Industry Committee on Nov. 9th, 2006

[Graham Taylor]

It's the valley of death, yes. We support what we call pre-commercial research, which is taking an idea out of the laboratory and creating a prototype and proving that prototype in a commercial setting. The commercialization process usually follows after that.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So you're not really into the commercialization end of it?

[Graham Taylor]

We're not, really. We don't do commercialization, but we do set up the conditions for commercialization and then we help our clients find the other kinds of support they need, such as financing, to take it to the commercial level.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Who is the end-user? Who is usually the financier of the commercialization--the venture capitalist?

[Graham Taylor]

It's a mix. Sometimes they are venture capitalists. Occasionally the Business Development Bank of Canada works with a lot of our clients.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

There are none of the Canadian agencies, I believe.

[Graham Taylor]

Sorry?

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Are there none of the Canadian agencies that you know of?

Mr. Stewart, isn't it correct that nobody you're aware of finances commercialization from the government agencies?

[Iain Stewart]

Generally, grants and contributions programs don't fund actual commercialization of research. They tend to focus more on getting it to the pilot stage, with exceptions like BDC.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

I'm trying to bring this back into the challenges facing the Canadian manufacturing sector. I think some of my other colleagues asked a question, but I'm going to be a little bit more direct. If I'm a company, why should I invest in R and D? What's my dollar return?

I know, Mr. Stewart, you were quite eloquent in your presentation. I think you said that we have value from R and D because we've been quoted, we've been cited, and Canadians have been in articles and newspapers, but that doesn't give any return to any of the companies. It's much easier to have somebody else develop the technology, and then we just copy it. I think Mr. Masse alluded to it.

Is that one of the problems? How do we tie this into the manufacturing sector? Has any type of research that the manufacturing sector has been conducting in the last few years been worth it for them? Does the government need to be involved? That's basically what I want to hear. How is this going to help the manufacturing sector? I think you alluded to it yourself, and I want to allow you to answer.

You compete on an innovation basis, but sometimes companies look at costs, so it's not innovation. Innovation may take five or six years or it may take one or two years, so how do we put a dollar amount? How do we put a return on it?That's what we're here for. We're here for industry purposes.

[Iain Stewart]

In the first instance, I'd say it really varies by industry structure. If some industries don't invest in R and D, they'll stop being in business. We have high-tech industrial sectors. By their very nature, if biotechnology firms, aerospace and defence firms, or ICT firms are not investing in R and D, they're going to have a problem. They're not going to be in business in the long term, because those are fast-moving markets.

In a way, from your question I was wondering if you're asking more about why some of the people who were here earlier, the more traditional and established industries, should invest in R and D.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

I think that's what we're looking at, yes.

With the automobile sector, what's in their interest to invest money in R and D? I know what it is academically, basically, but what is it in terms of dollars? How can they value it? What are their numbers? Should they be putting in 2% or 4% or 10%? Let's say they decided on 10% but they have to reduce their costs. Would R and D be one of them because it's not profitable? How are they supposed to value that?

[Iain Stewart]

If cost reduction is the better strategy, companies will of course choose it. What happens is that eventually there's a limit on how far you can continue to reduce costs. You can try new ways of producing goods and services. You can try to create the next generation of goods and services and create a competitive advantage. You can try to adopt the latest production processes to get your cost base down through innovating. But straight cost reduction will eventually hit some limits. We're in the job market we are and so on, and some of the international competitors have different job markets from what we do. There's a limit as to where you're going to get to. That's why industrial societies have been encouraging their economies to move towards higher and higher value added. On that higher value added, you can maintain a good wage structure and a competitive company going forward.

Individual business owners know their businesses far better than we do. They make those decisions and they choose their competitive strategy. I guess we would try to encourage those companies that have the flexibility and aren't at the moment looking at innovation as a competitive strategy, to look at it and see what benefit that can produce.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

How is--

[The Chair, Conservative, James Rajotte]

Sorry, Mr. Pacetti, your time is over. That was a good line of questioning, though.

We have two other members who want to ask questions. I'm going to indulge them if we can keep you a few minutes past 5:30.

We have Monsieur Vincent and Monsieur Arthur. We will try to squeeze the two members in, and then we'll wrap up.

Monsieur Vincent.

[Robert Vincent, Bloc, Shefford, QC]

I am going to give my colleague my turn.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Do we have five minutes or only two?

[The Chair, Conservative, James Rajotte]

As short as possible.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Very well.

Do you think that researchers, as individuals, are currently offered enough tax incentives to remain in Canada?

Should the government make a concerted effort to attract and retain researchers? Currently, we face losing researchers as they are not as well protected and paid than in other countries.

[Robert Vincent, Bloc, Shefford, QC]

There is a brain drain.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Exactly, there is a brain drain.

[Dr. Eliot Phillipson]

Thank you. I'll respond to that.

You've asked a critically important question. The individual researchers are the canary in the mine. In other words, if there's a sense that Canada's commitment to R and D is diminishing, these highly qualified personnel will be the first indication, because they're extremely mobile and in great demand. We are clearly in a global competition for the highly qualified personnel. At one time Canada could depend on immigration, for example, of PhD scientists from the Pacific Rim countries. We can't depend on that any more.

Nevertheless, the investment in the public sector R and D over the last decade has had an enormously beneficial effect. You simply don't read about the brain drain any more. We have statistics and figures from our annual reports showing the recruitment numbers, and we'd be happy to forward that to you. For example, in the past five years there have been over 8,000 new researchers appointed to Canadian universities at the faculty level; 40% of them came from outside of Canada. Many are returning Canadians, but they weren't rushing to return before.

I think we're doing extremely well in terms of attracting and retaining the highly qualified personnel. Should there be a sense that the commitment is diminishing, as I say, they are the canary in the mine. They're highly mobile. The institutions from which they were recruited--the leading research institutions in the United States, Britain, Australia--haven't forgotten who these people are. The most high profile one, who I'm sure you all read about a couple of months ago, is a Nobel laureate who was attracted to the University of British Columbia. I can assure you that the University of Colorado will not forget who that individual is. At the first opportunity, they would attempt to recruit him back, if there's any indication that the possibility is there.

[The Chair, Conservative, James Rajotte]

Mr. Arthur.

[André Arthur, Independent, Portneuf—Jacques-Cartier, QC]

Thank you, Mr. Chair.

Mr. Taylor, your answers to Mr. Pacetti were fascinating, but you were cut short. How much do you spend, and how much of that money comes from the federal government?

[Graham Taylor]

Our allocation from the federal government right now is about $4 million a year. In the past we've been up to as high as $10 million a year. On average we contribute about 32% of the total cost of all the projects that we support. So the remaining 68% comes from companies.