we work with and support four ministers:

Mr. Paradis, who is the current minister; Mr. Goodyear, who is the Minister of State (Science and Technology) (Federal Economic Development Agency for Southern Ontario); Mr. Bernier, who is the Minister of State (Small Business and Tourism); and Mr. Clement, who has maintained his responsibilities for FedNor.

If you come and visit the department, you will see that, as public servants, we support the work of four ministers.

If you turn the page to Industry Canada's mandate, I'd like to focus on each of our mandates and then discuss with you some of the initiatives we are involved with in each.

The department in the portfolio seeks to achieve three overarching and interrelated objectives. First is to develop and administer sound marketplace policies and programs. Second is to foster and encourage a knowledge economy. Third is to support small, medium, and large business. Let me speak to each one of those.

In terms of the marketplace, it is important that all modern economies have sound, effective marketplace policies. People need to know what the rules are; people also need to know what the framework policies are. The department contributes in a number of ways to this. I'll give you a few examples. Within Industry Canada lies the Competition Bureau, which is very active in making the marketplace work. It is currently involved, for example, in reviewing the Maple Group's desire to acquire TMX. Recently it got involved in and sought to take remedial action against the Canadian Real Estate Association for anti-competitive rules that it thought the association was imposing on real estate agents. So the Competition Bureau is one framework policy program.

We also work with the Department of Canadian Heritage on a very important piece of legislation dealing with copyright. That's important framework legislation.

We also administer—and my colleague Simon is the lead on this—the Investment Canada Act to ensure that transactions which are subject to the act are of net benefit to the country.

Other offices within Industry Canada include the Canadian Intellectual Property Office, where we issue patents and trademarks; Measurement Canada; and Corporations Canada. So there is a whole series of small agencies whose purpose it is to make sure that marketplace programs and policies work to the benefit of Canadians, both consumers and businesses.

Second is the knowledge economy. In 2007 the government released its science and technology strategy on maximizing its investment in S and T for the benefit of all Canadians. The department is very directly involved in this, but also with partner organizations in the portfolio, which I'll speak about in a few minutes.

I'll give you a few examples of the initiatives that the department has taken to encourage and support the knowledge-based economy.

We managed the Knowledge Infrastructure Program. As part of the Economic Action Plan, within the department we spent $2 billion, which resulted in further spending of $3 billion for post-secondary institutions and the private sector. In total, $5 billion was invested to increase the quality of the infrastructure in colleges, CEGEPs and universities across the country. Some 500 projects have been supported through this program.

We also launched the Canada Excellence Research Chairs Program. With a third party, we designated 19 recipients around the world and invited them to come to Canada. They were granted chairs worth $10 million over seven years. I think that we found a fairly extraordinary class of individuals.

We have other programs, including the Centres of Excellence for Commercialization and Research. All of this is intended to support the knowledge-based economy.

Third is support for business. As I said, the department is involved in supporting small, medium, and large businesses. We work on a wide range of projects and initiatives. Obviously, the department was quite involved during the auto restructuring in working closely with the U.S. government, as well as with GM and Chrysler, to assist in their restructuring, which I think has turned out to be a good initiative.

We also work closely with the aerospace sector. We have a program that supports partnerships, which contributes to Canada punching above its weight in regard to civil aviation market share in international matters. This program has supported a number of initiatives across the country--Magellan in Winnipeg and Pratt & Whitney in Montreal--and I think it's an essential part of our tool kit to support the aerospace industry in order to always achieve higher degrees of productivity and innovation.

We also have programs in the department that support small-business financing, whereby we will insure some loans that are provided by financial institutions.

So that's it in a nutshell, and I say “in a nutshell” because I've appeared before some of you in the past to discuss certain specific programs, and this is a very brief overview of what the department does.

Let me briefly talk about some of the policy and legislative initiatives that we are working on presently.

On the digital economy strategy, including spectrum auctions, the department released last year a discussion paper about auctions pertaining to both the 700 megahertz and the 2,500 megahertz. The minister recently had further consultations. The assumption is that over the course of the next two or three months some fundamental orientation will be identified, so either later this year or early next year, some decisions around the spectrum should be made public.

Building the critical infrastructure is one of the major pillars of the digital economy strategy. Other pillars include enhancing skill sets and ensuring that there is a very solid statutory framework. I can refer in that respect to the spam bill that was passed. I can refer to the copyright bill, which will be, I believe, shortly reintroduced, and to our PIPEDA legislation. Those are important statutory pillars.

There's also another pillar that is related to improving ICT adoption. One of the key aspects that explains the difference in productivity between Canada and the United States is the lack of ICT adoption by small and medium-sized businesses. We are working with the Business Development Bank to enhance awareness among SMEs regarding the usefulness, from productivity and competitiveness perspectives, of higher ICT adoption.

Speaking of the BDC, we are also working on the BDC's legislative review. Every five to ten years, the BDC act must be reviewed, so we're in the process of looking at how well it has done over the last five to ten years and identifying possible enhancements to its legislative mandate to support more effectively Canadian SMEs and Canadian entrepreneurs.

The department is also working under Mr. Bernier's stewardship on a federal tourism strategy to bring together in a more focused manner the various elements that are in play at the federal level to support tourism.

Lastly, in terms of policy initiatives, I would note that the government asked Mr. Tom Jenkins, chairman of OpenText, to launch a panel on research and development last October. We expect him to be submitting his report in October of this year. This panel will focus on the expenditures of the federal government in support of R and D in order to make sure we have the right mix between tax expenditures and program expenditures.

Overall the government spends about $7 billion in this area; $3 billion or $4 billion of that is for tax expenditures, and the rest for a series of programs.

In terms of legislative initiatives, I mentioned copyright and PIPEDA. They are two of our major initiatives in regard to our digital economy strategy. I believe these pieces of legislation will be reintroduced shortly.

Let me say a word on the Industry Canada portfolio. I would draw your attention to pages four and five. If you look at those two together, it will be more productive.

I would now like to speak about Industry Canada's portfolio.

First, with regard to the obligation to be accountable, all these agencies and corporations are headed by executives or presidents whose position is at a level equal to that of the deputy ministers, meaning that they do not work for me; they are part of the Industry Canada portfolio. As deputy ministers, Simon and I have some duty to supervise what they do and how they do it. If things are not going well, that clarifies our interventions a little. Still, these organizations are independent entities. I am sure that these people would be pleased to meet with you and tell you about their activities.

Please allow me to give you an overview of these institutions.

The National Research Council, which has been around for 90 or 100 years, is focusing on two interventions: the IRAP, a very useful program for supporting SMEs and launching new businesses, and institutes across the country that aim to increase the commercialization and the participation of the private sector in certain targeted sectors.

We have two granting councils: the Natural Sciences and Engineering Research Council and the Social Sciences and Humanities Research Council. They support fundamental research in universities. In the case of the Natural Sciences and Engineering Research Council, we are talking about approximately $1.1 billion, and with the Social Sciences and Humanities Research Council, it's approximately $700 million. A large part of this is recouped by the Indirect Costs Program. The grants they are awarded equal about $300 million. As part of the Science and Technology Strategy, these are obviously important partners, given that they work with the universities and, increasingly, with colleges.

There is also the Canadian Space Agency, in Saint-Hubert, which aims to support space exploration and the space industry.

I spoke earlier about the Business Development Bank of Canada, in Montreal, which supports some 29,000 or 30,000 clients annually through loans. It played a significant role during the economic crisis by increasing the credit available to entrepreneurs to ensure that the money was circulating in the economy.

The portfolio also includes Statistics Canada, which has just completed the census and the National Household Survey. As you know, the census went well, and the participation rate was high at 98.1%, which is very good. I think that Statistics Canada will soon make public the results of the national survey.

There is also the Canadian Tourism Commission, located in Vancouver, and it promotes tourism.

I'll stop now.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Dicerni.

[Richard Dicerni]

You gave me only one sign, right?

[The Chair, Conservative, David Sweet]

Yes. That was just a little bit of....

[Richard Dicerni]

There, I've wrapped it up.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Dicerni, for the information. I know it will be very helpful to the members of the committee.

We'll go now to Mr. Braid for seven minutes.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you, Mr. Chair.

Thank you very much, Mr. Dicerni, Mr. Kennedy, and Ms. Gillis for being here this afternoon. It's great to see you back.

I'd like to start by asking generally about an issue that's an important one for my region, the Waterloo region, my riding of Kitchener--Waterloo, and that's the issue of innovation. Could you begin by describing how Industry Canada helps to support and enhance innovation in Canada, and second, why that's so important?

[Richard Dicerni]

Let me start with the second part.

If you look at most OECD countries, the space allocated in our GDP for traditional manufacturing is gradually shrinking as people go to other countries, less costly countries, to manufacture products. So we have to go up the knowledge and manufacturing food chain. We have to focus on areas where we have tremendous value added. In order to have that, we need the people. We need people who have university degrees, who have college degrees, who can contribute to the knowledge economy. Therefore we have constantly made investments in people at the research level and also in the form of scholarships at the graduate and post-graduate levels. We need to have people who will be there for the OpenTexts of the world, for the RIMs the of world, and for all of those other companies that operate in the Kitchener-Waterloo hub.

The department gets involved, I would say, through developing, refining, and implementing the science and technology strategy, which I think is a tremendous foundational document. We also, at the other end, work with the Science,Technology and Innovation Council that the government established, which every two years produces a “state of the nation” report that permits Canada to benchmark itself—not just the federal government, not just provincial governments, but all of Canada—to compare how we are doing. Are we improving? Are we slipping? Because the competition in most sectors is becoming much more challenging. So what we have to do is continue to bear down on that. We have our fundamental document and our strategy. We have a two-year report card made by a third party, the council. And within that we try to continue investing. So we invest in people, and we invest in innovation. Our strategic aerospace and defence initiative, which is a program we used to work in partnership with the aerospace sectors, is a fine example of partnership where x number of initiatives are put forward and there is joint risk-taking by the company and the government always with a view towards innovating, because out there, there are people competing with Canada and they are getting better, faster, and smarter.

Thank you.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

I'm going to segue now from the issue of innovation to the issue of productivity. Currently when we compare ourselves to the United States, we seem to be doing everything better—social policy, economic policy, economic fundamentals, employment, job creation, debt-to-deficit ratios—but we still lag in productivity when we compare ourselves to the U.S. Why is that? How can we improve that? And is improving productivity in Canada an important area of policy focus?

[Richard Dicerni]

I alluded briefly to that in terms of information and communication technology adoption. Our usage of computers by small and medium-sized companies is much lower than it is in similarly sized firms in the U.S. So that is why, within the digital economy strategy, we are putting so much emphasis on trying to enhance productivity to lead to more competitiveness. I think this is going to be even more important going forward as the demographics of this country change, as people get chronologically older. We cannot stop Father Time from moving every year, and we will have fewer people working. So we need to enhance our productivity if we wish to sustain our standard of living, if we wish to sustain the types of public goods that we have enjoyed. So competitiveness and productivity are very important. We look forward to the Jenkins panel to see if they can give us further insights as to how we can use the R and D dollar more effectively to achieve that goal.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you.

Changing gears a little bit, I have a question about the spectrum auction. Within the spectrum of megahertz bands, the 700 megahertz band has been described to me as being the equivalent of beachfront property. Could you explain why the 700 megahertz band is so valuable?

[Richard Dicerni]

The lower you are in the spectrum band, the more propagation you will be able to have.

Propagation has two dimensions. One, it will go further, so with one tower you will reach a greater distance. Secondly, it will permit you to have cellphone conversations if you're in the third basement of a garage. So it has propagation both horizontally and vertically, if you wish.

For a carrier, it means that their deployment will be less costly. Instead of having to build five towers and link them all, they can build one tower. It reduces both the cost and the community heartache associated with putting up towers.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Dicerni. You're almost exactly on time with that answer.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

I have many more questions--

[The Chair, Conservative, David Sweet]

Yes, I understand that you probably do, Mr. Braid.

We'll move on to Mr. Julian, who I hope has some profound questions as well.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

I always do, Mr. Chair.

I would first like to go back to the Investment Canada Act, which is controversial. On a number of occasions, we have seen companies break their promises. In Hamilton, U.S. Steel recently locked out 900 employees. They will soon lose their EI benefits. The act doesn't work and it is very controversial.

I would like to know where we are at with the review of the act. We have been asking for it for a long time and I know the government promised to make changes.

[Richard Dicerni]

I am going to ask my colleague Mr. Kennedy to answer, since not only is he the associate deputy minister, but he is also the director of Investment Canada. So he is directly responsible for managing the act.

[Simon Kennedy, Senior Associate Deputy Minister, Department of Industry]

In terms of changes to the act, the Prime Minister and the former minister of industry said before the election that they were planning to address the issue.

If I'm not mistaken, your committee did a study, or there is an old study of the act. But the government is still responsible for deciding whether it needs to change the act or whether it needs to make some clarifications. So perhaps it would be better to ask the Minister of Industry about the government's intentions regarding the act.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Merci.

I'd like to come back to research and development, because this summer, as you know, we had a report that showed Canada in last place in terms of direct research and development among OECD countries, second to last in the production of patent development, and second to last in PhDs. It's an incredibly poor record, an appalling record.

So first off, I'm wondering what the reaction is within Industry Canada to what is a very, very poor record, particularly given the economic challenges we face, and what the response is. Perhaps changes in programs...?

Further to that, I'm looking at the business plan and wondering to what extent Industry Canada will be impacted by cutbacks. We've been hearing talk about cutbacks and layoffs right across government departments, so I'm wondering to what extent that is going to impact on science and technology, on research and development, on all those things where we're doing very, very poorly and are in last place or second to last place. To what extent do you feel the government may be slashing even more what has been a failed policy and is very clearly something that needs to be bolstered and strengthened?

[Richard Dicerni]

Well, one, I think we should compare notes about source documents, because my reading of the State of the Nation report that a third party--the science council--put out did not paint that gloomy a picture. For example, Canada punches above its weight in regard to citations per capita, which is a major indicator of the quality of research and the number of researchers. In regard to the number of people we support through the various training councils, I think that again is above average.

Where we are weak and where we are in the bottom quartile is in regard to the business investment in R and D. The public sector investment--that would be through government and through universities--in R and D is top quartile; I think we're first or second. As it relates to business investment, we are very, very poor. That is why the government tasked the Jenkins panel to look specifically at why it is that with a great tax credit and with great programs there's not enough business investment in R and D.

On your second point--

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you for your comments.

What we've seen, as you know, is that business investment is sinking like a stone. But when you take out colleges and universities and you look at direct public investment by governments, it's falling considerably through the federal government, although we've seen provincial governments picking up a bit of the slack. You know the figures as well as I do.

On direct public investment from governments on research and development, we are in a very poor position. We are in last place. When you take in indirect, you're absolutely right...but that program hasn't worked, obviously, because business investment is falling significantly. There's the concern. Even on the indirect investment, which has been the government strategy, there's very clearly a failure. Business has not taken up the slack. They've taken the money and run.

So that's my question back to you: how do you revise? Is Industry Canada looking at revising what's clearly a failed policy, or do you feel you'd just like to keep going the way we are?

[Richard Dicerni]

We really should compare notes about data points, because year after year there's been more money put into granting councils. What has decreased over the last two years is our expenditures coming out of the economic action plan. As I testified in front of the public accounts committee and many other committees, this was time-limited. Indeed, our expenditures on that front have decreased. But with granting councils, if you look year over year over year, there has been more money put in.

In regard to failed policy, you will understand why I would beg to differ. I think we are on the right track. But there is this delta, and on this we do agree, in terms of the business investment. We even commissioned the Council of Canadian Academies--they did a great piece, and I would commend it to you--to try to understand why is it that, given all those possible and positive things, business is not investing? Some argued that it was because the cheap dollar permitted some to get away and keep making profits--you had the cheap dollar and you could sell--and it made acquisition machinery equipment more expensive.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Sorry to interrupt you, but I just want to get back to the cutbacks and layoffs, particularly when we talk about research and development--although I'd love to keep debating with my colleagues across the way on the research and development strategy overall.

Do you foresee cutbacks and layoffs in the research and development arm of Industry Canada or elsewhere?

[Richard Dicerni]

The government in its budget indicated that it was seeking to reduce expenditures on the order of magnitude of about $4 billion, and has asked all departments--the Department of Industry is not excluded from that list--and all agencies to identify options of 5% and 10% in expenditure reductions.