Industry Committee on Feb. 5th, 2008

[Robert Vincent, Bloc, Shefford, QC]

What steps does the government need to take to ensure that these companies have the funding for R&D? Do you have a strategy to propose?

[Barry Gander]

That's right. We drill down a little more into our explanation for that, but our recommendation there is to allow the same treatment for companies that are having losses in a particular year. In fact, that's when they need that tax credit the most.

Your point is exactly what we would like to have happen. So thank you very much for your reference to the innovation nation, which is the policy platform we have there.

[Robert Vincent, Bloc, Shefford, QC]

The report, which contains six recommendations, dates back to 2003. Earlier, you talked about broadband and Internet services. We have had several changes of government since 2003. What has become of these recommendations? Have some of them been implemented? Have successive governments provided assistance in some form or another to your sector?

[Barry Gander]

I think we have a situation where some things advance and other things get left behind, and you have to push those as well. So you're pulling a rug unevenly across the floor.

In the last 26 years we've had three innovation policies from the federal government. It's a target that moves, as I guess it should, but there have been advances. I don't want to make it sound as if we're waiting for anybody to do things for us, but there are environmental conditions that could be changed and would be very helpful.

Eli was talking about commercialization, and I think it's key to stress that now. We have enough R and D; we have enough innovation going through the pipeline. We find, for example—with no disrespect to the universities—that it's quite often the technology transfer officer in the university who blocks the technology transfer, because they're waiting for the next big Google or Facebook to happen in their research labs. But there are 40 other products in there that are being developed or innovated, and nobody is talking about them.

So we've joined with organizations like Flintbox to reach into the furthest corners of Canadian universities electronically to find out where those products are, and then match them electronically with the rest of the world. Those kinds of things are being done right now.

[Eli Fathi]

We also have to consider our position related to other countries, because the technology advancement in different areas and the adoption rate in different countries is much faster. An example is RFID, a new technology that is sweeping across the world. Other countries are putting in a lot of emphasis and money to adopt it.

We are moving fast. There's no question that Canada is the leader in many areas and has a lot of expertise, but other countries choose their fights and their areas of investment, and sometimes they're ahead of us. We have to make sure we at least keep pace in certain areas. We were one of the leaders in adopting broadband in 2002, but clearly a lot of other countries have surpassed us in that area. We're still doing very well, and a lot better than the U.S. But other countries like Korea have almost adopted broadband 100%.

So it's a matter of how fast we can maintain and adopt other technologies that are coming that will impact the productivity levels in this country.

[Barry Gander]

If I may pick up on that point, we had one of our CEO round tables last week in Toronto. There were 100 CEOs from the manufacturing community gathered around, having what we call a kitchen table conversation to discuss what's happening in manufacturing these days. James Milway from the Institute for Competiveness and Prosperity was one of our speakers.

He said that Canada is not doing too badly around the world. Our productivity rate is increasing faster than any other country's except, sadly, the regimes that are just to the south of us. So there are a dozen different regions in the U.S.where productivity is increasing faster than here, but nowhere else in the world.

[The Chair, Conservative, James Rajotte]

Thank you.

Merci, Monsieur Vincent.

Monsieur Arthur.

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

Thank you, sir.

Ms. McCready, Ms. Harack, regarding R&D funding, I assume that one factor that greatly facilitates investment is successful research. When one of your member companies ultimately finds a cure for the common cold, it will no longer have to be concerned about working with the government to secure future investments, whether directly or indirectly.

You stated that the government should promote investment. However, when your say that large pharmaceutical companies will become a key partner, I do have some reservations. As I see it, the government will have a hard time justifying investing on a massive scale in the pharmaceutical industry, given the recent revelation that the majority of Canadian pharmaceutical companies spend more on marketing than they do on research.

In light of this revelation, wouldn't it be hard to sell this idea to Canadians?

[Cate McCready]

You have to look at the entire life cycle for financing, particularly of health innovation. The life cycle there is 15 to 20 years on average. We have a remarkable bank of 500 small emerging companies in this country, and most of them are dedicated in the health sector. We don't commercialize well. We start small companies, foster them, get them going, and then leave them. It's then up to them to find international investment, Canadian investment, partners, and licensing agreements.

Companies in the pharmaceutical industry are key to that. They are part of that ecosystem of survival for ideas. They have the wherewithal and the global marketplace connections to allow a product into the marketplace. Bio MS, the company I cited earlier from Edmonton with leading-edge technology and Canadian know-how on multiple sclerosis, has just seen an investment by Eli Lilly of $500 million. That money will allow Bio MS to take their platform, their technology, to the global marketplace. There was no other way it could be financed. The technology would have been lost if they had not struck the partnership, thanks to their management expertise, their IT protection, and a good partnership with a company like Eli Lilly.

I think we have to understand the nature of partnership and how it works. We have to find ways to continue to respect and build that. This is not cheap technology. Times have changed. As we get better at understanding the biological machinery of every aspect of every living organism on the planet. it will take dollars to transfer that into products that make a difference to our lives.

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

Thank you.

In answering a question from Mr. Eyking, Mr. Gander, you stated that we're going fast toward a bottleneck, as far as talent and know-how are concerned, and there's no way Canadian universities will be able to give you the specialists you need in a few years.

When you tell me about all those merry projects of universities collaborating with enterprises, I keep having the feeling that it's somewhat on the level of the kid who goes through a cemetery at night and whistles a lot--everything will get better if he keeps hoping that things will get better.

Are we keeping our heads in the sand at this point?

[Barry Gander]

I don't think so. I think there's a realization there that we must adopt a very imaginative partnership strategy around the world if we're going to make this work. As I was saying, we can plug ourselves into nations around the world that Canadians have an affinity for in order to carry out the value-added research that we are doing here in Canada and the value-added creativity we put into things to finish off the projects and to make that happen.

I would also say there's an awful lot in the schools that we're not doing. My colleague Eli was reminding me on the way here that people are dropping out of schools still, and their value can be tapped. We're not reaching everybody we could be reaching.

But you're also quite right, Eli, in saying that the bottleneck is going to get worse before it gets better.

There's a funny little thing that just happened a few months ago. Microsoft opened an office in Vancouver. It was a landing site, because Microsoft in the U.S. is being hit by immigration policy that is not helping them. They're opening that office because they want to bring world talent from the Pakistans and Indias of this world to Vancouver and use it as an off-load site from Redmond, of course.

I'm thinking, isn't there a way Canada can use this overall? Canada could be a landing site for smart people from all over the world to plug into the American economy. They don't even have to be in Canada to do it, but if we had that as a talent switch, that would be huge.

[The Chair, Conservative, James Rajotte]

Thank you.

Merci, Monsieur Arthur.

Ms. McDonough.

[Alexa McDonough, NDP, Halifax, NS]

Thank you very much.

Well, I'm going to pick up right there where you left off. I have two questions for anyone who feels inclined to address them.

One is that we're having a lot of trouble attracting our own young people into these fields. How much are we really looking at the incredible cost of post-secondary education, the uncertainty around continuing inadequate funding for post-secondary education? It's my understanding that at least in some universities in some parts of the country the first-year tuition seems prohibitive enough, but then when it gets to second year, it takes a huge leap. I'm wondering if this isn't driving young people away from investing their own dollars in this field, because there aren't enough public dollars to support those choices.

Secondly, I'm wondering whether we need to be concerned--and this is an issue that's raised from time to time by the post-secondary education community--about inadequate dollars being invested in basic research on the basis of which, of course, breakthroughs are ultimately made, and so you get to the applied research and development level.

I'm wondering if you could comment on those two questions or problems, as you see them.

[Eli Fathi]

On the second point, applied research, clearly the colleges are dealing more with the applied research side of it, which is getting faster to a solution where you can get the monetization, commercialization, and make money on it. From that perspective, there are clearly two distinct areas: pure research at the universities, a little further down the road, versus the applied research at the colleges. So that should be promoted. I believe at this point in time a very disproportionate amount of money goes to the universities versus to the colleges in this area. We should look at whether we can divert some of it and give the colleges more money.

In terms of the other area, in terms of education, clearly we see other countries around the world, like Ireland and others, where the education is a lot cheaper, if not free. It clearly gets more people attending. Aside from the attendance at the post-secondary level, we have to consider the high school as well. Some 25% of Ontario students don't go--and I don't know the statistics in other places--but Dr. King identified that one in four students in Ontario did not graduate from high school. So if you can attract 5% more to just finish high school, we're going to address our problem.

In terms of human resources, it's a multi-faceted issue. It will have to be done by immigration, it will have to be done by the retraining of existing people into other areas, it will have to be done by getting high school dropouts to continue, and I think there are also a lot of expatriate Canadians who are studying abroad. There is a lot of difficulty.

I know that personally my daughter is studying in medical school in Ireland, and she has difficulty coming back to Canada, even though she trained at the U of T and so on, but we don't have the policies to allow them to come back easily into the Canadian environment.

So there are multiple ways that we can do that.

[Joanne Harack]

On the issue of financing basic research versus applied research, I don't think there is an easy answer. What I'm about to say is a very politically unpalatable thing to say, which is that yes, we need to do both. You can't stop funding basic research and expect to have an innovative culture. Having said that, too often I think we think that, well, we funded that basic research through universities and research institutes and hospitals, and that's it, that's all we need to do.

On the issue of clusters, for example, we know that one successful company in a biotech environment can create a whole industrial cluster. The importance of seeding that one company, wherever, just can't be overstated.

With respect to the human resources question, there is in biotech huge diversity across the country. In one region there may be tremendous genuine shortages. In another there may be tremendous imbalances, in fact. It's not unusual in the Toronto tech community, for instance, to advertise a basic entry- level position and have 400 applicants, while in other parts of the country that is not the case. This is something we need to address.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Ms. McDonough.

We'll go to Mr. McTeague, please.

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

Thank you, Chair.

Mr. Pilat, I wanted to keep you entertained here with the group. I didn't want us to think you're so far away that we couldn't have you at least engaged.

I'm looking at some of the figures from your 2006 OECD Main Science and Technology Indicators. They suggest that Canada's growth, as a reflection of gross expenditure on research and development, has increased, but we still lag well behind the OECD average.

I'm wondering if you have any opinion on research intensity goals? To use Yogi Berra's old expression, if you don't know where you're going, chances are you're going to wind up somewhere else. Do you think we ought to have established goals for where we go with research intensity, particularly as we try to build a stronger business case?

[Dirk Pilat]

The OECD has always been fairly critical of these goals, because we typically think that if you increase R and D intensity, it's the outcome of a process, basically. You're trying to increase innovation in your economy, and if you do that properly, use all the set instruments, hopefully you will increase research intensity. But if you set a goal and say you're going to reach this, often what happens is that people start thinking, well, how can we reach that goal? How many people do we need? What industries do we need to have increase R and D intensity? So I think it sometimes can have a strange impact on public policy and doesn't necessarily do the right things.

In Europe, at the moment, there is a big focus on research intensity in what's called the Lisbon Agenda. I think what we hear there is that what it has done is focus more of the attention on policy-makers and on innovation as an important policy goal. So that's the benefit it has had.

In terms of the goal as such, I think it is all about innovation, productivity, and economic growth. R and D is part of that, but it's just an input. It's one important element of it, but it's not the only thing you should focus on. I think it should be seen in context.

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

What are the risks attendant to government investment in research and development only to have new ideas and new innovations, if they're able to be marketable and commercialized, drawn away from Canada, where the investments were made and where the breakthrough took place, and winding up perhaps in Switzerland, Korea, or wherever the case may be? How real a problem is this for Canada, in your opinion?

[Dirk Pilat]

I think it's a problem for any country, but I think it partly is that you also have to look at what you're getting back. Of course, part of what is invented in Canada may flow outside. The real trick is trying to get things back to Canada as well. I think it's all about being connected, being part of the global innovation system that we see emerging.

A lot of what big companies are currently doing is that they have some of their R and D, some of their innovation, being done in the U.S. and Canada. Some is being done in Europe. Some is being done in China. They're really tapping into skills and knowledge in different places. The real trick is to try to be connected to that network and to build on your own strengths and on your own competencies. Of course, Canada has some real strengths, so to really build on those is, I think, the real issue.

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

Thank you, Mr. Pilat.

Ms. Harack and Cate--it's good to see you again--I want to ask your opinion on the role of venture capital in providing support for new budding enterprises that are making a pitch to make it happen here in Canada. Are there improvements that need to be made? It seems to me that access to funding, well before all these other considerations take place, has to be an important building block in terms of success.

[Cate McCready]

It's a tough climate for Canadians to constantly hear that our capital markets are as small as they are. Again, politically it's difficult for us to say we need those international dollars. Does that allow the technology to escape the country?

The VC marketplace is only one focused element where our companies are desperately trying to establish relationships. One of the things we've undertaken is to establish what we call a VC table between us and our American counterparts, so we can frame more integrated relationships with the American VC community. They certainly have deeper pockets, but they also have a deeper knowledge base when it comes to investing in our particular sector.

That table of basic introductions, in a fundamental way.... It's one of the first times we've seen that happen in our community, which is ironic, 25 years after the technology was started. Again, that's a long-term relationship-building exercise that will be intrinsic to one element of funding for the industry's life cycle of development.

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

It seems to me that we could be producing the next lines of whatever. The R and D is there. The education is there. A company comes out with something that is earth shattering, but it cannot manufacture the product in Canada without selling it, giving it away, or simply not proceeding with it. There are thousands of examples out there. I can give several of my own. I know colleagues on this committee have expressed this in the past.

I wonder if there are any new or current instruments that we should be contemplating.

I think that's all my time.

[The Chair, Conservative, James Rajotte]

Very briefly, Ms. McCready.

[Cate McCready]

To that point, Mr. McTeague, one of the things we've been pushing particularly strongly is modernizing the SR and ED tax credit process. That is an immediate opportunity with this current government. I think it would be a terrible loss if we let that 17-year-old tax credit program, which has done so well for this country, not get modernized and not be reflective of the 21st century dynamic of investment globally. Lifting the CCPC, which is so detrimental to many of our companies, and then lifting the limits from $2 million to $10 million would immediately signal to the world that Canada has an environment that is much more adaptable.