TO HOUSE OF COMMONS STANDING COMMITTEE ON FINANCE
SEVENTH ANNUAL PRE-BUDGET 2001 CONSULTATION
Presented by the Partnership Group for Science and Engineering
August 10, 2001
The Partnership Group for Science and Engineering (PAGSE) is a cooperative
association of more than 20 national organizations in science and engineering
formed in June 1995, at the invitation of the Academy of Science of The
Royal Society of Canada, to foster common interests and address issues
concerning research and innovation for science and engineering in Canada.
Member organizations of PAGSE provide core support for its meetings and
activities. These include defining the economic benefits of research in
Canada and the effects of research budgets, analyzing intellectual property
issues and other potential impediments to improving academia-industry
symbiosis, examining the international dimensions of research projects
and associations, and informing the public about science and engineering
and their importance to Canada.
PAGSE represents an extensive resource that, through contracts, can hold
events and undertake studies and assessments of benefit to government
departments and agencies, to non-government organizations, and to the
general public. The Royal Society of Canada acts as the agent for PAGSE
for any contracts or agreements involving PAGSE projects. PAGSE has the
Committee to Advance Research, a university-industry committee, which
addresses issues of considerable importance such as the recently released
study "Setting Priorities for Research in Canada". In addition,
in partnership with NSERC, a monthly breakfast meeting is held on Parliament
Hill known as " Bacon and Eggheads", to inform parliamentarians
about recent advances in science and engineering. There are also presentations
on science and technology policy related issues co-hosted with Industry
Canada. Each fall a symposium is organized on science and engineering
issues -for 2001 the theme is " Research; Key to Canada's Well-Being"
a presentation on health research.
The Speech from the Throne included an ambitious plan to markedly increase
the commitments to research and innovation in Canada so to enhance the
quality of life of its citizens. We recommend that the government of Canada
consider the following four issues in addressing its plan.
1. SCIENCE AND TECHNOLOGY POLICY FORMULATION
In 2000 PAGSE submitted a brief to the House of Commons Finance Committee
a) A Parliamentary Standing Committee on Science and Innovation
This would serve the purpose of " alerting the House and the country
to new scientific and technological opportunities that have the potential
to create dramatic economic and societal change", a quote from the
history of the U.S. Congressional Committee on science.
b) A PMO Office of Science and Innovation
In the light of the practice existing in many other OECD countries, this
office would play a leadership role in advancing our knowledge-based economy.
A key element in its activities would be its interface with the House
of Commons Standing Committee on Science and Innovation.
c) The Canadian Academies
These bodies will harness, and complement the contributions of the existing
Canadian science organizations. The mission is twofold:
I. To provide a source for credible, independent expert assessments on
the sciences underlying pressure issues and matters of public interest;
II. To provide a strong voice for the sciences on Canada's behalf at
the national and international levels.
For 2001 we reinforce our recommendations and, as well, add a new one,
on establishment of a Ministry of Science and Innovation.
a) House of Commons Standing Committee on Science and Innovation
Recently, the House of Commons Standing Committee on Industry added Science
and Technology to its title. While a welcome development, we suggest separate
committees for industry and for science and innovation, as practiced in
the U.S., U.K., and Japan. Industry is concerned with basic research but
its main focus is developmental research leading to technology applied
to a specific product or family of products and the ensuing development,
manufacture, marketing and service of these products for shareholder return
on equity. Industry is also concerned with many non-science issues appropriate
for consideration by The Standing Committee on Industry.
The science and innovation community is represented more by the universities,
government labs and to some degree industrial research with a strong focus
on basic research or good science and engineering and the ensuing innovations
and spin-off to industrial products. By separating these functions there
will be a more concentrated effort in the respective committees and a
better understanding of the issues in each sphere.
b) PMO Office of Science and Innovation
The establishment of an Office of Science and Innovation in the PMO would
constitute a key government initiative to raise Canada from 15th to 5th
in global R&D spending. To accomplish this will require a strong impetus
directly from the PMO, and the supporting Office of Science and Innovation
would provide the specialized knowledge and background to pursue such
a comprehensive national goal. Canada will be competing with other leading
OECD countries (e.g. U.S., U.K.), which have had the advantage of such
a function for some time. It is noteworthy that Japan has recently consolidated
its functions in such an office and so has Australia.
c) Minister of Science and Innovation
(upgrading of the current position of Secretary of State for Science,
Research and Development)
PAGSE supports this initiative by the Secretary of State. Currently,
each government department and agency has the responsibility to plan,
manage and conduct whatever science activities pertain to the specific
mandate. Those responsibilities with respect to science will not change
with the creation of a Minister of Science and Innovation. The allocation
of the available funds, in an objective manner and on a national basis,
would be one of the key responsibilities of the Minister of Science and
Innovation. A Ministry of Science and Innovation would also allow a clear
division between policy making for industry with its short term perspective
on applied technology and development of products to be marketed for profit
vs. the much longer time frame for science policy and the funding of university
and government research.
d) The Canadian Academies
PAGSE understands that this initiative is likely moving forward to Cabinet
this fall with the strong support of the current Secretary of State for
Science, R&D. We enthusiastically endorse the plan put forth by the
The National Science Organization Working Group chaired by the Secretary
Implementation of this four-pronged strategy will empower Canada with
the best international practices in the governance of research and innovation.
2. GLOBALLY COMPETITIVE INDUSTRIAL RESEARCH
In light of the emerging enlargement of free trade blocs and the enhanced
importance of the knowledge-based sectors (Telecom, Aerospace, Computing,
Pharmaceuticals and Biotech) to the economic performance of countries,
Canada must insure its future industrial competitiveness in a global market.
A strong position today does not guarantee leadership tomorrow, as other
nations also recognize the importance of investment in industrial science
and technology to enhance the quality of life of their citizens.
Currently, Canada has four primary types of industrial production:
- high-tech extraction and processing
- environmental (Ballard Power Systems)
- small to medium enterprises
The first three are usually large companies with a substantial number
of Canadian owned organizations. Others are foreign owned, but doing significant
R&D in Canada. Because Canada is still a world-class producer of resource
products (forestry, mining, fishery, oil and gas, agriculture), we should
ensure that these industries are supported with technology development
and application to compete globally with lower labor cost foreign competitors.
In the knowledge-based sector the current industries are globally significant,
particularly telecom and aerospace, occupying positions between first
and fifth in the world. However, as the significance of high-tech in the
future global economy emerges new players such as Brazil, S. Korea and
Taiwan and the established OECD countries all support these industries
either with direct R&D subsidies/grants, tax deferrals & incentives
or special loan terms to buyers of their products. Canada, to its credit,
has a competitive level of tax credits program for industrial R&D.
In the sphere of R&D support Industry Canada's TPC program R&D
support levels are in the 30% range and are repayable over time as production
proceeds. This repayment applies to research as well as development. In
the U.S., through the Department of Defence, and in Europe and Japan,
through civilian agencies, support levels are much higher, in the 50 to
100% range i.e. mostly between 80 and 100% and are not repayable. This
allows global competitors to be significantly more aggressive in financing
their products, which can be critical when the company net worth is required
for a specific product line. With this type of competition Canada's knowledge-based
players may have difficulty in the future as the established foreign industries
and new entrants continue to have significant support/investment advantage.
In the knowledge-based arena emerging nations like India, with its developed
aerospace industry, are competing in the contract R&D field and offering
very attractive rates to OECD based industries. Already, General Electric,
one of the largest global aerospace companies, has established a major
aircraft engine R&D center in Bangalore, India. Others are following
and this will impact Canada's aerospace industry. Similar moves are happening
in other sectors. The net result could be a reduction in demand for knowledge-based
professionals in North America. This will rebound on the universities
in a reduced need for graduates and a corresponding shrinkage in the need
for academic researchers. We recommend a review of the R&D support
funding from TPC and other agencies for knowledge-based industries to
reach a level approaching the key global competitors of the order of 50
to 60 %.
The small and medium sized enterprises are often suppliers to the large
industries, both domestic and foreign. They usually develop foreign markets
as a result of their domestic customers. SMEs operate generally in a low
capital margin and cannot easily adapt to new manufacturing technology
or design requirements due to a lack of risk capital. In the past few
years the major industries have downloaded design and manufacturing improvement
investments on their suppliers and, particularly, the requirements for
full computer aided design and manufacturing to transfer such information
directly through computers. In many cases SMEs simply cannot make the
required investment and drop out of the circuit , thus diminishing their
business base and particularly weakening their international competitiveness.
In some cases major industries help their suppliers with investment and
computer systems. In general, SMEs need external financial support and
expertise to survive in the emerging global markets. Specialized support
from agencies like TPC will be a continuing need separate from the support
required by the knowledge-based sector and other large industries. This
is important for high skill professional employment as SMEs are one of
the fastest growing employers but not always sustainable.
In summary, there are three important issues regarding funding support
of Canadian industry:
- Insuring the high-tech advantage of Canada's resource industries
to offset the low labor cost emerging countries.
- Raising R&D support levels for the knowledge-based industries
to globally competitive levels of 50 to 60 % through such agencies as
- Providing funding and expertise to SMEs to allow them to make capital
improvements to compete globally and supply major industries in Canada.
3. INDIRECT COSTS OF RESEARCH FOR UNIVERSITIES
PAGSE highly recommends that the government of Canada provide federal
support to universities for the indirect costs of research. The international
norm for OECD governments to fund such costs is 50%. Since we are starting
from a base of 0%, and since there are pressing needs to support the granting
councils, we recommend an initial level of 25-30% for FY 2002, gradually
rising to 35 and 40% over the following two years.
PAGSE also recommends that the management of this fund along with additional
resources be assigned to the granting Councils. It is important to insure
that, in providing these funds for the indirect costs of research, the
current operating funds not be reduced accordingly as this will only exacerbate
the basic funding problem.
4. RESEARCH GRANTING COUNCILS
The research granting councils (NSERC, CIHR, SSHRC) are losing effectiveness
due to funding limitations, cash flow and the lack of a committed multi-year
funding profile. The limitation in funding arises from the universities'
need for new professors and for all to be active researchers resulting
in a 25% increase in first time grant applications in 2001 and an expectation
of a similar increase in 2002. This cannot continue to escalate and maintain
a balance between existing and new researchers. The other issue of a multi-year
funding commitment is important because university research projects take
a period of 2 to 5years. If the Councils have no multi-year profile, the
researcher has no guarantee of funding over the life of the project and
cannot make longer term plans for equipment availability or facility utilization
or even their own salaries.
Therefore, we strongly recommend that a significant part of the government's
announced plan to raise Canada from 15th to 5th place in global R&D
funding be applied to remedying the granting Councils' funding and supply
a multi-year commitment. Development and commercialization requires a
strong research base. The granting Councils are the centerpiece for funding
of the research base. Furthermore, the continued expansion of university
research is important to the global economic competitiveness of Canada
to supply future researchers, innovation and technological developments
to industry. It is now common in the high-tech industries to attract a
substantial number of advanced degree graduates to strengthen their advanced
research capabilities. Thus, the universities can only respond by increasing
their post-grad programs, leading to the foregoing increase in NSERC grants
and a need for increasing indirect cost support for new equipment.
As Minister Brian Tobin said to the Standing Committee on Industry, Science,
and Technology: "Our objective is to be one of the top five countries
for research and development performance by 2010. As its contribution,
the Government of Canada will at least double its investment in R&D
by that year. And we will invest an additional billion dollars a year
by the end of this mandate." The recommendations represent a substantial
portion of the actions required to accomplish this important national