STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, April 29, 1998

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[English]

The Chair (Ms. Susan Whelan (Essex, Lib.): I'm going to call to order our meeting today. We are going to continue, pursuant to Standing Order 108(2), our study on the document entitled Sustaining Canada as an Innovative Society: An Action Agenda.

We are very pleased to have with us today, informally, Sir Robert May, the chief scientific adviser for the U.K. government, and joining him at the table, the British High Commissioner, Anthony Goodenough.

Just to give you a brief background, Sir Robert May is currently, as I stated, the chief scientific adviser to the U.K. government and the head of the U.K. Office of Science and Technology. He holds this position on leave from his Royal Society research professorship in the department of zoology at Oxford University, Imperial College, London. Previously he was class of 1877 professor of zoology at Princeton University from 1973 to 1988, and professor of physics at the University of Sydney from 1969 to 1973.

He's trained as a theoretical physicist and applied mathematician and for the past 20 years or so has studied various aspects of the way populations and communities are structured and how they respond to change, both natural and human-created. He has a varied background and varied experience, and we're pleased to have him today in front of us.

Notable among his many prizes and medals, I'd like to mention the 1996 Crafoord Prize from the Royal Swedish Academy of Sciences. This award is intended to complement the Nobel prizes by cycling on a three-year basis among mathematics, earth and space sciences, and biosciences and ecology. Sir Robert May is cited for pioneering ecological research and theoretical analysis of the dynamics of populations, communities, and ecosystems.

We're very pleased to have you join us today, Sir Robert May, and I should let you know that we're also very pleased to have in our audience the Forum for Young Canadians, who are young Canadians from all across Canada who come to Ottawa to learn about government and how it operates. So now they get to meet people from the U.K. and from Canada at the same time.

So, Sir Robert May, would you like to begin with your opening statement?

Sir Robert May (Chief Scientific Adviser to the UK Government and Head of the UK Office of Science and Technology): Yes. I would first like to say thank you very much for inviting me here to have this informal discussion.

What I would like to do is briefly say a little bit about what my job is and a little bit about how I see going about discharging it.

My role as chief scientific adviser has three essential components.

Firstly, it is to look across all of government spending on research and development in science, medicine, and engineering, not owning any of the budgets but offering advice to government, particularly with reference to coordination and things I think could be done better or where there ought to be more or even less money spent.

Secondly, I have a particular responsibility for trying to make sure that the unusual and indeed disproportionate strength of British science remains so.

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Thirdly, most interesting and most difficult is to try to help us do a better job of translating that strength in creating new knowledge and trained people into business and industrial strength. I come from outside government, and in discharging that job, I see myself as having to walk a delicate path between being a well-behaved civil servant and being somebody who is and is seen to be offering independent advice. I have indeed slight worries about whether it is proper for a British civil servant to discuss these things with you in this formal context, but it is exactly the kind of interesting collaboration and interesting risk that I am happy to take.

Let me say briefly a few words about some of the things the United Kingdom is doing with respect to cashing in on the innovative abilities of our scientists, engineers, and medical researchers.

Many countries—Germany, Japan, Australia—have had exercises in foresight of trying to think about what are the important and interesting developments that lie in the future. We also in Britain have a foresight exercise that is defined very broadly, going right across all areas of industry and business, from the conventional sorts of things such as energy, materials, health, and life sciences, through aerospace and defence, through to food and drink, retailing, transport, finance.

The aim of this is to bring together people from academia, people from government, and people from business and industry to try to form better connections among them, better awareness of each other's strengths, better awareness of the opportunities for exciting fundamental research that are generated by practical problems, and better awareness on the part of business and industry of the sources of inspiration for new ideas or the capacity for problem-solving that lies in the universities.

I'm trying to form those connections through the foresight exercise by getting people together to think about likely future developments, recognizing that they won't of course really anticipate the future, but that they will, in sharing thoughts about the future, form new connections. We have a variety of detailed mechanisms for creating new sources of partnership funding, with matching funds from industry and from government, to try to then carry forward some of the interesting new partnerships that have come out of that.

As another example, in the recent interim budget, the chancellor has created, at the level of about £50 million, a new university challenge fund, which is particularly targeted for venture capital of relatively small amounts. It's a £50 million fund—again, a partnership between government, industry, and the university sector—for venture capital proposals worth less than £1 million. Due diligence and care and responsibility of funds in the city mean that in Britain we have difficulty with venture capital projects of less than about £1 million, and this new project is, again, a deliberate design to try to cater for starting up on a small scale adventurous things.

Let me just say one other word or two about the government's use of scientific advice, which is also one of my responsibilities.

As chief scientist, I report to the Prime Minister and the cabinet. The office of the chief scientist exists to be there as a resource to offer advice on problems large and small. It may be coordinating difficult advice, because we can only offer it in terms of risk and probability, to the remaining inhabitants of Montserrat. It may be about such mundane things as the policy on vitamin B-6. It may be reassuring cabinet that the various agencies of government are indeed doing an excellent job in thinking about questions like the release of genetically modified organisms.

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On the other hand, my role is also not just to be reactive but to be proactive in thinking about questions where science advice is an essential ingredient of policy formation, though it may not be immediately obvious.

We have adopted in Great Britain a new set of guidelines as protocols for science advice in policy-making, and there are committees of chief scientists or their equivalents in all government departments, which meet regularly under my chairmanship to make sure that we try our best to coordinate things across departments.

The last preliminary remark I would offer is that I also have responsibility for international scientific things—not large enterprises like CERN that have a focus, but more general policy things, trying to draw together the different agencies of British government that fund post-doctoral or other exchanges, and get a shared sense of how the British Council, the Foreign Office, the Royal Society, the research councils, and the Department for International Development differently do things, and a better coordinated picture of it.

There is the negotiation of the European Union's Fifth Framework program for European research, which is now 7% of total R and D funding in the United Kingdom—a little more than 15% of government funding on R and D. The task of coordinating the planning for the Fifth Framework under the British presidency of the European Union is something that falls to the Office of Science and Technology.

I think that's enough by way of a preliminary talk. I would be very happy to share any thoughts or discuss anything else you would like to.

The Chair: Thank you very much for your opening comments, Sir Robert May. I should remind the committee members that you are a guest. Sometimes when we ask questions we have a tendency to be a little pointed, and it would be nice if we had an open discussion today that was a friendly discussion. We do have the Forum for Young Canadians here as well, so we want to ensure that we leave a good impression.

Sir Robert May is only with us until just shortly before 4.30 p.m. He has a plane to catch. Bearing that in mind, we'll begin with Mr. Schmidt.

Mr. Werner Schmidt (Kelowna, Ref.): Thank you very much, Madam Chair, and welcome to you, Sir Robert May, and also to the high commissioner. Thank you very much for being here. It's great to have you here, and to garner some of the wisdom that you obviously display.

I have a very practical question for you. You say one of your major functions is to coordinate. With all the paraphernalia that goes with coordination, we have here in Canada some 16 government departments that are very much involved in development in scientific research, technology, and so on. We don't have a chief science adviser.

I'm just wondering, in your operation as the chief science adviser, whether you ever find that it is difficult to coordinate these various science endeavours so that they actually focus on what Britain wishes to do, rather than what, say, the defence department wants to do vis-à-vis the agriculture department, or the fisheries and oceans department, to use just three examples.

Sir Robert May: The answer to that is yes and no. If I could take as an example climate change, the recent report and the thing about which I spoke yesterday evening, where the note I published was based upon discussions I had had with the Prime Minister and the cabinet about what the background facts were and what were my recommendations personally as chief scientist were about the implications that had for policy-making, my own advice was based on my consulting with the Department of the Environment, Transport and the Regions, which is the lead department in Britain in that, but also with the Department of Trade and Industry, which includes energy and also is importantly involved, and my consultation with the various arms of the scientific community, the Natural Environment Research Council, the MET office, and various such things. I tried very quickly to pull all that together, and it would, in my mind, be an example of a story where, for all the particular and sometimes shaded differences among the departments, there was a very good pulling together.

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I would say the majority of examples I have had of trying to do this coordinating job, even in cases where the departments involved come from a different direction, and indeed have a different view, has not been a process fraught with undue friction as one tried to come to some consensus. But equally, I could and shall not give you examples where the path has not been easy. I have chosen examples where I think policy science advice in the making of policy in Britain is in some ways—I would say in climate change—exemplary, but you can think for yourself of other examples where our handling of affairs has been less than exemplary.

Mr. Werner Schmidt: Thank you very much, sir.

I think the other question that follows from this has to do with the evaluation of science itself. As you know, when government determines policy, some of which requires a scientific input...and your example of the environmental study is a particularly good one, especially with regard to Kyoto and other places, and we know that in certain areas scientists do not agree. Sometimes they're very legitimate disagreements and in other cases it's just plain bad science versus good science.

In your role as chief science adviser, how do you determine which is good science and which is bad science; and how do you persuade your Prime Minister and the cabinet to listen to good science as compared to bad science?

Sir Robert May: It's a very penetrating question, and in every country today, in a world that increasingly faces problems that are the unintended consequence of good actions based on our greater understanding of the world, I think it's a question that faces all of us, not just government but the populace in general. Too many of us come away from school or even university with the vision that science is something that gives precise answers that cut across controversy. That is easier to teach and to set little exam questions on things to which there is an answer.

The interesting questions of policy-making and, indeed, life that involve scientific questions more commonly than not involve problems where we do not have full understanding. More commonly than not, they involve problems where at best the things we can say are like the weather report, which is given in terms of probabilities.

I will answer your question in a more philosophical way by saying I think one of the very important parts of my job is to bring a wider understanding in Whitehall and, more generally, in the community that the role of science is often to recognize that it is primarily a tool for sharpening questions and suggesting ways in which we can narrow our domains of ignorance, but that it rarely will resolve political discussion by telling you there's one answer.

Let me give you examples. I referred to the volcano on Montserrat, which poses many different kinds of risks, not just lava flows obliterating you but crystallite particles, which are rather like asbestos. There are different kinds of risk, different kinds of places in the island. We don't have such a good understanding of volcanoes or earthquakes that we can tell you exactly what's going to happen. Predictions are based in a sense on a natural history of similar volcanoes.

The advice that is given to the populace has to be in terms of probabilities in different parts of the island. That's an example of many other kinds of advice the government must give to its citizens. I enjoy the challenge of trying to do that and I have enjoyed the challenge of trying to draft the broadsheet given in Montserrat in probabilistic terms that are accessible to lay people, whose common sense is often underestimated.

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There will be other examples, as in climate change, where there are not two opinions; there is in fact a distribution of opinions. Over time, that distribution of different opinions, rarely just two opinions as if it were a sporting contest, is narrowing. And the conclusion from the Intergovernmental Panel on Climate Change that said the balance of evidence is now such that it seems overwhelmingly likely that the change we have recently seen in climate is indeed caused by our activities, is the result of a process that has engaged some 3,000 experts from many different countries, who do not all agree but whose area of disagreement is narrowing and is an interesting process that itself, I think, points the way to many similar but different processes in the future where we bring together on an international—not just a national—basis all the experts, recognizing that different ideas will contend and try nonetheless to sift out of that what the balance of likelihood is.

Mr. Werner Schmidt: What proportion of your national budget is devoted to research and development?

Sir Robert May: The fraction of the U.K. gross domestic product that is devoted to research and development, public and private, is just around 2%, 2.05% last year. Of that, about 60% is private, from industry, and about 40% is from government.

If you'd asked me that 15 years ago, we would have been essentially equal firsts, along with the United States and Germany, among all countries in the world for that figure. The United Kingdom's figure has fallen over the last 15 years so that we have seen Japan go past us, and Switzerland and Sweden. But we're still comparatively high. But I believe, and my consistent advice is—not simply because as a scientist I want more, but because in comparison with the people we would compare ourselves with we have lost ground—that decline has been a decline in public spending not offset by an increase in private spending. So industrial R and D has increased as a percentage of GDP over that time, but public spending has decreased as a percentage of GDP.

Within the public spending, defence spending has gone down markedly as we realize the peace dividend. So those countries that were heavy spenders in R and D for defence, the United States and the United Kingdom, have seen more of a decline in public spending than have countries that were not so heavy.

The U.K. spending on basic science through the research councils and the higher education funding councils has seen a modest increase, but it has been overwhelmed by the decrease in defence spending and a decrease in public spending in other government departments—health, food and fisheries, and so on—which itself is primarily a decrease in the breeder-reactor spending. It's a complicated picture.

Mr. Werner Schmidt: Thank you, Madam Chair.

The Chair: Mr. Shepherd.

Mr. Alex Shepherd (Durham, Lib.): It was a very fascinating presentation. It's a little break from what we're used to doing here.

I'm very interested in how one rationalizes your research and development expenditure, in the sense that you want to create a system of competing forces to evolve new technologies, for instance, but at the same time you don't want to be reinventing the wheel all the time. There's a general perception that the Japanese have been very good at this. That may be wrong, but they have been able to pick various industries and so forth where they're going to concentrate and they're going to eliminate the possibility of duplication and overlap and get the maximum bang for their bucks in their science portfolio. Do you attempt to do some of that in the United Kingdom?

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Sir Robert May: Yes, indeed. Let me first, by way of an initial digression, say I have just spent three days in Japan.

The Chair: We apologize, Sir Robert. There's a quorum call. Once the bells stop, the member's will come back.

Sir Robert May: I could conjecture this was about to happen, but feared alternatively it may be a fire alarm of a particularly subtle and delicate kind.

It is very interesting to discuss these questions with people in Japan. I think, like all generalizations, the generalization that countries like Britain are good at creating new knowledge and countries like Japan are good at exploiting them has a grain of essential truth, which, the moment you look at it closely, dissolves into a much more confused and complex picture.

It is really a most engaging experience to spend a few days in Japan, where there is much worry in their economic circumstance of how they can learn from us how to do a better job of capturing the fruits of basic research. It's very ironic, and I kept wishing I could take a representative collection of people back to introduce them to some of the people I discuss these questions with.

Do we worry, however, about managing things more efficiently? Yes, we do.

One interesting measure of how efficiently one does manage is the science base. Let me focus for a moment and then widen the answer on basic science creating new knowledge and accessing other people's new knowledge and creating a cadre of trained people.

How do I measure the efficiency of our or other countries' efforts in this? Well, I have actually done this over the past year, not by asking people or collections of their friends whom they think is best, but by counting the output of the science base as measured by published, refereed scientific papers in the huge database created by the Institute for Scientific Information in Philadelphia—some 10 million papers, and some 100 million references to them. There are many flaws and biases, but nonetheless that's a measure of output—published, refereed science. That is then divided by the input, an estimate of the money spent on basic science, both by government and by charities and by industry—my estimate of that, not a conventional OECD statistic.

An interesting result emerges. If I count papers published in 1993, for example, divided by spending on the science base in 1990, a few years earlier, I get an interesting lead table that is led broadly by the Anglo and the Scandinavian countries—by the countries who tend to do the science in non-hierarchical ways that allow young people to express their creativity.

The number one country, I have to tell you, is the United Kingdom, partly because our output is strong, and partly because we spend less on the science base in relation to size than most of the other major countries.

Also very high on that lead table are the United States, Switzerland, Sweden and Canada. The ratio of output to input of those countries is more than twice that of France, Germany or Japan.

Many of my academic colleagues suggested this was a dangerous enterprise. They said, may not the treasury say that if you're doing such a good job you don't need more money? The answer is, not at all.

Here is a demonstration that the, to my mind, not enough money we spend—because we do spend per capita less than our competitors; on a per capita basis we spend less than Canada on the science base in the U.K.—is spent, however, with maximum efficiency. There is demonstrably no country that does a better job than the United Kingdom of avoiding waste in expenditure, which is not to say that I do not believe we should spend more. I believe we should spend marginally more. There is no economic theorem that says how much you should spend, but I would think the valid comparison is to spend broadly the same amount that our competition is in relation to size and GDP, our competition being the other major countries and the other major scientific players.

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All the time we're doing that, we should be asking how to cut administration so that we maximize expenditure on doing the science and how to avoid wasteful overlap while not being too rigid and not allowing a certain amount of noise in a system which is necessarily imprecise as it funds the unknown.

Now I've focused my answer on that very important question on the science base. I earlier sketched an example of the kinds of initiatives we're taking to try to help us do a better job of encouraging collaborative enterprises between the science base and industry.

We have spent money, for example, on a foresight challenge program that gives matching money, government money and industry money, small amounts of money—£30 million two years ago—for projects that draw industry and academia together in novel associations to think about, for example, bringing Ministry of Defence approaches to risk management into Lloyd's in the insurance industry. We have several other initiatives there with respect to trying to bring new methods of risk analysis into the city. That was matched not 1:1 by private sources, but 2:1. That was matched by £62 million of private money.

We can still do a better job, and I think we still have a lot to learn from the more adventurous modes of North America in doing that. The venture capital fund I mentioned is an attempt to do that. Broadly, I think, the record of the Bank of England study indeed recently shows that for adventurous capital we do better than the rest of Europe, but not as well as North America. That is one of the things I'm working on.

Because I can give you a harder and clearer answer about the science base, I spoke longer about that.

The Chair: Thank you, Mr. Shepherd.

Madame Lalonde.

[Translation]

Ms. Francine Lalonde (Mercier, BQ): Sir Robert, I would have a number of questions, but we don't have much time.

I wonder what is the prime objective of your work. You are looking for efficiency. That's all very well if efficiency is defined as the right thing to look for. It has to be, either in terms of jobs or to ensure that Great Britain is indeed in the position it strives to be in, compared to other countries, a competition Paul Krugman, whom you know, I am sure, questions. What is your objective?

[English]

Sir Robert May: You have presented me with a wonderful challenge, because I did not succeed in finding the translation button.

Some hon. members: Oh, oh.

Sir Robert May: I'm going to try to answer the question and we will have a wonderful existential experiment in how good my schoolboy French is.

I confess with embarrassment that I am a monoglot, a typical, shameful—

Ms. Francine Lalonde: British.

Some hon. members: Oh, oh.

Sir Robert May: —Anglo. I don't even speak English. I speak Australian.

Some hon. members: Oh, oh.

Sir Robert May: I think you asked me what ultimately is the point of my work—

Ms. Francine Lalonde: Yes.

Sir Robert May: —beyond trying to see Britain high at the lead table. Is that the sense of the question?

The Chair: Yes, that's pretty good. The efficiency that you're striving for....

Sir Robert May: I see my job.... And I may be answering the wrong question, but I will give you an interesting answer nonetheless and then we can solve the problem and answer the real question.

[Translation]

Ms. Francine Lalonde: It's the second one.

[English]

Sir Robert May: In the grandest and most ambitious sense, I see my job as being the voice at the centre of government which recognizes that in many unintended ways our increasing ability to understand and interfere with the physical world around us and ultimately to understand and begin to interfere with ourselves is going to raise questions, ethical questions and practical questions, that need to be addressed not by individual countries but by the world at large.

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The reason I am here, the reason I travel more than my predecessors and more than my analogues in other countries, is that I see that as a hugely important part of my job.

I referred to the Intergovernmental Panel on Climate Change to begin with partly because I think it is a very interesting model, whether one agrees or disagrees with its findings, in providing a forum to address a question that is global, not national, through a convocation of scientists that is global, not national.

I see many of the questions that our increasing understanding of the machinery of life is going to give us, whether they are ethical questions about cloning or whether they are safety questions and ethical questions about xenotransplantation, about putting bits of other animals in us, which has both an ethical dimension and a practical dimension with its potential to create new plagues by creating new viruses, as things that should not be addressed by one country when the implications are global.

I see that as a central and exciting part of my job—even if it wasn't the answer to your question.

Some hon. members: Oh, oh.

Ms. Francine Lalonde: Did you find the place?

Sir Robert May: I have. That's where I thought I was before.

[Translation]

Ms. Francine Lalonde: Thank you.

My question was formulated so as to give you a lead which obviously wasn't the right one. I was asking whether the objective of your work was, for instance, to create jobs or to improve productivity.

No, no, I understood perfectly what you said, because at the country level too, it's important. However, I am going to add other questions a little more specific. Have you been in your position long? Were you appointed by the social-democrats? Is social research, research in the area of social sciences, encouraged?

We had here granting organizations specializing in social sciences research and they insisted on the importance of the issues raised by changes which are taking place today in Canadian society, and, to a large extent in Quebec society, where I come from. Indeed, those changes have a profound impact on some fundamental elements of society, the family, for instance. They also erase, so to speak, monolithism in some areas, by creating a kind of companionship with other cultures, people of different origins and so on.

These are a few questions the general thrust of which you understand, I am sure. In any case, I'll be interested by your answers.

[English]

Sir Robert May: First, I apologize profoundly, with real embarrassment, for my misinterpretation of “travail”.

Yes, I do see the creation of jobs at the heart of much of what I do and, I must say, not just the creation of jobs for researchers in science, medicine and engineering, but the translation of that new knowledge into high-quality jobs in Britain. And I see that the motivating force for wanting to do a better job of capturing the fruits of the new knowledge and the trained people we create is indeed to create a Britain where the life of the people in it is better, both by virtue of the quality of the life itself having improved and the jobs we create going hand in hand with that.

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The mantra, motto, or slogan under which the foresight program has been launched is sustainable wealth creation and quality of life. Sometimes people see wealth creation and quality of life in opposition, but I see them as seamlessly related. You can't have quality of life without wealth creation, but there's no point creating wealth if it diminishes the quality of life. They have to be seamless.

Then you asked some detailed questions about, for example, the nature of my appointment. It's an apolitical civil service appointment. I'm seconded from academia for five years. I'm in the middle of that five-year term, so I had almost two years under the previous government.

The transition for me has been rather smooth because with many of the things I'm concerned with, such as the environment and scientific issues, the governments have had very similar views. The Blair government, for example, frankly acknowledges the good work done in starting the foresight program and in many environmental things. So it has been easier than it might have been in a country where the parties differed more on these questions.

I think it is important that my appointment is not political. It is indeed an appointment at the highest level. I'm a permanent secretary, which is what I think would be called here a deputy minister. I'm a member of the group of permanent secretaries who weekly meet to share experiences. I sit with many ministerial committees. I sit with the cabinet committee on economic affairs, and at budget time I meet with the cabinet committee on the budget to offer an opinion of cross-cutting R and D issues.

Do I think the social sciences are important? Our structure of the research councils is interesting. There are research councils for several areas: medicine, engineering and physics, the natural environment, biology and biotechnology, and economic and social issues. There's also a research council that deals with big things such as particle physics and astronomy. Those are the research councils.

I have frequently said—this is a personal statement now—that the Economic and Social Research Council is the most important of those research councils. To go back to the more philosophical answer I incorrectly gave to your question, I think the most important problem in Britain and other countries is dealing with the unimaginable wealth of new knowledge and understanding, and the power that gives us to change the world—this is intended for good, but sometimes in more complicated ways, this has unforeseen adverse consequences—and how you marry that with our human institutions.

Still, I sometimes personally feel we're showing much more clearly our evolutionary past that has shaped human behaviour and social organizations, which are not much more sophisticated than that of any of the other primates. I think it is the Economic and Social Research Council that has to deal with those problems that are hugely important. Sometimes, having so pleased the people by saying that, I end by saying that these are problems too important to be left to the community, as currently constituted, of social scientists.

On the other hand, we do not have a humanities research council. The recent inquiry into higher education in Britain, the Dearing inquiry, has recommended that we create such a research council. I, again personally, am enthusiastically in support of that. There are, however, interesting technical questions about how it should best be placed.

I have one last comment. The irrelevant remarks I made about my feelings about bioethics and so on will, I hope, speak to you of the sincerity of my belief that all these things are ultimately important.

I have just reconstituted our Council of Science and Technology, which has its analogue here as an independent group that offers advice to the Prime Minister. In reconstituting the Council of Science and Technology...it has about twelve people; two of its people are not scientists, they are distinguished humanists, and I think it is important that the Council of Science and Technology have, in offering such advice for science and technology, that broad a perspective.

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Important among the guidelines I have offered for science advice and policy-making is that for important issues we promptly seek the best advice, not just from experts in the field, to make sure that we have an appropriately broad canvas, and that we make the data freely available to everyone, recognizing the messy discussion that will then take place in the marketplace of ideas. But I believe that is the way science operates best, and I believe it is the way to convince a public that is wiser than we often think, that we are indeed going about things in the right way.

The Chair: Thank you, Madame Lalonde.

Mr. Murray, you have a question.

Mr. Ian Murray (Lanark—Carleton, Lib.): Thanks, Madam Chair.

Sir Robert, you referred earlier to Britain's gross expenditure on research and development as a percentage of GNP as it compares with other countries. In Canada, this has been an ongoing debate for many years. We haven't come close to the 2% or 2.4%, to the same mark as other countries.

If I've understood you correctly, there has been a shift towards more industrial R and D in Britain and less government R and D. If that's the case, has there been a concurrent decline in basic research in Britain, and if there has been, does that trouble you at all?

Sir Robert May: No, I was not clear in answering that question earlier.

As a fraction of GDP over the last 15 years, R and D expenditure in Britain has fallen overall from about 2.3% to around 2%. As I said, that has been made up of a slight increase, as a percentage of GDP, in private spending, which is now 60% of the total, and an overcompensating decrease in public expenditure. But the public expenditure on basic science has in fact increased. So the overall decline in public expenditure is primarily a decrease in defence R and D spending. That, in common with the United States, is a realization of the peace dividend and is part of the marked decrease in overall ministry of defence spending.

Ministry of Defence budget over the last 10 years has decreased 26% in real terms. It is also—and now I'm getting very technical—because the move to spin off things into the private sector has meant that as much money is probably being spent in the R and D that underpins military industry, but it is now being treated not as Ministry of Defence R and D but as part of the purchasing costs and thus has become R and D in the private sector. So some of that apparent increase in the private sector and decrease in the public sector is in fact a bookkeeping change in the way we do things.

Nonetheless, overall it's still accurate to say, as a percentage of GDP, R and D expenditure in Britain has slightly fallen—slightly increased in the private sector and more than slightly fallen in the public sector. The fall is mainly decline in defence R and D, representing the peace dividend.

Mr. Ian Murray: If we set aside the national defence expenditures, would it be fair to say that there has been an increased focus on technology transfer from government labs to industry? Has that been the experience in Britain?

Sir Robert May: Yes, both in defence and elsewhere there has been a deliberate attempt, and indeed we have a rolling program of looking at all government research laboratories, both research council laboratories, like the Grassland Research Institute, and the Royal Greenwich Observatory, one noted case—the Royal Greenwich Observatory no longer being an observatory as such but being a joint enterprise between Cambridge and Edinburgh that built equipment for telescopes—and also other department research laboratories, like the fisheries laboratories run by the Ministry of Agriculture, Food and Fisheries, and the fisheries laboratories run by the Scottish office.

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Looking at them one by one, we ask, do we still need to do this, and if we do, should it still be owned in the public sector or should it be in the private sector? If it should be in the public sector, should it be run as government-owned but contractor-operated, or should it be government run but perhaps as a company limited by guarantee? We have seen a great deal of rationalization and spinning out into the public sector as a result of that.

It's a complicated process, but if you have to give it an oversimplified one-line summary, it would be the feeling that technology transfer is best effected by letting the market make some of the decisions, recognizing there are some things that really have to remain in the public sector, and I think we've done that fairly well.

My office, the Office of Science and Technology, is responsible for conducting this review process.

Mr. Ian Murray: Thank you, Sir Robert.

The Chair: Thank you very much, Mr. Murray.

Sir Robert, we've really appreciated your being here this afternoon with us. I know the commissioner's been very quiet. I don't know if he has anything to add to this.

I know tonight the Forum for Young Canadians is having a dinner with MPs from various areas in order to meet their MPs, and I understand there's a student from my riding, Christine Myers from L'Essor Secondaire, so we'll be able to quiz each other on what she's learned or what I've learned. I'm sure other members can do the same.

I wonder if you would like to leave us with just one final thought before you rush off to catch your plane.

Sir Robert May: Well, it's unlike me to decline an opportunity to talk further, but the one final thought I would leave you with is that I greatly welcomed the chance over the last two days to share in such a varied way with so many of the people, both in government in the civil service and in science, our similarities and differences in approaches to things.

I have had the personal experience of having Canadian post-docs and Canadian graduate students, and indeed now a fellow faculty member in the zoology department of Oxford who is Canadian, benefiting from exchanges with younger people. I think nothing is more important, ultimately, to binding our countries with our shared past together, as a step toward binding the world together, than scientific exchanges, particularly of younger people.

If I have one thought to leave—as you can see, I have accepted your invitation de facto—it would be to welcome the openness of the exchanges we've had and the enthusiasm for continuing to share experiences and people, and to embrace the risk Britain takes by sending its better young people here for a few years, and for you to take similar risks of sending your better young people to Britain for a few years. Those are risks that ultimately redound to our collective benefit.

The Chair: Thank you.

Sir Anthony Goodenough (British High Commissioner, Ottawa): Thank you very much indeed for giving me the opportunity just to say one word. I would like to thank you for welcoming me as high commissioner to your deliberations today.

I was faced with a difficult decision today because I had a choice between accompanying Sir Robert here in Ottawa on his round of calls, and going to Sudbury to take part in the inauguration of the neutrino observatory, which Stephen Hawking is also taking part in. But I decided I ought to be here with Sir Robert; it gave him the opportunity to attend this afternoon's deliberations.

But I do think we ought to just pause for a moment and note that it is a very important event taking place in Sudbury today, and Britain is very proud to be a junior partner—very much a junior partner—in that tremendous venture in Sudbury.

Thank you very much.

The Chair: Thank you very much for reminding us of that. I don't know how many watched the news last night, but if we could have had the industry committee meet there, we all could have attended that event as well.

Thank you again for joining us and for coming. We wish you well on your journey, Sir Robert May.

I'm going to suspend this sitting for about three minutes to change witnesses.

• 1624

• 1628

The Chair: We're going to resume the meeting.

Pursuant to Standing Order 108(2), a study on information technology preparedness for the year 2000, we now have before us Catherine Swift, the president of the Canadian Federation of Independent Business, to continue with our study for the year 2000.

We welcome you, Catherine, and look forward to your presentation. I'll turn the chair over to you for a few opening remarks before we turn it to questions.

Ms. Catherine Swift (President, Canadian Federation of Independent Business): Thank you very much, and thank you for the opportunity to appear here today.

I've handed out just a very brief summary. We actually released these data, as you can see, about 10 days ago or so on a survey we did among our small and medium-sized business membership on the year 2000 preparedness issue. As you probably know, I was also the small business representative on Industry Canada's task force on the Y2K issue, so I participated in that exercise as well.

There was an earlier Statistics Canada survey done in October of last year that you have probably been made aware of already by Industry Canada people and what not. I might just note that Statistics Canada survey only surveyed firms with six employees and up. Given that right now about 70% of businesses in the Canadian economy have five employees or less, it obviously missed a big chunk of the business community. But it had its reasons for doing that.

One thing our survey did—granted it was several months later as well—was cover all sizes of businesses. We modelled our survey on the Statistics Canada survey, so we asked similar questions and therefore could get some comparability of results. However, because a very large proportion of our members are five employees and fewer, we also included that smaller-firms component, which was absent from the Stats Can survey.

• 1630

To summarize, we actually got results that were reasonably similar to the Stats Can survey, in aggregate—for example, the awareness level being quite high that there was some issue hanging out there about the year 2000. People might not necessarily have known about it in detail, but they certainly were aware there was some issue.

The Stats Can survey got an awareness level of about 91%. We got one of almost 97% in our survey. I think the fact that the surveys were done about five to six months apart probably played a role in that. There's definitely been increasing awareness, over the last six to eight months, of this issue among the business community. I believe that showed up in our results.

By the way, just under 10,000 businesses were surveyed. That's a pretty good sample size, which suggests results that are statistically sound.

We also found—and I was quite heartened by this, because I actually didn't know what to expect of the very small firms, notably—that quite a significant proportion of the businesses, over half, were taking steps to ensure that their technology and their business would be functional in 2000.

We also saw—and again, I thought this was a relatively high proportion, although I don't know what my expectations were—formal plans undertaken by quite a significant number of businesses. For example, even in the category of zero to four employees, the very smallest category, about 20% actually had a formal structured plan. That is much higher than in the Stats Can survey.

Among the larger small firms, if you will, those with 50 employees or up, those numbers increased to about one-third to 40% with some type of formalized, structured plan.

In summary, we've done quite a bit of work as an organization alerting small business, hoping to point them in the right direction and encouraging them to seek out the resources they need to get themselves into the Y2K-compliant situation.

Although these survey results suggest that there certainly is a good chunk of small and medium-sized firms out there doing something about it, I still don't think we can by any stretch be complacent. There's clearly a problem.

You've probably seen in today's Globe and Mail that the Toronto Stock Exchange encountered major challenges that they didn't foresee.

I think the conclusion we reached from this survey is that there's still an awful lot more work to do. It's very much an education job as well as simply an awareness situation. We do have a high proportion of businesses aware of it, but still, I guess, they don't have a sufficient sense of urgency to think that they really need to do anything about it.

The major thing that our members told us they needed to help them was further information. That's something that I think we're certainly trying to provide as an organization. I know various government agencies are already trying to provide it.

So I don't view this situation as unmanageable, but there certainly is an urgency that continues to have to be reinforced among the entire business community, let alone simply the small business community.

I'll stop there with that brief overview. I'd be happy to try to answer any questions you have.

The Chair: Thank you very much, Ms. Swift.

Mr. Schmidt.

Mr. Werner Schmidt: Thank you, Madam Chair.

Welcome to our committee this afternoon. I want to particularly commend you for having done the kind of survey you have. I think it's nice to have the hard data to be able to recognize what's going on out there.

The question I have—and perhaps your study covered this, but it's not reported here—has to do with the impact of a failure in the supply of telecommunications and electrical services. Even though the small business is ready, has its computer ready, is compatible, and all those things, if there's no power, it doesn't help. If there are no telecommunications, it's useless.

• 1635

So what kinds of contingency plans do small businesses have, or did your study deal with the contingency plans that the small businesses have, vis-à-vis a failure in some of those suppliers in the two areas I mentioned?

Ms. Catherine Swift: We didn't specifically look as yet at contingency plans, because this is by no means the only thing we're planning to do. As you probably know, the Industry Canada task force is doing another update with another Stats Can survey in the next little while, and we'll be following this up, getting into some of those issues in that survey.

So although we didn't take a read specifically on contingency plans in this particular exercise, one thing that did come out and has come out in a lot of our work on this area is the fact that many business people haven't looked too much beyond their own firm. They've become aware of the issue. They've said, “Okay, I'd better get my systems operational; I'd better get mine functional.” They've done that, but then when you ask them if they've checked out suppliers of whatever kind—telecommunications services and power are obviously key ones, but also even networks of customers, other networks that they're linked into in one way or another—again, this isn't scientific, but just from all the discussion and work we've done on this issue, that seems to be something where people shake their heads and say, “Oh yes, I guess I'd better be concerned about that.” It isn't something that occurred to them a priori.

That's probably going to be the biggest problem we're going to face: all these, not only suppliers of infrastructure types of things, as you're talking about, but all the interconnectedness among businesses, even with customers, with suppliers, and with other businesses. I tend to think those will be the most problematic and will probably cause the most problems, because most businesses—there are always going to be exceptions, but most businesses—are going to have their own ducks in a row and maybe feel secure, and wrongly so, because they won't have canvassed the entire network that they're also dependent on.

Mr. Werner Schmidt: The other question I have has to do with comparing why no steps have been taken yet and the confidence level that systems will be ready on time.

If I look at why no steps have been taken, I notice that 8% of the businesses said they could not afford to fix the problem and 17.1% said no time or resources were available to do this. That represents roughly 25.1% of your survey results. Yet, when you get to the confidence level, no one falls below 92.1% as to whether or not they're going to be ready on time.

If they don't have any time to fix it and they don't have resources to fix it, how come they're so confident?

Ms. Catherine Swift: Well, I think it's the entrepreneurial spirit, myself.

Some hon. members: Oh, oh!

Ms. Catherine Swift: There's no question there's a certain amount of subjectivity in these results and the Stats Can survey results, because we're asking people, “Are you ready or are you close to being ready? Do you think you will be?” and so on, so there's no doubt.

I should also note that, for example, with the 8% and the 17%, this is one of those questions where the total adds up to more than 100%, because people could choose more than one option. Therefore the 8% and the 17% you can't just add and assume 25%. There will be some overlap within those two.

Actually I found that possibly the most worrisome result—

Mr. Werner Schmidt: Yes, that's a tough one.

Ms. Catherine Swift: —was that there was nevertheless a significant chunk, whether you want to say it's 20% or 22%, who feel they don't have time to deal with it or they don't have the money or the resources to deal with it. I thought that was probably one of the more problematic findings we had in our survey.

Maybe, however, it also expresses the view—and there's no question this is there among the small business community—that they're going to go out mid-next year or something like this and buy a couple of new PCs. Although there are certainly exceptions, a five-person firm is not going to have, as a rule, terribly complex information technology systems. Many of them do believe they're going to be able to go out and just buy a new system or new off-the-shelf software that will solve their problems.

Although that may well be true in a lot of the cases, something we continue to stress is you'd better, first, make sure it's available, because there's going to be a run on all this stuff by the time we get closer and closer to the deadline, and secondly, make sure you test it, because the testing part is something I don't think people have factored in, and it will be time-consuming. So you might think you have time, but you don't.

That's how I partly read that particular result.

• 1640

Mr. Werner Schmidt: Yes, I think it's particularly worrisome from the point of view of the complacency that's out there.

Ms. Catherine Swift: Yes.

Mr. Werner Schmidt: If the lowest level is 92% and anyone with 500 or more had 100%, and 100 to 499 employees was 99.4%, it's no wonder these people are saying we have no problem, why should we get all excited about this? I think that's very dangerous.

Ms. Catherine Swift: So do I.

Mr. Werner Schmidt: I think that these kinds of results can lead us into almost a sleep mode and saying it's okay, why worry? Even though I agree with you that perhaps we shouldn't add 8% and 17%, but taking 8% alone, which is the lowest, even that one causes problems.

Ms. Catherine Swift: I agree that there's still too much complacency out there about this issue. In many instances it won't be difficult to fix for a small firm, but in many it will. That's where we have focused our efforts, on not trying to be Chicken Little and pretend the sky's falling, because that's not likely an effective communications strategy either, but to very much say you'd better get on it now so you're ready ahead of time. That's not such a terrible thing, instead of waiting until the last minute and then finding that you're going to have trouble...and to go through that testing phase because that is essential.

The Chairman: Thank you very much.

Mr. Werner Schmidt: Thank you, Madam Chair.

The Chair: Mr. Bellemare.

Mr. Eugène Bellemare (Carleton—Gloucester, Lib.): Madam Chair, I'm a fan of yours every time you go on TV.

The Chair: Thank you.

Mr. Eugène Bellemare: If my questions may appear abrupt, it's because I am very concerned about SMEs. I think you are not ready. I think this is overly superficial. Excuse the tough love questions or points, but in the interfacing, I find, in small businesses they seem to be overconfident. Business is rah, rah, rah and they're always confident. You talk to car dealers, for example, and the attitude they have is everything is perfect. But I think that is where the double-edged sword is and that is where I find we're going to see bankruptcies, we're going to see defaults, we're going to have problems.

The problem will come up in the interfacing situation. You interface, whether it's using the ATM, using credit cards, using the telephone or using the hydro. Hydro is my big problem. I find that the hydro—Ontario Hydro in our case—have not committed themselves—

Ms. Catherine Swift:

[Editor's Note: Inaudible]...numbers across the country.

Mr. Eugène Bellemare: They are not guaranteeing that things are going to work.

Ms. Catherine Swift: Yes.

Mr. Eugène Bellemare: We are part of a North American grid. If there's a breakdown, it won't be the little problem we had last winter, it will be across the continent, and I don't think we have a contingency plan. I don't think the small businesses are aware of this. I don't know what they would do if the telephones break down and they don't work, if the emergency systems, ambulances and fire trucks don't operate because of the hydro, because of the telephone system breaking down.

Do your small businesses have contingency plans and management control systems in place, not just saying they're going to buy a new computer and they're going to spend this and that? What are you doing in leveraging these questions that are going to hit you?

You could go out and talk to a small business that has three computers, that sells insurance, and they're all okay. They feel they're okay. But if the hospitals break down, or the telephone system breaks down or the utilities break down, they break down; they cannot supply and they cannot even get their accounts payable. It's a disaster for some people who are very often living at the edge in small business.

What's your reaction to that?

Ms. Catherine Swift: Part of the work of the task force, of course, was to put people together representing a lot of different constituencies for precisely the kinds of reasons that you're talking about. Obviously, your average small business owner can't control a hydro utility or can't ensure that the hydro utility—on their own, I'm saying. That's an issue outside of their immediate control. The targeting I've seen in some quarters, of small business having more problems than other areas of the economy, I frankly don't agree with. I think there are problems everywhere and I think the problems may well start with our utilities, telecommunications infrastructure... The financial system infrastructure in itself could be quite problematic.

• 1645

How does one deal with it? I know, as an association, our work on the task force, which is continuing, is to offer as much due diligence to encourage every player in the economy to be aware of the issues, to be aware of the pitfalls, have contingencies in place as best they can, as you mentioned. There are definitely going to be bankruptcies, there's no question about that. There are going to be things missed, even with best efforts undertaken. With people going through lines of code, stuff will happen, mistakes will be made and we will have problems. The objective, of course, is to minimize that.

With the ongoing work we've seen with these various corporate interests, via the task force and via other groups, I think the government could do quite a bit more, to be honest with you, to raise the profile of this issue and keep it alive. We recommended, for one, that a mention in documents that are highly publicized would be good. Mention in the federal budget, for example, some of the issues here. Come up with programs that would be carrots instead of sticks to businesses. You might want to target a sector, you might want to target small business, whatever, but some kind of programs, accelerated depreciation allowances, things along that line, because that will be more of a positive inducement than...you whack people over the head long enough and they just don't hear you any more.

Already I have read articles, which I find really worrisome, that Y2K fatigue is setting in. Everybody's fed up with hearing about it. There's been talk about this and everybody's fed up with hearing about it, so they're tuning out. Well, that's the worst scenario that could happen, in my view.

There's certainly no magic bullet, although, who knows, we might see some software manufacturer come out with it in the next six months and we'll all have wasted our time. I hope that happens. But that hasn't happened yet and I tend to think it important to continue to keep this issue in the public eye, giving firms the resources—I don't mean money per se—perhaps measures like accelerated depreciation, whatever.

I think what the Business Development Bank has done in setting aside some money in special loans was a good idea. Chartered banks could do the same thing. It would be a good PR strategy and I think it would be quite effective. Again, it would be a positive inducement to businesses to say there's something I can utilize to help me get into that situation.

There's obviously no one simple step. I'm concerned, too. Our survey results certainly take people's opinions, which is what all surveys do, and we're going to continue to do so. In our history, I think small business owners and, frankly, I think this would probably extend to large business executives as well, probably tend to be a little more overconfident or they wouldn't be doing what they're doing. In any event, we have found, on balance.... Our surveys are pretty reliable. We've done it for 27 years now, so we have a reasonable degree of history to look back on and see how they work. Nevertheless, I share a lot of your concerns and perhaps....

One of the questions we asked on our survey was how confident the small business owner was that other entities were going to be prepared—things like supplier networks, customer networks and so on—and the people they had the least confidence about were the government agencies and utilities and things along those lines. Of course, they're so highly dependent on them, that has to be pretty worrisome.

The Chair: Thank you. Thank you, Mr. Bellemare.

[Translation]

Ms. Lalonde, please.

Ms. Francine Lalonde: Good afternoon, Ms. Swift. First, let me congratulate you on your election as president. I did not know about that and, as a woman, it makes me very proud.

I share my colleagues's worries about the sense of security we can get from this data. I think that, in fact, they mostly show confidence on the part of business people and maybe also that they are not really aware of the importance of the problems. I heard you say that, in six months, someone might find a solution.

My colleagues will correct me if I am wrong, but it seems to me that if there is one thing we learned, after all this time spent on the subject, it's that there won't be any magic bullet, any quick fix, because it will be necessary to get inside each of these systems.

• 1650

This is the problem we face, as MPs and it will also be a problem for MLAs. Maybe you can help us find a solution. It seems to me that the problem will be to find people with the required skills to help businesses of many sizes which use all kinds of systems.

A document issued by the Library of Parliament rang a bell. It was sent to us during the recess period. It comes from Britain. The British teach us quite a few lessons these days. In the U.K., under Tony Blair, it was decided last November to invest in the training of 50,000 "bug busters", as they are called in the country of Shakespeare. Fifty thousand! Britain, with a population of around 60 million, gave itself six months to train people with the year 2000 in mind. This is one aspect of the British plan; the other is investing money in the project.

I know enough about small and medium businesses to realize that, if the only solution for them is to borrow to get people—who might not even be available—to help them or to buy new systems, even if it could be considered as an investment, they are going to have a big problem.

This is why, the other day, I told Minister Manley that, if he really wants to help SMEs—which, I believe, is indeed what he wants to do—then maybe he should do something more than authorizing loans by the Development Bank of Canada. In any case, that bank charges more than the others, for obvious reasons. Shouldn't we be thinking about...? I then mentioned tax credits. It could be another form of assistance. So I think it's imperative to find other ways to help, and as far as I am concerned, this should be part of our recommendations. Otherwise, we can say what we want, that it's not this or that...

[English]

The Chair: One question from Ms. Swift.

[Translation]

Ms. Francine Lalonde: Yes. I'll leave it at that.

[English]

[English]

The Chair: If you're going to spend five minutes talking, we're not going to have any time for the question. Please.

[Translation]

Ms. Francine Lalonde: Listen, Mr. Schmidt got to speak longer than I. I just wanted to explain my views. Don't you think that we should do more to help SMEs which often have barely enough to survive and face up to the competition?

Ms. Catherine Swift: I agree entirely. We have made a few recommendations, for example, accelerated depreciation. We have also suggested tax credits, as you mentioned yourself, and a number of other measures. I think it would be worth it. In the short term, it will cost a bit of money, but we believe that it will cost less than the many bankruptcies, the problems due the loss of jobs and all the other consequences we would have to face if SMEs are not prepared for the year 2000.

Ms. Francine Lalonde: Thank you. Do I still have some time? She scares me and then...

Do you think that businesses are ready? There must be companies using products with computer chips. Do they know that they might have warranty problems? If their own products are not year 2000-ready or if they are not prepared to face up to other problematic dates, they might find themselves in the position to have to guarantee their product. Which means that they'll have to pay for inappropriate products.

You mentioned consumers. How could we, do you think, make sure they are informed? I sent a copy of the bill to every consumers association in Quebec, together with explanatory notes and the Federation's documentation, to alert people to the problem, to tell them: Some products will not be up to the standards any more. There will be a warranty problem. Who is going to pay? You should look into this. I didn't get any answer. So I am going to try again.

Ms. Catherine Swift: It certainly will cause problems. I think that, right now, it's impossible to assess the extent of these problems.

• 1655

However, we know for sure that, in particular, there will be legal problems in terms of warranties. But each company faces a different problem and it's very difficult to determine precisely what makes the difference between two companies. One thing is for sure, it's impossible to know the extent of the problem.

Ms. Francine Lalonde: What about consumers?

Ms. Catherine Swift: It's the same thing. Certainly, many lawyers are going to be quite richer after the year 2000, which is unfortunate, except, of course, for lawyers.

Ms. Francine Lalonde: Thank you.

The Chair: Thank you, Ms. Lalonde.

[English]

Ms. Jennings, please.

[Translation]

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Good afternoon, Ms. Swift. I have a few questions.

The first one is about the study which was done. On the last page, under the title "Steps Taken to Correct the Problem», it says that 92.9% of companies which have 500 employees or more have taken some initiatives.

[English]

It's under 10%; everywhere else, it's more than 10%. The most troubling thing is companies that have fewer than 50 employees.

When I look at your first page, I see that 56.9% said they'd undertaken steps, which means that 43.1% haven't done so. So that means the overwhelming majority of that 43.1% is made up of companies with fewer than 50 employees.

Ms. Catherine Swift: Yes.

Ms. Marlene Jennings: That means that it's really concentrated in the really small companies.

Ms. Catherine Swift: I'm just looking back, actually, at our original survey question, because we truncated them somewhat do fit on these charts.

The one thing that I think hasn't had enough examination and needs to be examined more.... Again, it's a huge undertaking from a factual basis—

Ms. Marlene Jennings: I understand that.

Ms. Catherine Swift: —because all of the surveys are surveying opinions. It's undoubtedly indicative, but say you actually had people—that's if one could, but this probably won't happen—go into businesses and survey so many with 5, 20, or 100 employees and do some kind of an audit, or almost like an audit. I tend to think that for a lot of the really small firms, they're not going to have a huge problem. I think their problems will come from—

Ms. Marlene Jennings: The outside environment.

Ms. Catherine Swift: —other things that they're hooked up with. The little guys are going to have some systems that—there will be exceptions—by and large, will be reasonably easy to deal with. They're off the shelf, straightforward, not proprietary, etc.

Ms. Marlene Jennings: Yes.

Ms. Catherine Swift: So as a result, I guess I'm less concerned about some of that situation than I am about this whole network and exactly how all the interdependencies are going to really hit everybody. It's not just the little ones who will be affected by that.

Ms. Marlene Jennings: Okay. The other question is how many employees work at CFIB?

Ms. Catherine Swift: Right now we have about 200 employees.

Ms. Marlene Jennings: Is CFIB ready for the year 2000?

Ms. Catherine Swift: Yes.

Ms. Marlene Jennings: What about your suppliers?

Ms. Catherine Swift: We've been looking into that for a while. Our major ones are compliant.

Ms. Marlene Jennings: Yes.

Ms. Catherine Swift: We also own a building. It was actually interesting, because I first heard about this issue some two years ago, I guess. So I started to look into it. I asked our information services person whether we were ready. She said that we were.

Then I started thinking about the building. Well, we're getting a new security system because it's not Y2K compliant. We're having to do some work with our elevator software.

So even though the original focus was that we were ready, there were elements of things that occurred to people afterward. This is what's going to happen. I guess that's why we keep trying to promote the message to businesses that they should get on it right now, because even though you see A, B and C, there are probably going to be a couple of other things that you'll notice later that you're going to have to fix.

Ms. Marlene Jennings: Has CFIB checked with your banking or your financial institution to see whether or not it's prepared for year 2000?

Ms. Catherine Swift: Yes.

Ms. Marlene Jennings: So you've done what you're trying to get your membership to do.

• 1700

Ms. Catherine Swift: We probably have things yet to do that will come up in the next little while, but we've certainly covered our main bases. Let's put it that way.

Ms. Marlene Jennings: Okay. Thank you.

The Chair: Thank you, Madam Jennings. Mr. Pankiw.

Mr. Jim Pankiw (Saskatoon—Humboldt, Ref.): Thank you.

I notice that on this handout you gave us the results of your survey. On one chart, it's indicated that large firms with more than 500 employees are 100% confident that they'll be ready on time.

Ms. Catherine Swift: This was a very small sample. We don't have many firms of that size in our membership, so that result should really be lumped in with those that have 100 and up. Do not statistically trust that column.

Mr. Jim Pankiw: Okay. Anyway, this can really be said of all the categories. If you notice, the percentage who are confident they'll be ready on time isn't lower than the percentage who have taken steps to correct the problem. So you have firms saying they're confident when they have really done nothing.

Ms. Catherine Swift: Or they haven't done something very formal or something like that. Again, probably one of the key challenges to overcome in the next 18 months or whatever—hopefully in the next 18 weeks—is that people feel they have lots of time left. To me, this is an indication that people feel they still have lots of time. That's why they're confident that they'll be able to deal with this next year, next October, or whenever it may happen to be.

A lot of them are probably right, but there's the fact that they're probably going to have to pay through the nose for some of that, which I don't think people have factored in sufficiently. Also, some of them are going to be wrong, because they think they can do it all in three months or six months, but they're going to find they can't. But then it will be too late to fix it and they'll be having manual system contingencies or things like that.

So to my way of thinking, those results indicate that people are still thinking they've got quite a bit of time to deal with this problem. We've been trying to promote the message that you might be right, but you had better find out now so that you can fix it, and if you're ready early, so much the better.

Mr. Jim Pankiw: It would also indicate that some were not taking the problem seriously.

Ms. Catherine Swift: Yes, exactly. Or they may just be thinking that they'll procrastinate on this a little bit longer or something like that. Yes.

The Chair: Thank you, Mr. Pankiw. Mr. Lastewka.

Mr. Walt Lastewka (St. Catharines, Lib.): Thank you, Madam Chair.

First of all, I want to thank you for coming here today to help us get through this Y2K problem. The other thing is that I know your participation on the Jean Monty study, and the report that was issued was very valuable. In fact, your checklist survey has been copied I don't know how many times and sent out to businesses. We continue to request members of Parliament to do that in their areas: send that survey out just to get the attention.

I took the time last Friday to visit three small companies or businesses in the 10- to 20-person category. I found out from each one that they hadn't been notified. They received a lot of information. It was something they were going to get around to.

To me, there seems to be a complacency of “getting to it”. I don't think they took the attitude that it was a silver bullet but just that they had to go and start doing it. That message was very clear to me with all three.

So my first question is what are you doing to get that additional message out? The message is that you can't leave it until the end, and by the way, it's going to cost you more money if you leave it to the end.

My second question is this. Are you getting any feedback from the small businesses that all of a sudden their bank loans and so forth are being tied to due diligence, such as whether they are ready for Y2K? The banks or large corporations might be saying that their system has to be tied into that of the others, and if they're not ready, they're going to lose business. Are you getting that type of feedback yet?

We'll start off with those three questions.

Ms. Catherine Swift: Three? I only got two.

Mr. Walt Lastewka: What are you doing to get them to move on?

Ms. Catherine Swift: Yes, and then the banks issue.

Mr. Walt Lastewka: Then there are the banks and the large corporations on purchasing.

Ms. Catherine Swift: Oh, okay. I just lumped those together.

• 1705

We've been doing stuff for quite a while, actually, as an organization. We've had some data up on our web site, for example, that we've also produced in a paper form and distributed to members. Part of our contingent of employees are representatives in every community across the country. About 150 of them visit an average of 2,500 to 3,000 businesses a week. So we have a pretty good network out there to get things out, and we've been using that.

I do a lot of speaking, and I ensure that I mention this issue in every single speech I do, wherever that may be, and talk to people about it and whatnot. Part of our web site, too, recommends resources that people can go to and other sources of information.

It really has been mostly an informational campaign to get the message across that you may be able to fix it in a month or two, but wouldn't it be better to be sure of that and indeed have it done than to wait until the last minute and find out you're either going to pay a fortune because the resources are so scarce or it's unobtainable? I'm concerned a lot of small firms will find not only are they hugely costly but unobtainable, because at that point they will all have been snapped up by the larger corporations, governments, agencies, etc.

So that's what we've been doing and what we're going to continue to do. This survey alone, I thought, was a really valuable information tool. Even if people didn't fill it out, it has to ring a few bells when people see things along these lines.

As for your second question, we haven't heard anything yet, but I'm waiting for it, because there's no question.... John Cleghorn did a press conference about three or four weeks ago, I think, talking about how there would be some predicating of loan availability or whatever.

On the task force itself, I was very cautionary to my banker colleagues on that group, because although I think any business person would expect something like that, there would have to be an element of due diligence. I don't think it's illogical to say anything that could risk a firm is going to have to be a factor that has to come into consideration by a lender or an insurer or a supplier. And businesses should be looking at their networks for precisely the same reason.

But if we see this used as yet another excuse to deny credit to small firms, then we're going to start having some serious problems with it, because the other thing that is tough about this, just by its very nature, is if one business says they have a formal plan and the other business says they have an informal plan, unless you're going to conduct audits on everybody, which is just not feasible, there is nothing to indicate that one firm is more ready or less ready than the other.

So there's a lot of subjectivity here, and we already know bankers sometimes can be rather difficult to pry money out of, especially if you're a small business. We're keeping a watching eye on it for precisely that reason, but so far we haven't heard anything. I'm sure it will happen, but it hasn't happened yet.

Mr. Walt Lastewka: What about the large companies on the purchasing side and their systems production control side?

Ms. Catherine Swift: I haven't heard it on the Y2K, not yet. But again, I would expect to be hearing about that at some point in the not-too-distant future as well. But it doesn't seem to have filtered out there yet.

Mr. Walt Lastewka: This is my last question, Madam Chair.

I know you mentioned having a carrot instead of a stick, and I heard Madame Lalonde talk about what Tony Blair has done and so forth. I know when Minister Manley talked to Tony Blair last June and July, they didn't do anything, and all of a sudden we brought a lot of things to their attention during an exchange.

My concern as we get down the road is that we haven't helped a lot of companies—they've done it on their own—and all of a sudden the last-minute ones are going to look for handouts. I don't think that's right.

Ms. Catherine Swift: This is always a problem: where do you draw the line? That's why most of the recommendations we have made have had to do with things such as accelerated appreciation, which could be used by any business that's already done it or whatever, and things could be structured.

We're never in the business of recommending handouts, and we haven't been on this issue either. As I mentioned earlier, some of these loan programs—which are loan programs, so they're fully recouped by the entities involved, such as the Business Development Bank—have been good ideas.

We haven't recommended handouts here. As you say, it's an issue some businesses will have already dealt with or be part-way up the curve on. But we do think measures could be structured that wouldn't be unfair and that could be an inducement to businesses to get cracking.

• 1710

Mr. Walt Lastewka: Thank you.

The Chair: Thank you very much, Mr. Lastewka. Mr. Schmidt.

Mr. Werner Schmidt: I have a question that relates to part of the question Mr. Lastewka just asked, but also to the task force and the situation that happened with the Toronto Stock Exchange. It was published this morning.

We have an almost independent group now saying “fix your problem” and we have the banks fixing their problem. Let's say the banks are totally compatible and the individual industries are totally compatible, but the two systems—the bank's system and the businesses' system—aren't necessarily compatible. They're 2000 ready, but they don't talk to each other.

That's exactly what happened at the Toronto Stock Exchange. The individual businesses here were compatible with the year 2000, but they were not compatible with the new system the TSE was going to implement. Consequently, the TSE now has to go back to its old CAT system and retrofit it so it will tie in with these businesses. After the year 2000, it will implement this new system and put this on the table, at double the cost. This is a very serious problem.

Did your task force anticipate that kind of problem, and is there a recommendation from the task force to say that if you're going to do retrofitting, replacement or whatever, be sure somehow these are now compatible horizontally as well as vertically—if we want to use vertical as sort of a time line? How could we bring about that sort of coordination to make sure these are all compatible both ways?

Ms. Catherine Swift: The issue did come up. The TSE example is a very good case in point. It wasn't known at the time, I guess.

Again, I think government can do some very positive things here, because it's obviously a coordinator of a lot of these different entities. But a lot of the responsibility lies with business itself. It's a difficult issue. I'm not a computer person, so on the technical side, I think those types of problems should not be rife, because compatibility has improved so much within systems in the last decade or so, compared to where we were a number of years ago.

In the TSE case in particular, they were ready to convert to a new system. That's when a lot of these problems arose. They found out they weren't compatible and had to go back to their old system, etc. I'm not sure whether that was a special case, but I don't see any simple solution, other than continuing to ensure that everyone looks at their networks and so on, so we hopefully end up with a reasonably workable system.

Mr. Werner Schmidt: The longer we get into this thing the less likely, it seems to me, we will be ready for this thing. If a big operation like the Toronto Stock Exchange, which has been on the CAT system for a number of years now, didn't—

Ms. Catherine Swift: They've had huge problems with that system for years, too.

Mr. Werner Schmidt: They have. You're absolutely right. The banks have also had problems with their system. I recall that when the Bank of Montreal first introduced the automatic bank machines, for example, it had a horrendous experience. It had to scrap the whole system. So this is very significant.

These are big organizations with lots of resources, and if they don't anticipate the problem with their experts, what is the real role government ought to take? If they can't do it, how are we to do this?

Ms. Catherine Swift: Do you mean within government?

Mr. Werner Schmidt: Yes. I think we're talking about action now. We're long past the study business. What kind of action do you, as a member of the task force now, think government should take to make sure the coordination takes place and is of the type that is valid and will bring us to the solution of the problem?

Ms. Catherine Swift: Number one is leadership. I still don't think the government—

Mr. Werner Schmidt: What does that mean?

Ms. Catherine Swift: I think it means mentioning this issue in throne speeches—that wasn't done—and bringing up this issue in every public context.

Mr. Werner Schmidt: We have only one throne speech left.

Ms. Catherine Swift: I know. That wasn't the only example. It means incorporating this into documents that come out of Industry Canada, the Department of Finance and the key economic ministries that should be very concerned about this issue.

• 1715

The Prime Minister should talk about it. I don't know that I've heard him talk about it once. Maybe he has.

Mr. Werner Schmidt: No, he hasn't.

Ms. Catherine Swift: But people listen to that and think, oh gee, there is something there, or whatever.

I think there has been a reluctance, actually, for very senior...and I don't know why.

Mr. Werner Schmidt: There has been. I agree.

Ms. Catherine Swift: Maybe they don't want to look like Chicken Little. But I think it can be done in such a way that this won't happen.

The task force will continue its work to try to coordinate, to try to promote the provision of information, pointing people in the direction of the resources they need. It's not so much research that needs to be done as practical work to help provide solutions for given sectors. I know a lot of industry associations, especially the more information technology-oriented ones, are very involved in this and will continue to be.

But there's no one and easy path, I guess. From what I see, the Canadian government's having enough trouble getting its own ducks in a row on this issue right now, internally and administratively, let alone worrying about everybody else.

Mr. Werner Schmidt: Very good.

The Chair: Thank you, Mr. Schmidt.

Mr. Shepherd.

Mr. Alex Shepherd: Thank you.

When I look at your survey, I guess I have some problems when I see that 56% say they're doing something about it, but of the people who are not doing anything, they think they're already compliant because they've bought recent equipment. We all know that Windows '95, for instance, isn't even compliant. So there's a certain disbelief there.

You talked about governments and what they can do. From an economic point of view, we think it's your members who are going to take it on the chin. If you start taking the actual statistics of the possibility of a recession—and some good economists in both Canada and the United States advocate that—then we're talking about business failures. We're talking about how many of your members are going to go down the tube here.

I don't know what studies you've taken to say how much your members account for the Canadian GDP, and the impact they have. For instance, I think it's a reasonable expectation that we could lose $1 billion off our GDP.

Ms. Catherine Swift: Well, on a $700-billion GDP, that's actually pretty modest.

Mr. Alex Shepherd: That's right. It's pretty modest. But your members are going to be a big chunk of that. We know the banks and so forth probably will be ready, so it's your members—

Ms. Catherine Swift: Even if they're not ready our members will be the ones who pay, in all likelihood.

Mr. Alex Shepherd: One way or the other.

Ms. Catherine Swift: Yes.

It's a good point. Right now, small business represents about 40% of the gross domestic product in Canada.

Again, it's tough to be precise about this because we're not dealing with hard data in so many aspects of this issue, but I don't know; I think opportunities are also going to come out of this, and small firms will take advantage of those. But there definitely will be bankruptcies. I have no doubt about that for a moment.

From a purely arithmetical standpoint, 99% of the businesses in this country are classified as small. So if x percent of businesses are affected, there's no question that the vast majority of them are going to be small, just because of the arithmetic of this whole situation. But I also think that individually, your average small business has a way less complex compliance task than does your large firm, for all the obvious reasons.

So I guess I'm not among the pessimists who see the horrific recession being spurred by the year 2000 and so on. What I do see is that the economy is probably going to be slowing. We're probably going to be cooling down from our current growth period by that point anyway, and Y2K problems can hasten what is going to be a slowing economy in any event.

Mr. Alex Shepherd: Getting back to the question of leadership, I wrote you a letter on March 20 talking about a specific application for capital cost allowance.

Ms. Catherine Swift: Yes.

Mr. Alex Shepherd: I've never heard from you. I've heard from other business organizations in this country.

This may well form part of our proceedings in this committee. Is it an approach you're in favour of? I know you've talked today about capital cost allowance, incentives, and so forth, which that addressed itself to.

• 1720

Ms. Catherine Swift: Yes, it was a similar kind of recommendation that actually was included in the task force report in terms of some kind of depreciation consideration and what not. Again, I think any of those measures would be commendable, because I think they will get businesses' attention if they can do something that will facilitate their ability to become Y2K compliant. I think if you had three or four different measures, that would be fine too.

So I don't think any one focus is necessarily the right thing, but I think if there were several measures to assist business that would be positive.

Mr. Alex Shepherd: The rapid capital cost allowance is something that's doable in government. I'm not so certain about tax credits. The concept of tax credits actually is a form of subsidy.

I'm talking about a timing difference on capital cost allowance to allow small and medium-sized businesses a rapid write-off today. They can't write it off tomorrow.

Ms. Catherine Swift: Right. From a fiscal perspective, that's probably the least costly, or one of the least costly ways, of accomplishing it, and as a result, it would probably be more feasible.

The task force report came out before the federal budget, and we were actually hoping we might see something along those lines in the budget, not unlike what you suggest. But anyway, it wasn't there.

The Chair: Thank you very much, Mr. Shepherd.

Thank you, Ms. Swift.

[Translation]

Ms. Lalonde, do you have another question?

Ms. Francine Lalonde: Yes. It's to clarify the one I asked regarding tax credits. You told me you too asked for such a measure. When answering Mr. Lastewka's question, you said that there won't be any handout. We agree on that one. However, we still have to find ways to get companies which need help to make the required changes, even if it's rather like what happened to the eleventh-hour worker in the Bible—which wasn't fair either.

I just want to stress, as you say, that... But first, you agree with me, right?

Ms. Catherine Swift: Yes, yes, I agree. As far as I and the the SMEs which are members of our Federation are concerned, it all depends of the way these tax credits, for instance, would be structured. It's important that all businesses be treated fairly. I think it's possible to structure these tax credits in such a way that they would adequately answer the needs of companies and cover many of their other costs, so as to avoid a blow to the economy should the problems we have to face be too serious.

Ms. Francine Lalonde: Right. I am going to go back to my question. Given your experience, do you believe that all the computer experts and all the technicians required are available right now?

Ms. Catherine Swift: It's difficult, I think, to answer that question precisely. In all likelihood, it's not the case.

Ms. Francine Lalonde: Thank you. Thank you, Madam Chair.

[English]

The Chair: Thank you.

Thank you very much, Ms. Swift, for being with us this afternoon and for sharing your survey with us. I hope some of the larger businesses that you may not represent but also some of the ones that you do represent will take notice of what the Toronto Stock Exchange is going through today, or what the article said they're going through, and maybe wake up and realize they may not be as ready as they thought they were.

I appreciate your trying to bring awareness to all the small and medium-sized businesses—small businesses in particular—that you represent across Canada, because that's the challenge, as you said. If they represent 40% of our GDP, we don't want to see any blips in our economic growth in this country, nor do we want to see any type of recession, by all means.

We thank you for being with us, and we look forward to meeting with you again soon.

Ms. Catherine Swift: Thank you very much.

The Chair: The meeting is now adjourned.