Industry Committee on Feb. 5th, 2008

[Dirk Pilat]

I have just one small point.

I think from some of the work we've done at the OECD, if you wait entirely until students are already in high school or university, you typically are too late. So if you really want to get people interested in science and technology, you typically have to start in primary schools and then also make sure they go into universities and high schools in the right areas. So it's really a long pipeline issue and starting early to try to get people interested in science and technology issues from a very early age.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Eyking.

We'll go now to Madame Brunelle.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Good day and thank you all for joining us. Your comments, however brief, proved very interesting indeed and have raised a number of questions.

Ms. Harack and Ms. McCready, we note that BIOTECanada spends close to $1.8 billion per year on R&D. I am wondering who funds your research efforts. My understanding was that many companies, particularly in Quebec, fund their own research in this field. In your opinion, shouldn't the government become a little more involved in R&D?

You talked about the need to create a socio-economic environment that sustains research. What exactly do you mean by that? Can you give me some examples? Exactly what kind of expectations do you have?

[Cate McCready]

First, let me address the issue of R&D funding.

Increasingly, I think, Canada has seen a core capacity built, thanks to public research investment in this country. It was well needed, and we need to continue to build it on an ongoing basis; we cannot rest on our laurels, but we need to continue to foster that.

What has happened from that investment, in our case, is that we now have well over 500 companies established in this country conducting research related to all fields in the biotechnology sector who, for the most part, are small entrepreneurial companies leveraging investment from international investors and small amounts of investment from within the Canadian capital community—although, as I mentioned, it's very small. We're now at a point in time where there are some serious opportunities and decisions ahead as to how we now galvanize our investment dynamic for research in this country to attract the best of what we can do internationally. We need international dollars, there are no two ways about that.

Quebec, particularly, has been one of the core regions in this country that have developed the sector incredibly successfully. Actually, I was with my colleague from BIOQuébec over the weekend. The dynamic there right now, like in the rest of the country, is again very uncertain because of the investment climate that's needed.

So from our position, we very much see our relationship as a partnership between public dollars and what they can leverage to the table in terms of private dollars.

[Joanne Harack]

To address one of your questions specifically, the research tends to be funded either by large pharmaceutical companies that are outsourcing drug development activity, for instance, by organizations such as the National Institutes of Health in the United States, or by private investors and occasionally, as Cate says, by venture capital funds from Canada or elsewhere.

[Cate McCready]

In terms of the context of the socio-economic environment, one of the things I find most fascinating about our industry is that Canadians, whom we poll on an annual basis to understand their attitudes and approaches to our technology and their understanding of it, are overwhelmingly embracing and engaging the technology. They have very high expectations that they will benefit from the technology in their lifetimes. So when we talk about a socio-economic fabric for the technology, we need regulatory processes that are modernized to allow the technology into the marketplace in a quicker way; and we need a social and an economic engagement from all of our public policy partners at the provincial and federal level, an engagement that understands the nature of innovation taking place and how quickly it's taking place, so we can find our way into the marketplace more easily.

Canadians, oddly enough, are leading the expectations about the technology a little bit more than maybe our public policy framework is.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

I have a question for the CATA Alliance.

Still on the same subject, I would like to bring up an earlier comment of yours that I found quite interesting, namely that we should follow the trends. You gave the example of the iPod. For the sake of innovation, should we not surround ourselves with capable forward-looking individuals who can identify new trends? You stated that we needed to promote innovative environments in order to take our place in the market. I would think that there is a connection here.

What exactly do you think we should be doing to anticipate new trends?

[Eli Fathi]

That's an excellent point.

I will throw out one other aspect, which is how do we look at the trend forward?

Barry mentioned Tata. Two weeks ago Tata launched a car called the Nano for $2,500. Projecting down the road, what will happen to the auto industry in North America? I don't have to say that it's going to change what we have. That is a trend that we have to look forward on. It's going to change everything we do in the automobile industry here, because it's going to come here.

So you are raising an excellent point. The trends are important because they tend to be global. We know of a couple of trends that have taken place--for example, the Internet and the disappearance of distance.

There are things we have to do; that's absolutely correct. We have to have think tanks that will look at these trends and create the policies ahead of what's going to happen or we will never catch up. We have to focus on industries that are going to provide us with this innovation, that will give us the areas that are important to us.

By the way, the expertise that we have is sought after. When Tata built the car, they used Canadians from Montreal to look at the engine. They don't have all the answers. We have a lot of the answers they are seeking. If we call the policies right by predicting trends and adopting policies correctly, we can become a big partner, because they cannot do it alone. They may have the market, they have the size, but we have the expertise, and we are still sought after by them.

[The Chair, Conservative, James Rajotte]

Thank you.

Merci, Madame Brunelle.

I'll go to Mr. Carrie, please.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair. I want to thank all the witnesses for being here today.

What is your position on the royal assent of the Canada-United States Tax Treaty that has just occurred? How is that going to affect your sector and your businesses? Could you give us a comment on that?

[Cate McCready]

I would be happy to.

It was an issue we had spent a lot of time working on over the last couple of years. It was a mechanism within our Canada tax treaty directly related to limited liability companies whose structures essentially faced a double taxation dynamic when the dollars came into Canada. It is a mechanism that's intensely used within the biotech sector to leverage investment. Canada was essentially penalizing successful companies for securing international investment into their companies by taxing them.

The royal assent of that change and those negotiations came to be, as you know, in December. We're now waiting for that bill to be passed in the U.S. Senate. I can tell you that already the messaging we have started to do as a nation, with both our colleagues within the international trade framework and within the venture capital and investment community.... We've spent the last two weekends with those folks from the U.S. marketplace. We're messaging strongly on that, and they're incredibly eager to see it change.

We're very optimistic that this signal out to the industry that Canada means business and is willing to adapt and change previous practices in a way that's more globally competitive for everybody is certainly gathering--for our industry, anyway, at this point--some good encouragement.

[Colin Carrie, Conservative, Oshawa, ON]

I have a question for the OECD.

We had Canada ranked 14th in innovation among 17 OECD nations. There are 30 OECD nations, are there not? How did we get to 14 out of 17? How did you come up with that? I'd like to see us get a higher mark.

[Dirk Pilat]

That's always a tricky issue. A lot of it depends on what exactly you're looking at when you're talking about innovation. Canada doesn't spend a lot on R and D, for instance, compared to quite a lot of other OECD countries, which partly has to do with the structure of your economy. You don't have a lot of high-tech industries. You're a fairly resource-intensive economy, which means you don't typically get to the level of a country like Finland, Sweden, Japan, or Korea. I think that explains it to some extent.

On the other hand, I think we're often ignoring some of the innovation that is going on in the services sector, or in some of your resource-based industries. A lot of that is not necessarily about spending a lot on R and D; it can be about using technologies in a very smart way. I think that is an aspect of innovation that is sometimes missing in some of these rankings.

I believe the ranking you referred to was by the Conference Board, but it probably has used some of our indicators, as far as I know.

[Colin Carrie, Conservative, Oshawa, ON]

How could Canada attract more private R and D money? What have you seen that has been successful with other countries?

[Dirk Pilat]

I think everybody is trying to be in that game at the moment. Currently countries that are really attracting a lot of R and D investments are the countries that have very large markets, a lot of high-skilled labour, and fairly low cost. A lot of the R and D investment at the moment internationally is going to countries like China and India, because this is where markets are.

However, I think there are things you can do. If you do have a lot of very skilled people, then of course that will be a factor that helps. If your overall environment for innovation is good, then people will be more attracted to come to Canada as well.

But this is a game that everybody is in, and a lot of countries in the OECD are losing out at the moment, with investments mainly flowing to some of the non-OECD countries.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much.

Mr. Gander, you've brought up an interesting point, and you called it the global gold mine. You talked about the gap between development and getting out to consumers--kind of that commercialization gap--and you mentioned that nobody is doing a good job. Well, it's quite topical. We talked about this a bit this morning. What else should government do to address this gap, and how can Canada be a leader in addressing that gap?

[Barry Gander]

I think it would be very helpful if a clearinghouse was set up, as some businesses like IBM and Oracle and so on are doing in the United States, to share best practices in how you innovate in the service sector. It's just not done here at all.

Schulich School of Business has a little bit of a trend going that way, but I think we should also--I think, Cate, you were referring to this earlier--take a look at our entire tax structure because it's built for a manufacturing or industrial economy. For example, the SR and ED tax credits--or research tax credits, as they're called--don't apply in the service sector. If a Google or a Facebook started here, they would get no tax credits for that kind of innovation, so we're not rewarding the kind of behaviour we need to be rewarding. We're rewarding behaviour for the 15% of the economy that's in manufacturing, but not the 75% that's now in services.

We also--and I think this addresses a point of financing as well--need to take our message around the world in a more imaginative way. Canada is arguably, per capita, the strongest technology country in the world, and very few people know that. The minister, when we met him last week, was very surprised to hear of the Canadian project to put a lander on the planet Mars. We'll be the third country in the world to be able to do that, and almost nobody knows about it because it's private sector driven: who cares? But we need to do that kind of thing.

For example, one of the things we did that brought some interest into Canada--because we're the Advanced Technology Alliance, we should do these things--we started a relay of a webinar that started in Toronto on health care, and we have Richard Alvarez as part of our six-person panel in Toronto. When that strength of Canada and strengths of Canada in health care section was finished, it opened up live for comment in Delhi, India, and then it went live to the Akakan hospital after that.

What we were doing was going around the Commonwealth, bringing up the strengths of the various Commonwealth countries that could partner with Canada, to make this kind of thing accessible to our friends in the United States, who are in a mess. They need our help, and Canada can be that gateway and that linkage, because nobody trades better with the United States than Canada. It could be ideal.

[The Chair, Conservative, James Rajotte]

Okay. Thank you.

Thank you very much, Mr. Carrie.

We'll go now to Ms. McDonough.

[Alexa McDonough, NDP, Halifax, NS]

Thank you very much, Mr. Chairman.

I'm pleased to be here substituting for my colleague Peggy Nash, who is dealing with a family health crisis at the moment.

Thank you to the witnesses. There are so many different areas of questioning one could pursue.

In a general way, it may be known to you that this committee has been looking at the impact of the high Canadian dollar on various sectors. I'm wondering if you could comment, perhaps the two representatives from BIOTECanada and CATA, on the impact on the service sector.

Secondly, I'm interested in pursuing the human resource side of the question a little bit. You have spoken about the overall shortages, the intense competition, and so on. Can you comment on whether there is a regional nature to that, how the problem is distributed across the country, and any recommendations that you might have?

Thirdly, there was a bit of discussion early on about the issue of attracting more women into these jobs. I'm struck by the fact that there are some very creative projects that have been started up from time to time to try to deal with this, but they always seem to be very limited in duration because they're on a shoestring in terms of the kind of funding, and it comes out of some innovative initiatives. But there doesn't seem to be any kind of durability to some of those projects. I'm wondering if you can comment on that from the point of view of any public policy recommendations that you might have.

Thank you.

[Eli Fathi]

I would say as an individual consumer that I applaud that, but as an exporter I would say that until our productivity is on a par with that of the U.S., the 22% gap in productivity is creating a mismatch in our ability to export competitively, and I think it's hurting many of the technology companies that are exporting.

In terms of the human resources question, we are seeing a trend whose impact we have not yet felt, which is that of the baby boomer. Not only will there be shortages that happen because of the baby boomers, but there will be shortages happening because of the way we behave.

I spoke to one of the presidents of the hospitals. They claim that for every two doctors who are going to leave, you need three to replace them—it's not only one to one anymore—because they don't want to work the 80 hours they used to do in the past.

So because of personal preferences, we're going to have a double whammy: we're going to have the need to basically replace the existing person who is retiring plus a little bit more, because they are not working as hard as other people used to do. And that is a preference that everyone across the country has.

Looking at the regional situation you talked about, we know there are many places out east, where you are from, whose people are shifting to where the jobs are, in Alberta. Whereas it is booming very much, we see areas where we have much more severe shortages occurring.

Finally, on the issue you raised involving the educational side and women in technology, I think the chairman identified that currently, unless you are trying to get them into sciences in grade four or five, which we really need to do, we have a problem. Females especially tend not to go into the sciences. Somehow by the age of 12 they tend to drop out of the sciences, which is a huge problem, because if you compare us with India, where a lot of the engineers are women, we are just unable to get them to go into the sciences in the numbers and percentages that other countries are doing.

[Cate McCready]

Your comment is well taken on the Canadian dollar. One of the pre-eminent sales messages we've had as an industry internationally is that the cost of doing business here has been incredibly efficient. We're now, as an industry, having a look at where in fact we will start to see the impact first. It's still a little nascent right now, because a lot of those relationships were long-term contracts. The question will be, very immediately, is it still cheap to do business with you folks up here?

We're not sure exactly where that's going to fall immediately. Certainly things such as clinical trial operations and that sort of thing would probably be impacted first.

There's no doubt there will be an impact. How deep it will be over the long term is still be to assessed.

[Alexa McDonough, NDP, Halifax, NS]

Do you have any public policy recommendations? I appreciate that it is early, but it seems clear that the impact is going to be felt. Is there a way to—

[Cate McCready]

Mitigate it? I think we have to look at other opportunities that make us attractive to do business with, aside from our know-how, which I think we've established very well internationally. The question really becomes one of the operating environment. Are we being as smart with our tax system as we possibly can to leverage and recognize foreign investment dollars to the best of our ability, so that companies can grow and stay here? There is no common sense in having a tax regime that allows dollars into the country for a certain amount of time but encourages jobs outside the country, which is currently what we have. How do we leverage the best of our system in a way that integrates both taxation policy and regulatory performance, such that the operating environment for new technologies is established as being one of the world's best rather than one that lags behind and copies trends down the road.

Again, that comment about getting ahead of trends, I think, is integral to our operating environment at the moment.

On the HR side--

[The Chair, Conservative, James Rajotte]

Be brief, please, Ms. McCready.

[Cate McCready]

Yes. The HR side is a challenge regardless of where we are. Technology and ideas move at the press of a button in this world at the moment. The question is what we are doing to inspire our next generation of workers to find a place and a niche for themselves in their regions, in an area where they see a relationship that they can build over the long term.

That's a seismic change for Canada. There's a concept that we move to where the jobs are. We now need to understand that jobs can be where we are, especially in our technology, and we need to build appropriately for that with our provincial and municipal governments.