STANDING COMMITTEE ON INDUSTRY
COMITÉ PERMANENT DE L'INDUSTRIE
[Recorded by Electronic Apparatus]
Thursday, May 27, 1999
The Chair (Ms. Susan Whelan (Essex, Lib.)): I call
the meeting to order, pursuant to Standing Order
108(2), study on a document entitled Sustaining
Canada as an Innovative Society: An Action Agenda.
I'm very pleased to welcome today Dr. Arthur Carty,
the president of the National Research Council of
What we have proposed is to have two sessions
this morning. The first is to continue on the
Sustaining Canada document. The second is to go on to
productivity. There are two different statements, so
we'll do the first statement, have some questions,
and then we'll do the second statement. I believe
that's what we've decided to do.
Dr. Arthur J. Carty (President, National Research Council of
Canada): Madam Chair and members of the committee, good morning.
First of all, I would like to thank you for having invited me to
speak here this morning.
I'd like to begin my thanking the industry committee
for its support in the past year. That was, I think,
extremely useful to us.
As you have requested, I want to cover two areas this
morning. In the first part I'd
like to make some observations on our progress as a
government, a country, and a nation toward the
development of an innovative society and of course an
innovative economy. I'll try to look very briefly at
the key components of innovation and economic growth
and assess whether we're on target for getting the most
out of our knowledge resources and our business
In the second part of my presentation, I shall deal more
specifically with the links between productivity, innovation and
competitiveness, and I shall identify one of the main obstacles to
Basically, my message today is that the government has
made some good strides in addressing many of Canada's
needs. The recent federal budget included
significant new investments in programs to support both
the university community—the research base—and
However, in my view there is still critical ground in
between. I call that the innovation gap—the gap
that separates the new knowledge that's created and
its application. That, I believe, still desperately is
in need of support.
I am convinced that the only
organization at this point in Canada that can bridge
that innovation gap successfully is the National
Research Council. Quite simply, it's our thesis that
NRC is the government's most dynamic and diverse public
instrument for innovation in Canada, and I'm here to
try to describe to you the impact we can make and of
course also to ask for your continued support.
I think there is strong consensus in both the research
and the business communities that innovation—and I'll
focus on that word—is the foundation for economic and
social prosperity and our ability to compete in the
global economy. And let's be aware that in fact we
are in a global economy these days.
I think the action agenda that you have been
discussing expresses it very well:
“We need a steady stream of new ideas, a
well-educated work force for the knowledge economy,
and”—let me underline this—“mechanisms to transfer ideas
effectively from the laboratory bench to the
I think there's also a pretty good agreement that
research and development is one of the key elements or
key ingredients of innovation. So let me just look
briefly at Canada's relative performance in research
and development as seen by the GERD-to-GDP ratios
for various countries.
This is shown here on the overhead that you have up on
the screen. This is really investment in R and D as a
percentage of gross domestic product. Along the bottom
are the countries. Unfortunately, with statistics you
never get everything at the same time in the same form,
so some of these years differ. Nevertheless, it does
allow a useful comparison. This is
GERD-to-GDP ratio, and it varies from
about 3.5% in Sweden down to below 1.5%, just above 1%,
Now, there are some very interesting things about this.
First of all, with regard to Canada, which is in the
red, our GERD-to-GDP ratio is at about 1.6%. That
number hasn't really changed greatly over 10 to 15 years.
It's been at about that point.
Of course the last three budgets, and particularly the
last two, will have changed that somewhat. And these
figures, I will admit, don't reflect the recent
Some of the other interesting points are that there
are newcomers in this list compared to five or ten years
ago. Korea, for example, in 1996 got very close to
the top of this list. The United States
has continued to invest in R and D at a very high rate.
You can see a number of the other G-7 countries.
There are some small countries too. Sweden is at the top
and has been very heavily investing in R and D for a long
time. So has Finland, which is a little surprising
Other newcomers include Taiwan, which has grown
enormously over the last ten years. As it has invested,
it has passed Canada. Singapore, which isn't on this
list, has also passed Canada. So we do see that we
have some ground to make up in the competition, and
this really is a global competition. Research and
development is driving innovation, and innovation is
driving the new economy.
Over the last three budgets, the government has taken
a number of steps that will help Canada to improve
this competitive situation. For example, in the 1997
budget, to ensure that our innovation process would
rest on a strong and healthy foundation, the government
made some key investments. Some of those key
measures included strengthening the networks of centres
of excellence program, establishing the $800 million
Canada Foundation for Innovations, and renewing and
restoring the funding for the NRC's industrial research
Then again in 1998, the federal budget restored
funding for the granting councils—NSERC, MRC, and
SSHRC—to 1994-95 levels, reversing program review
cuts. It also provided a permanent base budget for
the networks of centres of excellence. Again, this
February the government carried the process further
and allocated more than $1.8 billion to support the
creation, dissemination, and commercialization of
knowledge, and to support employment.
Let's just look at a few of those elements that have
been included in the recent budget. There were two
measures to support employment. One was $465 million
over three years, which represents a 50% increase over
the preceding three-year period, for the youth
employment strategy. That's a big increase there. And
there was $110 million per year to create sustainable
jobs in high-unemployment regions through the Canada
jobs fund. Altogether, that represents $600 million.
Several initiatives were specifically designed to
improve the capacity to produce knowledge—for example,
funding for the Canada Foundation for Innovation for
research infrastructure in the areas of health, the
environment, science, and engineering. In the February
budget, there was also $75 million for the Natural
Sciences and Engineering Research Council over three
years; $15 million for SSHRC, the Social Sciences and
Humanities Research Council; and $90 million in
additional funding for the networks of centres of
excellence. Those four examples add up to $400
I think we can say that those allocations together
represent a very laudable and substantial investment
in our university community and also in the creation of
So that's, if you like, the knowledge side of it, the
creation of knowledge.
If we look at the other side of the ledger—that's new
investment in the industrial sector and application and
commercialization of knowledge and ideas—there were
also some new initiatives. Technology Partnerships
Canada received $150 million. There was a $50 million
equity investment in the Business Development Bank to
expand financing for small and medium-sized
knowledge-based and export-oriented industries. There
was $60 million over five years to make available,
through the information highway, a comprehensive and
integrated data system for Canada's geography,
environment, people, and resources. Then there was
another $60 million for “smart communities”,
associated with the effective use of information
technology to enable innovation. So again, that's $300
You can see, once again, there was a targeted
investment by the government, but this time on the
This brings me to my main point. You will recall that
a few minutes ago I mentioned there was a middle
ground between research ideas and results and
commercial products, the so-called innovation gap that
really separates new knowledge from applications. We
know that if you don't have that gap filled, you have
real difficulty in translating ideas into products on
the marketplace. So this innovation gap is something
we have to focus on. Until we understand and
invest strongly in that area between the knowledge and
the commercial products, the system of innovation
we have in Canada will not run as smoothly as it
should. And that's precisely where the National
Research Council fits in, because I think we're the
only organization at this point in time that can bridge
the innovation gap and successfully unite these two
sides of the house, so to speak.
Well, what have we seen there in the recent federal
budget? I think unfortunately, in that area,
investment from our government has fallen well short of
the new funding that's been provided for the university
community and the industrial sector. In NRC's case,
we'll receive $15 million over the next three years in
A-base funds, and that represents about 20% of the
minimum we felt was required.
You can contrast that with the $76 million budget cuts
we took in program review one, and another $13.1
million in base budget cuts we took last year as a
result of program review two. And of course, unlike the
granting councils NSERC, MRC, and SSHRC, NRC's R and D
budget was not restored to 1994-95 levels in the 1998
federal budget. So in fact what has happened is that
our ability to generate revenue has essentially saved
our bacon. This is the capacity that NRC has itself to
work with partners and to generate revenue as a result
of collaborative research programs, fee-for-service
By our estimation, we've reached the limit of that. I
don't really see how we can generate more revenue
ourselves internally without compromising the research
base on which everything is built. So we're facing
major challenges. We've been unable to invest in new
emerging strategic R and D opportunities for Canada—and
I'll come back to this in a minute. These are
opportunities Canada must take to be industrially
competitive in the 21st century.
As well, our
equipment facilities and infrastructure are eroding.
We're losing and having difficulty attracting
highly-qualified personnel, and we have a reduced
ability to provide hands-on training for young
We've also been very limited in our ability to enter
into new partnerships. I think everybody knows that these
days new partnerships are crucial to innovation;
that's the way things work. That's because of a lack
of resources. With the resources we have, NRC has
played and is playing a very key role across the
country in community and regional innovation. We have
been working with communities—our IRAP program is
present right across the country.
We know what it takes to produce innovation in terms
of both people and programs. We believe we can make a
much bigger impact, but to do so we need an investment
of new funds into our A-base to enhance our capacity to
help communities be present regionally and affect
productivity in Canada. We need to look right now at
where we should make strategic investments for the
future. Those investments in innovation are both
immediate, in other words in the next few years, and
longer term. They're also very critical.
I know many of you are familiar with NRC, but let me
just take you through our current situation and show
you exactly where we are. This is an encapsulated form
of it, of course. We're a national organization,
meaning we have a presence right across the country.
We're a government agency but a schedule II agency, one
step away, you might say, from a crown corporation.
In terms of employment, we have about 3,000
One of the unique aspects of NRC
is that we have a very large number of guest workers.
These are people from industry, universities and other
government labs who work with us in our facilities on
projects, collaborations and partnerships.
We have labs and facilities across Canada. As you
know, the industrial research assistance program
and the Canadian Technology Network have a human
network of technology advisers right across the
country. In almost every region and community we have
ITAs. They help small and medium-sized companies
access technology, acquire it, develop it, and take it
to the marketplace.
We are also a principal source of science and
technology and medical information in Canada. The
information has to be made available to those who need
to use it—the researchers and the organizations. The
Canada Institute for Scientific and Technical
Information is therefore a critical part of the
national infrastructure, providing that information
right across the country—these days, very much
On our budget, if you add up everything it comes to about
$456 million, of which we generate now about $78
million. So we've helped ourselves enormously get
over the difficulties caused by decreasing
budgets by raising our revenue, but there are limits
to how much we can do there.
The R and D number is down significantly by at least
$80 million over what it was in 1994-95. Our budget
was not restored, and that's at about $317 million this
IRAP hasn't fared as badly as that because the IRAP
base was restored in 1997-98. IRAP received new
funding in the February 1998 budget, and that enabled
us to start a new program called the
pre-commercialization assistance program, in
collaboration with Technology Partnerships Canada. The
CISTI budget is $34 million, of which we generate
actually $18 million of our own money.
We also have another role, in that we provide essential
parts of the national infrastructure. For example, we
are responsible for the Tri-University Meson Facility
in British Columbia, which is a joint venture
among four universities that is coming up for funding
in the next year. We also operate and maintain the
telescopes for the Canadian academic community in
Canada and abroad, through international
We are the organization that provides the linkages to
the Canadian professional societies and academic sector
through ICSU, the International Council of Scientific
Unions, for which NRC is the affiliating organization
in Canada. That totals $41 million. Municipal taxes,
which we now pay, amount to $10.6 million. That's of
course because we have facilities and properties
across the country. So that gives you a brief
The next slide shows a map of Canada and points out
where we're located. Where we have a physical
presence, it's shown as a green square. We have NRC
institutes or innovation centres in St. John's,
Halifax, Montreal, Ottawa, London, Winnipeg, Saskatoon,
Penticton, Vancouver and Victoria. The red circles are
where we have IRAP offices, and you can see that those
are in every province and even in every territory. So
we are very much a national organization spread right
across Canada, with significant presence in all of the
We've experimented with virtual innovation centres,
and we have two of those in Alberta. There's one in
Edmonton and one in Calgary. This is not where we have
a physical building, but where we're innovating by
bringing all the partners together through a very small
operation. Not many people are involved; in fact it's
essentially a single person and a secretary. But their
role in those virtual innovation centres is to bring
all the players in the innovation system together to
decide how they can move forward economically. That's
a very important new initiative.
I will spend just a few minutes showing you how we are
what I call an innovation organization. This is what
we call innovating through science and technology. The
map shows the innovation spectrum—most of the things
that contribute in one way or another to innovation.
Across the top are our physical locations where we have
institutes. Running from top to bottom, the first is
the national research and development infrastructure,
where we provide components of the national base for
research and development. In St. John's, for example,
we have world-class marine engineering facilities in
our institute. In Saskatoon we have a transgenic plant
centre, which is available to the community for
agricultural biotechnology. In Ottawa we have wind
tunnels, which are a critical component of our
aerospace industry. You see those at the airport.
The next one is where we have very specific
initiatives in R and D training. I should point out
that where there's a solid line, it means we do the
activity in all these locations across the country.
Where there's a cylinder it means there's a special
activity. In Montreal we have a special program
associated with our biotechnology pilot plant. It
provides training for bio-process engineers—people who
are going to be technologists who know how
filamentation biotechnology equipment works, how to run
it, and what is needed in order to be in that
technology area. So we provide dedicated training for
technologists on our pilot facility. That has been
very successful. The people who are trained there, as
many as 20 to 30 a year, are snapped up by industry
because they're very valuable.
In Winnipeg we have a program with Red River College
for the training of technicians running magnetic
resonance imaging facilities. Again, this is such
specialized training that there's absolutely no problem with
these people finding jobs; in fact there's a great
demand for them.
In Ottawa you may have heard of an innovative
initiative called Ovitesse, for reskilling
scientists and engineers to become software engineers.
It's a very innovative program.
We have, of course, research programs right across the
map, and I won't go into all of the things we do there.
Technology development is a key aspect of what we do.
Again, that happens everywhere. We have technology
diffusion and commercialization, and the tools that are
available there are IRAP and the IRAP/TPC
pre-commercialization assistance program. I had the
pleasure last week of being with Mr. Lastewka in his
riding, where we provided an IRAP/TPC grant to an
innovative high-tech company in St. Catharines,
Biomedical Implant Technology.
We have also focused on starting up and incubating
small companies. The best example of this is in
Montreal, where we built an incubator last September.
It was opened by Minister Cauchon. That incubator
is not only full, it's overflowing. We have 20
companies in there, and the number of people associated
with those companies and the jobs created are really
quite significant. We also have an incubator in
Ottawa, which is fully associated with our
information technology institutes in Winnipeg and
We've also been heavily involved in regional and
community innovation right across the map in Canada,
but specific initiatives are focused on key areas. For
example, Winnipeg has a lot of small companies and a
key research and development activity in medical
devices. So we have an innovation initiative called
the western medical technology strategy. It is
based in Winnipeg but is focused on developing
companies in the medical technologies area in the west.
Of course you also know we're responsible nationally
for codes and standards—a very important part of the
economy of innovation.
So we're involved, at the NRC, in most of the elements
of innovation in one way or another: we do R and D; we
help commercialize and transfer the technology; we have
the tools to do that; we're directly involved at the
local level in innovation; and we also provide the
Last year we took a look ahead at NRC. What resulted
came up from the grassroots and has been refined into
five major strategic initiatives—opportunities we
believe Canada must take in the next century. These
are things we can't ignore.
Genome science is one of the activities. Fortunately,
in the last budget, as a result of an investment the
government made in biotechnology, we managed to round
up an activity in genome science, based in Montreal but
also involving our other biotech institutes. That has
been put together with an organization called Genome
Canada, which is the fusion of an initiative from the
Medical Research Council and the National Research
We have a national fuel cell initiative, which we
believe provides a key opportunity for Canada to be at
the forefront in the world in the manufacture of fuel
cells. We believe this is important because embedding
a company like Ballard in R and D and an
infrastructure is critically important to keeping that
potential here. Fuel cells are going be big business
in the next ten years, and it's essential that Canada
take advantage of the current lead it has by embedding
the companies in an R and D base and an infrastructure
We believe the next generation of devices will be
optoelectronic devices for the telecommunications and
information technology industry. Opto-electronics is
the marriage of optics—that's light—and
micro-electronics. It's the creation of a new kind of
device that will maximize the ability of light to
transmit information more quickly than simply through
electrons down an electrical wire.
So opto-electronic devices
are certainly in use now, but there will be a much
greater emphasis on that. We've proposed an
opto-electronic prototyping facility, which will give
our SMEs a much better opportunity in the future to
We've proposed two aerospace initiatives: an
aerospace manufacturing facility in the Montreal area
and an environmental gas turbine facility here in
Ottawa, to push ahead with the aerospace industry.
Then, in terms of national infrastructure for
information, there is the scientific knowledge network.
So, Madam Chairman, those are some of the things we
would like to do. We're very pleased that the
government recognizes the importance of R and D and
innovation to Canada, as we are increasingly dependent
on a knowledge-based economy.
After four years of declining base budgets at NRC, we
were very happy this year to see it turn around. While
the increase was modest, it was extremely welcome. We
were disappointed that none of the strategic
initiatives themselves were specifically funded, but we
do look on the increase we did get as, if you like and
being optimistic, a down payment for the future. We 'd
certainly like to see these things move ahead, and this
shot in the arm is helping.
We're very hopeful that this year's budget will
provide NRC with the resources to forge ahead with its
community and regional innovation initiatives right
across the country and particularly to bridge that
innovation gap in which we haven't yet invested very
Let me conclude my remarks there in this first part
of this presentation. Thank you very much.
The Chair: Thank you very much, Dr. Carty. What
I propose is that we have questions on
the first part of the presentation for 25 minutes or
half an hour and then move to the second part,
depending on how many questions there are.
I'm going to begin with Madam Lalonde.
Ms. Francine Lalonde (Mercier, BQ): Mr. Carty, thank you for
your statement, which is admirably candid for someone who is the
head of a Crown agency. However, I find some of your reactions
restrained. Some statements are very clear. The first troubling
fact is on page 7, where you point out that 44% of Canadian
expenditures in research and development are undertaken by a small
number of very large multinational companies.
Dr. Arthur Carty: I believe that statement is in the second
part of my presentation. However, I can reply now.
Ms. Francine Lalonde: No—
A Voice: We were given two documents.
Ms. Francine Lalonde: I know, since I looked at both of them.
May I, nevertheless, continue?
The Chair: During the first part of the meeting
we're supposed to be dealing with sustaining growth.
Then we'll have the presentation on productivity,
followed by questions.
Do you have any questions on the first presentation on
Dr. Arthur Carty: This statement is a little shorter than the
The Chair: Maybe what I could do is move to Mr.
Bellemare and then come back.
Ms. Francine Lalonde: I have prepared questions that deal with
both documents. Are you telling me that I should be referring to
the document entitled “Sustaining Growth”?
The Chair: There are two separate sessions.
Ms. Francine Lalonde: I fully understand that, but I want to
know which issue we are dealing with in the first part of our
The Chair: The first one was on sustaining growth.
Ms. Francine Lalonde: You say it's the one that he has just
presented and which finishes with tables. That's fine. So we are
starting backwards. In my opinion, this is illogical.
Dr. Arthur Carty: Excuse me, I should have specified the
Ms. Francine Lalonde: In any case, I have your budget before
me, where it states that the NRC received $15 million in new money
over three years.
Dr. Arthur Carty: Yes.
Ms. Francine Lalonde: Contrary to the granting councils, your
budget was not restored to the 1994-95 levels.
Dr. Arthur Carty: Yes.
Ms. Francine Lalonde: You continue by saying that you were
able to maintain many of your research programs because of your
ability to generate revenue, but that you have now reached the
Dr. Arthur Carty: Yes. Would you now like me to answer this
Ms. Francine Lalonde: You could develop it. Basically, you are
saying that you could do much more, but that you would need more
Dr. Arthur Carty: Yes. I can give you the example of our
Aerospace Research Institute. Because of cuts in the 1995, we had
to reduce the funding for this Institute by approximately $6
million, almost by one half. However, because of the Institute's
efforts to set up partnerships with Canadian aerospace companies,
it improved its financial situation and obtained $8 million. It
received financing from the private sector and other departments,
which replaced the funds that it had lost. However, I must point
out that the funds that we received in this manner were targeted
for specific short-term projects that we are undertaking in
conjunction with industry. We do not have the base necessary to
invest in new technologies and to develop innovative technologies.
We have had some success in compensating for the damage, but we are
not able to invest in the base of this Institute, and this is a
problem. We can always get funding for short-term projects in
partnership, but you must remember that it is important to
reestablish the base. In this specific case, we succeeded in
getting a lot of money to replace the funding that had been cut,
but this way of proceeding is no guarantee of excellence in the
future in this industry and in this Institute.
Ms. Francine Lalonde: The report that you presented deals with
fiscal year 1999-2000?
Dr. Arthur Carty: Yes.
Ms. Francine Lalonde: Are you forecasting a further increase
Dr. Arthur Carty: Are you referring to this year or last year?
Ms. Francine Lalonde: I am referring to fiscal year 1999-2000.
It states that expenditures in 1998-99 were $489 million; this
year, they are $480 million; it is expected that they will be $464
million next year and $447 in the following year.
I am inclined to want to go further and to ask you whether,
like Mr. Brzustowski, of NSERC—
Dr. Arthur Carty: Yes, Mr. Thomas Brzustowski of NSERC.
Ms. Francine Lalonde: He told us that the weakness of the
Canadian dollar, and underfunding of the universities, which are
partners that previously assumed indirect costs, created major
problems. Are you also affected by these factors?
Dr. Arthur Carty: Yes, they have had a major impact on NRC, in
Although we buy certain chemicals, materials and equipment in
Canada, we sometimes have to buy very sophisticated products in the
United States. It is almost impossible to find alternative products
in Canada. Therefore, the drop of the dollar has had a major impact
Furthermore, our Astronomy Institute in Victoria must pay
international fees when it cooperates with other countries on
projects. Because of the drop in the dollar, we have had to spend
an additional $1.5 million because the amounts were set in American
and not Canadian dollars.
These two examples show very clearly how we have been affected
by the decline in the dollar.
The Chair: Do you have another question?
Ms. Francine Lalonde: Yes, a last one. In view of the drop in
the dollar and new costs, how much money would you need to get back
to a level equivalent to 1994?
Dr. Arthur Carty: To replace the funding cut from our research
base and the programs and to correct the resulting decline, we had
asked for $75 million over the next three years, ie., $25 million
Ms. Francine Lalonde: That would be just to replace those
Dr. Arthur Carty: Yes.
Ms. Francine Lalonde: If we were to talk about development
that would be an entirely different issue.
The Chair: Thank you, Ms. Lalonde.
Mr. Bellemare, go ahead please.
Mr. Eugène Bellemare (Carleton—Gloucester, Lib.): Thank you,
Dr. Carty, I've always been, and I still am, full of
admiration for the NRC. I feel very supportive, and I
want to know how I can be more effectively supportive.
From the time I was young, a long
time ago, you were involved strictly in basic research, and now
you've gone to applied science with a welcome tint of
commercialization. Am I correct to say that?
Dr. Arthur Carty: I think you're right in making
the observation that NRC has changed, and it has
changed quite dramatically. It has changed because
there was a national need to change. There was a time
in the 1950s, 1960s, and early 1970s when NRC was much
like a university. The work going on at NRC, at least
in the science area, was basic research. The reason
for that was that there was a need at the time to build up
the universities' capacity to produce high-quality
people and to evolve graduate programs and research
programs of their own. NRC very much did that in the
Now, at this point in time the situation has changed.
NRC sees itself as being very much at the middle of the
R and D spectrum. We contribute basic research in
focused areas that are of importance to Canada, but we
also translate that knowledge into real world
applications through work in partnership with others,
through strategic research, and through technology
transfer. So it has changed and it has changed
dramatically. We are very much more linked these days,
I think, to industry, universities, and other
government laboratories than we ever were in the past.
So it's a critical time for Canada. We're investing
principally in that area where there is an innovation
gap. We provide the glue that helps bridge pure
research to commercialized products by strategic R and
D and by technology transfer.
Mr. Eugène Bellemare: Would there be a need
for a marketing division in your organization?
Could that marketing be in association with another
department, such as the industry department, for example, or
should it be a commercially based organization, a
private organization, that would do the marketing for
Dr. Arthur Carty: Each of our institutes in fact
has a business development office. There are usually
several business development offices, whose key role is
just what you're saying, to market what we do in order to
build partnerships with innovative companies, to work
with them, and to establish those relationships.
Mr. Eugène Bellemare: Is it proactive?
Dr. Arthur Carty: It's extremely proactive. We
have about 1,650 active research and development
collaborations that by and large have been
established through the relationships the business
development offices have established with our clients.
Mr. Eugène Bellemare: On page one there is a graph
that shows what is given by Sweden, Italy, etc., and
we're at the bottom. We're always near Italy. It
seems as if in every report I see, we're always....
Dr. Arthur Carty: There are some beyond Italy.
The Soviet Union is much worse than Italy, and there are
many countries that are much worse—
Mr. Eugène Bellemare: I know, but
every time I look at a report I find Canada
either in front or behind Italy. I don't know why.
There must be some kind of relationship here.
The Chair: This will be your last question, Mr.
Mr. Eugène Bellemare: There has to be a payback,
and there have to be indicators to show paybacks on
these countries when they invest.
Dr. Arthur Carty: Can I give you an example—
Mr. Eugène Bellemare: My question is really
practical, and you'll love it. Do you just present your
budget to Treasury Board and say this is what we need,
and you have a group of people over there who are
sitting with paring knives and their work order is to
pare and not necessarily to promote the country? What is
the process? How can this committee improve your lot,
when you say that you received roughly 20% of the
minimum you felt was required and that you want better
industrialization of our country? We're sitting in this
committee and we're asking, who pushes these buttons?
Are you on your own with these guys from Treasury
Board? How can we be useful?
Dr. Arthur Carty: I think the answer to the
question is that the committee itself can be
very influential. Obviously, budgets are set and
devised by the Minister of Finance working with key
players in the government. The Minister of Industry is
obviously important, as are other key ministers, and
for NRC itself to influence those is a difficult task.
We need the help of the industry committee and
other parliamentary committees and of
parliamentarians in general in order to convince the
Minister of Finance, the Minister of Industry, and
other players around the cabinet table that an
investment in NRC is not just worth while but
actually vital to the country. You do have a role and
an influence in that regard.
Mr. Eugène Bellemare: Thank you.
The Chair: Thank you very much, Mr. Bellemare.
Mr. Jaffer, did you have any questions?
Mr. Rahim Jaffer: Most of my questions
pertain to the second part, so I'll just wait until
The Chair: Okay.
Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): I
would like to get back to the $75 million over three years that
Ms. Lalonde mentioned, the amount that would allow you to correct
the losses that you sustained as a result of budget cuts. But you
also mentioned something else, namely that it would be important to
look at the development aspect. Government investment has an impact
on its partners, which, consequently, invest. It's a full circle.
Have you estimated how much additional money would have to be
invested for you to achieve this optimal level?
Dr. Arthur Carty: We had asked for $75 million over three
years for the base. I must admit that we were not proposing to use
these $75 million in the same way as we did in 1994-95, because we
have made some changes following the cuts. We have made progress,
the environment has changed and there are new developments and new
technologies. We would not necessarily invest in the same fields as
We have already spoken about our five strategic initiatives
which include genomics science and research infrastructure, which
require sustained efforts. In these fields, we had a critical masse
that allowed us to advance in this sector of the economy and its
related technologies. Each of the five strategic initiatives will
require additional funds.
Mr. Antoine Dubé: How much?
Dr. Arthur Carty: For example, we had suggested a program in
the area of environmental technology, which includes fuel cells
among other things, that would require an additional $30 million
over five years.
The two initiatives for the aerospace industry, which mostly
require equipment, would necessitate an investment of $45 million,
while the creation of an aerospace materials manufacturing centre
would require more additional funding. It would cost $60 million to
implement this strategy, half of which would come from industry and
the other half from our budget.
Mr. Antoine Dubé: Over how many years?
Dr. Arthur Carty: Over five years.
Mr. Antoine Dubé: You always use a five-year period. Have you
determined the total additional funding that would be required to
carry out these five strategic initiatives over the next five
Dr. Arthur Carty: Yes, we have determined that the entire set
of initiatives would require an investment of approximately $300
million dollars over five years.
Mr. Antoine Dubé: So, $60 million per year?
Dr. Arthur Carty: Yes.
Mr. Antoine Dubé: A few weeks ago, we visited the Canadian
Space Agency in Saint-Hubert. The president of the Agency and his
officials were telling us that they had had to cut back and make
adjustments, and that they had decided to carve out a spot for
themselves in the world by targeting the areas where we excel. I
think it's very timely to raise this point, because this morning,
Ms. Payette and her fellow crew members are in space. The famous
Canadarm is one of our specialties.
When you identified these five strategic initiatives, did you
take the same approach and choose targets in areas where we have a
chance to be among the leaders, not necessarily the best in the
world? Is this how you analyzed the situation?
Dr. Arthur Carty: Yes, absolutely. These are areas of research
and technology where Canada needs investment to be the best in the
world, to be a leader. For example, nowhere in the world is there
an opto-electronics centre similar to the one that we have
suggested. Establishing such a centre would provide a tremendous
advantage to our small and medium-sized businesses. This example
holds true in each particular case.
If we make the necessary investment, Canada will be able to
lead in these areas.
Mr. Antoine Dubé: Not only are we having a hard time keeping
our best scientists in these fields, but we also seem to be unable
to attract new ones. Could we solve that problem if Canada were to
make this investment?
Dr. Arthur Carty: Yes. If we had the equipment and the
laboratories that we would like to have, we would not only be able
to convince our best scientists to stay in Canada, we would also be
able to convince those who have gone to the United States to
return. That would be the case if we established our opto-
electronics centre, which would benefit scientists and small
business. The ones who have left to study in the United States
would come back here.
The Chair: Thank you, Mr. Dubé.
We're going to take Mr. Lastewka and Mr. Shepherd, and
then we're going to go to the second part.
Mr. Lastewka, please.
Mr. Walt Lastewka (St. Catharines, Lib.): Okay,
I'll be brief. I have only a couple of questions.
I believe the time period that we went through when we
had to go and do cuts forced us to really take a look
at ourselves and pick priorities and look at any
duplication, and forced us to do more partnerships.
Now that we've turned the corner, my concern has
always been—and I talked of this before and I just
want to have you assure me once again—that there is a
need to have a system in Canada on science and
technology and research and development to minimize,
and I say minimize, the amount of duplication that
could very easily come back
into the system as more money is available. Can you
assure me that we are putting in a system that's going
to minimize the duplication and the fact that we're
going to be able to have across the country and in
every province good science and technology research
that's more linked, that's more in partnerships, that's
Dr. Arthur Carty: I think Canada has made great
strides over the last five or seven years in actually
building partnerships. In some ways it has come about
through the realization that, first of all, we don't
have the resources to do everything, and secondly, we
may not have the resources to do anything unless we
work together with partners to combine our resources to
tackle a problem.
I think from the point of view of
culture in the research community, things have changed
a lot. There is more collaboration. There's more
cooperation. There's more effort made to pull
together critical mass rather than having separate
pieces that are contributing non-optimally to programs.
Certainly in the NRC the concept of partnership and
collaboration is the principle these days, and that's
not just in collaborative projects with industry. The
collaboration extends to community and regional
innovation, where the focus is not on the NRC imposing
something on the community but actually working with
the various players in the local innovation system to
see how we can all come together to maximize the
benefit of what we're doing. We can provide a
relatively small amount of resources in many cases, and
with the resources that others can provide and the
synergy that comes from interacting, we can put together
an innovation initiative that is much more effective
than if we dumped a large amount of money in there
willy-nilly. So I think that realization is quite
we've made it work in a number of communities.
you all know about Saskatoon and how that's now a
centre for agriculture, one of the major centres in the
world for agricultural biotechnology. It has come about
as a result of community involvement in that area,
the community realizing that it can grow its economy
through a very specific investment with all of the
I think we can do that right across the country. It's
happening in Winnipeg. It's happening in Vancouver. We
have innovation initiatives in Montreal of a different
kind with our institute for biotechnology, where that
institute has acted as a magnet to draw companies
around it, again feeding off the resource that's there.
This is a new way of doing business, and the NRC is
very much into it.
Mr. Walt Lastewka: For my second question—
The Chair: Is this your last question?
Mr. Walt Lastewka: —and my last, you did mention
the various large centres, like Saskatoon, Winnipeg, and
When I've travelled across the country, especially
in the last two years, and I've had to deal with
smaller communities, rural communities, to me, the IRAP
program is the connecting link with these centres.
In many cases where we could meet with small business,
it was the IRAP person who was able to deliver and be
Dr. Arthur Carty: IRAP is extremely important to
us, and the addition of the Canadian technology network
to IRAP, of course, has given it a nationwide
electronic network, with business links added onto the
technology advice and support that IRAP provides.
The IRAP ITAs are absolutely critical to this country.
SMEs are driving economic growth, and the IRAP program
is recognized as the best of its kind in the world. I
never get any opposition internationally when I mention
that IRAP is a world leader in helping SMEs. Everybody
knows it. They're all trying to duplicate it.
We have programs to actually clone IRAP in Thailand
and Indonesia. We're looking at Taiwan. They want to
know how we do it. It's the key to the growth of our
Mr. Walt Lastewka: My only comment is that they
are stretched in the areas that they cover—
Dr. Arthur Carty: Yes.
Mr. Walt Lastewka: —because as we go from large
corporations to more and more small businesses, it's
the ITAs that are the link. They're the key; they can
be the success or failure of a small business because
of their link to other researchers.
The Chair: Thank you.
Last question, Mr. Shepherd.
Mr. Alex Shepherd (Durham, Lib.): I have a whole
bunch of questions, but I will probably get shot down
here, so I'll try a few.
One question is on the number-crunching. I couldn't quite
understand from your presentation; you seemed to be
saying you needed $75 million just to bring you back up
Dr. Arthur Carty: I should perhaps explain that
the $75 million is not simply to replace what we
were doing before. This will enable us to invest in,
for example, new community and regional innovation,
which we believe now is critical to Canada's growth.
So it will enable us to do that. It will enable us to
replace equipment that is no longer state of the art.
It will enable us to continue to operate programs like
Women in Engineering and Science, the post-doctoral
program that is so critical to replacing our human
So it's a $75-million base investment that will help
restore our infrastructure, re-establish and keep going
our human resources programs, get involved in local and
regional initiatives, and invest in new areas of
research, which we haven't been able to do and—
Mr. Alex Shepherd: But is the $300 million
in addition that?
Dr. Arthur Carty: Yes. The $300 million is really
to put in place these strategic initiatives, as we call
them, that are critical to Canada in the next century.
Mr. Alex Shepherd: The real problem I
noticed, the more we're getting into studying this
whole area of productivity, is Canada's seemingly poor
take-up on embracing new technologies. I think our
small-business sector is one of the worst. Quite
frankly, we've seen this in the Y2K issue; we see it in
all kinds of areas. We, as politicians, are having
some great problems getting the message out there to
the public. How do you think the NRC could assist
us with that? How can we make the connection between
innovation and standard of living, that people's lives
will be better off if we make these investments?
It's quite frankly what we're talking about here
today, because clearly when it's all said and done,
it's what's politically saleable. We have to be able
to say this is a great investment because it's
going to empower you and your children and your
children's children. How can we make those messages
Dr. Arthur Carty: I think the way to
really convince people is by showing them successes and
success stories of companies that are growing on the
basis of technology, are creating jobs on the basis of
technology and are actually helping a
community, a region, or a city prosper. There's nothing
like success stories to convince people. On principle,
it's more difficult, but when you have something
concrete to show them, have a company that has been
provided with the technology from NRC, has taken it
with help from IRAP, has converted it into a viable
company employing employees.... I have some examples in
my next presentation where that has happened.
That is the best way to convince people. And people
find the Saskatoon example very convincing, because
they know they can see a hundred companies in a
research park, most of them associated with agriculture
or biotechnology. And they shake their heads and ask
why this has happened in Saskatoon. Why
Saskatoon? Where would you think this would
happen? Not Saskatoon. It's happened because of
innovation and it's happened because people have worked
together and made an impact.
The Chair: It's the only place that didn't have
its funding cut. It actually had its funding increased
in research during the cuts. There are enough reasons.
Dr. Arthur Carty: There are lots of reasons.
I want to note that there are
other successful communities too, ones that have
managed to make it work.
Mr. Alex Shepherd: I agree with you, but on a
broader scale, the entire mass of population, I
still think you're talking about a small group of
people who would appreciate the Saskatoon experience.
I'm one of them. I get off the plane in Taiwan and
people start talking about the Saskatoon experience.
It's fantastic. But for some reason in this country
we don't seem to be getting those messages out to a
broad-based public. And quite frankly, if I went
around my riding and talked about the NRC, people
wouldn't know what I was talking about. That is a
profound problem for politicians in saying this
is all about allocation of resources. We're going to
take x number of dollars and we're going to do
this with it, or we'll do that with it, so why are
we spending all this money on research? How are the
people in my riding going to benefit? That's the
message I have to sell.
Dr. Arthur Carty: It's not an easy sell, and I'm
trying my best as president of NRC to get out there and
tell people that we live in a different world.
We live in a world where knowledge, research and
development, and innovation are actually driving
economic growth. It isn't just your natural resources.
It's adding value to natural resources through research
and development technology, but it's also creating new
technologies and being competitive globally.
I think you can see that in this town. Twenty years
ago, Ottawa was essentially making matches and wood
products, and look at it now. All the growth is on the
basis of technology, and the technological base is
diversifying, so there's now a growing bio-sector in
Ottawa. It's not just all information technology,
There's another example that one can cite,
and I think you can pick other communities where this
has happened. Beauce in Quebec is an example of a very
small community that is very successful. We
have to pick those success stories of individual
companies and communities and tell them and have
others realize. And I think it's happening.
Walt was telling you about some of the things happening
in southwestern Ontario, in the Niagara region. I
think it's happening. It's beginning to happen across
the country. We have to keep up the momentum and push
it as hard as we can.
The Chair: Thank you, Mr. Shepherd.
Thank you very much, Dr. Carty. I'm
sure we could go on with this session, obviously, much
longer, but I'd like to move to the second session, which is
our consideration of the study on productivity,
innovation, and competitiveness. I'd ask you if you
would present your second paper, and then we'll move to
questions. Thank you.
Dr. Arthur Carty: Some of it we've already gone
into, Madam Chair, in a number of ways.
Can I have a couple of seconds here?
I'm going to start with a quote from Michael Porter.
He's an influential person, and hopefully he can
influence people. He made a recent statement that
“Innovation is the central issue in economic
prosperity”. Translating that to the public is a
bit of a challenge, but I'm going to move on through
some of first aspects I was going to talk about
and then come right to the point about economic growth
Let me just spend a few minutes to begin with
pointing out how innovation works in Canada, because I
think we're very different from other countries in this
regard. And I think it's an understanding of this
that is crucial to the need for investment.
I'll give a definition, first of all. We consider
and define innovation as the creation of new ideas and
the application of those ideas into new products and
services in the marketplace. That's our definition. So
it's a holistic one, if you like: creation of new
knowledge, new ideas, and translation of those into the
I think it's important to note that innovation isn't a
linear thing. It's not basic research here and then
moving to applied research and then moving to
development along a chain; that's not how it works
any more. It's actually very different from that.
The days of this innovation chain are really gone.
What we have is that the people who create knowledge
and the people who put those applications to work must
interact. So this innovation is a series of constant
feedback loops between the various components in the
innovation system. So the people creating the
knowledge must talk to those who are creating the
products and getting them into the market. And this
really results in what we call a dynamic system of
I think I'd like to show this. This looks
like a complicated diagram; it's a system of
innovation, but I think it explains very nicely what we
need. So you see that this has a number of components.
Up here you have research and development; you have
science and technology infrastructure, you have the
educational system, you have learning systems,
apprenticeships and technology training down here. Then
you have finance. You have business organizations and
you have government. And really at the centre of this
innovation system are the innovative firms, because
ultimately it's the companies that get innovative
products into the marketplace.
Now, what is important about this is that these are not
isolated things. Research and development on its own
in isolation does nothing for you. What has to happen
is that all of these things have to be linked, they
have to work together. The research and development
organizations have to have the research infrastructure;
they have to be linked to the innovative firms. We
have to provide highly skilled people, both from the
university system and from the colleges for technology,
in order to provide the personnel to enable this
innovation system to work. In order to get innovative
firms to put products on the market, there has to be
financing, venture capital; you have to have money
from the banks.
Government has a key role to play in providing funding,
but also in setting the environment, the regulations
and the policy. And of course business associations can
also play a role. A real working innovation system,
whether it be national or at a very local level, has to
have all of these elements, and they have to interact.
So that's, if you like, a regional community innovation
The other thing we have to realize is that we
live in a global economy. So this has to be embedded
into a global environment, and of course somehow or
other it also has to be sustainable. This is what
we would call a functioning dynamic system of
I think I'm going to say that to add value to what
we produce we need access to knowledge. We need
scientific research. But we need all of the
infrastructure and all of the elements of this
innovation system to work.
Let me turn to the next overhead. I've already
mentioned that Canada has an innovation gap. You
might ask from that innovation system, what is it that
a country needs to innovate through science and
technology? Here are some of the elements, and I can
go through these, because I think it's important to
realize the ones that are missing at the present time.
First is the research base.
We've already seen that over
the last three years there's been a significant new
investment in the research base and we've partly
repaired—it isn't over—some of the
damage that was done earlier in the decade. We need
focused strategic research in areas of wealth
generation. We haven't got to that point yet, the
strategic research and the innovation gap, the
strategic research gap; there's still a need for a
major investment in targeted, focused research in
areas of wealth generation.
Next is highly qualified human resources. We've made
progress in there through the universities. In some
cases it's happening more than in others, but we've made
On national facilities and infrastructure, the CFI is
helping in that regard. Partnerships have developed.
I talked about that earlier.
University-industry-government have developed
significantly and are a key to the innovation system.
Networks: the networks of centres of excellence,
local networks, regional networks, bring in the
international component. Those are important, and we've
also put things in place there. NRC alone has
established many international connections over the
last three years in recognition of this.
Knowledge infrastructure: we talked about CISTI and
the scientific knowledge network. We're actually a
leader there in the provision of knowledge
electronically, the provision of information
electronically, right across the country. And there's
a program to develop digital libraries based on the
Support mechanisms for innovative firms—we have
some of that. IRAP does a lot of that. TPC,
Technology Partnerships Canada, is doing that. We need
more of that. As the economy grows, obviously that's
going to become very much more important. IRAP is
running out of money and there are more demands than it
can satisfy. It's going to run out of money this year,
I can guarantee, before the end of this calendar year,
never mind the fiscal year.
I mentioned technology transfer and entrepreneurship.
We still have an innovation gap, and both of
those components, technology transfer and
entrepreneurship, are important.
And risk capital and financing has improved. We now
have a lot of venture capital corporations. So what is
missing in here is technology transfer and
entrepreneurship, focused strategic research in areas
of wealth generation, the innovation gap.
In summary, then, on the one side we've been pretty
good at creating ideas and building the knowledge base,
the other side we seem to have some programs for industries
that are capable of turning those into commercial
success, but in between we still have this problem of
bridging the gap. You might say that our hard-earned
intelligence doesn't easily build products or generate
applications unless we have all of those other
elements for that innovation system in place.
You might say that Canada's innovation gap is a bit
like standing on separate mountaintops across an
Alpine valley. You have those two pieces
up there, and getting things in the middle to bridge and
provide a flow of ideas and technology from one side to
the other is important.
I've tried to emphasize that at NRC we try to
address that innovation gap up front, not just by
focusing on the creation and the application, but
particularly on the transfer of technology. We've been
able, we think, to transfer the language of science
into the language of business—and I did respond to a
question earlier about our marketing and business. So
we believe that we fill a very special niche in Canada,
and we've learned, I think, through the years what it
takes to drive innovation. Some of these things I've
mentioned: focused teams with industry partners, work
with partners from the beginning of a project, work in
collaboration; early and sustained funding for
strategic research; standards and prototyping;
intellectual property management; thinking ahead to
next-generation technologies, and I showed you our
strategic initiatives in this regard; support for local and regional
initiatives, which is very important, as the national system of
innovation is the roll-up, if you like, of all of the
local ones; and working with local champions to bring
clusters of firms together, as in the Saskatoon model
or the Montreal model.
What I want to talk about now is the particular nature
of the Canadian industrial base, the Canadian R and D
base, and it's shown here. This is what I call bridging the
strategic research gap.
This is really a map of the research spectrum, with the
relative allocation of resources given. So here on the
left-hand side is the basic research, large “R”,
small “d”—a lot of research, a small amount of
development—and on the other side, a small amount of
research and a large amount of development.
The red part, really, is industry. Development work
is very much the goal of innovative firms in industry.
On the other hand, much of this in the blue part is
done by the universities, some by NRC, and the networks
of centres of excellence and the partnerships help
bring this over a little bit.
NRC's unique role is across the spectrum, but largely
in the middle of this. We help bridge between the
knowledge and the applications by working in
partnerships, by investing in strategic areas of wealth
creation, and filling that gap. That's a crucial role
we play through our institutes and through IRAP, and
it's a unique role.
I think you know that in Canada we don't have very
many large research-intensive industries where there is
a significant investment in R and D. After Nortel, you
drop down to a company like Pratt & Whitney. Nortel
invests $2.1 billion U.S., Pratt & Whitney about $400
million Canadian. You can see from the NRC numbers
that NRC, strangely enough, is up there as one of the
major investors in R and D because we don't have many
large companies that invest heavily, and that really
So with very few of these large enterprises in medium-
to long-term R and D, helping to drive innovation,
there's a very special need for government labs to
invest in this area. There's a real role in Canada,
because of this unique situation, for government to
invest in the middle of the spectrum, and that's the
point I want to make. We're not like the United States,
where there are large corporations, or France or
Germany, where they invest heavily in medium- to
long-term R and D. We're quite unique in the structure
of our industry, and it's very important to be
investing in the middle there.
So I would like to say that NRC institutes have been
ideally placed to crystallize this view of filling the
innovation gap, filling the strategic research gap, and
helping to draw together players from both sides of the
spectrum to drive innovation. Some of the things I've
already covered. We have the makings of a world-class
innovation structure with some of those essential
elements, and I've pointed out what we need. We have
invested in knowledge, on the one hand. There's funding
for IRAP and TPC on the industry side, but we don't
always tie them together. So my thesis is that NRC is
the backbone of the innovation infrastructure. We
manage national facilities, we do R and D, and we help
fuel economic growth.
I think we are uniquely placed to help in translating
ideas from the research side into practice. Our
strength is in building partnerships, and I'm going to
give you now a couple of examples of how this has
The first example is a small maritime company called
Acadian Sea Plants. It's a company from Dartmouth,
Nova Scotia. This firm has used NRC's expertise in
proprietary technology to develop high-quality edible
seaweeds for the Japanese and Southeast Asian market.
The company, over the last few years, has become one of
the major suppliers on a global scale of this product,
which is now sold in 35 countries. Acadian Sea Plants
employs 50 people permanently and hundreds on a
seasonal basis, and it's a great example of how
community innovation fosters growth.
The technology and the expertise came out of our
institute. By working with this small company, we were
able to help their business, and now they're a
thriving, essentially export-oriented company.
So we have affected innovation in that way, in
a local and regional sense.
One of the roles of our institute, just as in the case
of Acadian Sea Plants, is to bring small and medium
companies together to provide the expertise in which
they can gain a critical mass and become
self-sustaining. We think that in this way, both
through the institutes and IRAP, we have a significant
impact on the technological competitiveness of
literally thousands of small firms in communities
What we believe we have to do at NRC is to be a leader
in the knowledge economy by capitalizing on
intellectual resources and business resources in all of
the sectors. R and D itself helps increase
productivity in the high-tech sector, we know that, and
there's a tendency to think of innovation as only
involving the high-tech sector. But it also has the
capacity to build on the very strong resource base that
we have in Canada. Our resource industries can become
more competitive by adding value through technology,
and our institutes and IRAP can do that too. I think
we're making important contributions to productivity
and sustainable development and sustainability in the
resource sector industries.
How does R and D and innovation enhance productivity
and create jobs? Well, I could spend the rest of the
day perhaps telling you of recent examples, but there's
not enough time for that, and there are documents here
that I think will provide you success stories that
clearly demonstrate how this works.
Just let me give you another example. If you think
back 20 years ago, the laser at that point in time was
just a research tool; it was just emerging. It was
valuable in the lab but a curiosity, you might say, in
the marketplace. Today, where is the laser? Well, you
see it everywhere. It's everywhere in our everyday
lives. It's the common component of CD players. You
find it in office and business equipment. You meet it
every day in the supermarket. Perhaps we don't really
realize how a technology like the laser has impacted on
our lives. The impact technologically and commercially
has been staggering.
You would probably not be surprised to know that NRC
was a leader in the development of lasers in the early
days, and we're still at the leading edge of laser
research. We have one of the best laser groups in the
world, right at the cutting edge of what's happening in
So in the same way, we think the technology areas
that I identified, the strategic initiatives, will pay
off and the opportunities will pay off ten years
from now, but unless we as a country are willing to
invest on the ground floor, others will move in quickly
and have the opportunities all to themselves. So I
think we have to take a look at where we want to make
strategic research investments. I've mentioned the
need to invest in the centre of that R and D spectrum.
We think we have a unique role in bridging that
knowledge to real-world applications, and we need to be
able to enable Canadian businesses to take full
advantage of the investments that have been made in the
creation of knowledge and in getting the products into
I'd like to finish by saying that the need for
investment and innovation hasn't gone away. In fact,
Canada has made some critical investments in the last
three years in two sides of the innovation spectrum.
We need to focus on the innovation gap, on technology
transfer, and on marrying those two things together.
That's really what I'm going to leave you with today.
The Chair: Thank you very much, Dr. Carty.
Just so members know, this meeting is scheduled for us to
move in camera at 11 o'clock on the
Y2K report. We may go over by about 10 minutes, but
we'll see how things go.
Mr. Rahim Jaffer (Edmonton—Strathcona, Ref.): I'll
keep my questions short.
One of the big gaps, as you
mentioned, is to take ideas from the basic research stage
and hopefully have enough funding to take them right to
the marketplace, and the area of development
within industry and other forms of taking that out, to
get good ideas to the marketplace.
In your opinion, what are some of the
obstacles that are currently facing more
investment from say the industry side here in Canada
when it comes to R and D, and looking at trying to get more
of that partnership happening, given that hopefully
the trend of investment will continue within
organizations like yours from the federal government's
From what I understand, we do have quite
an attractive form of R and D tax credits when it comes to
investing in basic research, yet we've got some of the
lowest investment when you compare us to the G-7
countries. I might be wrong on those figures, but
that's what I think I understand.
Dr. Arthur Carty: That's a very good question
and an important one. I think in order to understand
it you have to understand the structure of Canadian
industry. It does have a large number of branch plant
operations in which multinational enterprises are
active in Canada but not investing in R and D here because
they do it at their home base. That's one of the
Now, it is true that industrial investment in
R and D is increasing. It has been increasing for a number
of years. That's both on the small company and the
large company scene. I think
the key is, though, that we're going to have to grow in
Canada. If we really want a strong industrial base and we
want to have companies that invest very heavily in
medium- to long-term research as part of their
investment, we're going to have to grow the companies,
and we're going to have to grow them from small
We're going to have to grow the Microsofts.
There are some good examples. If you remember, in
1983 there wasn't a biotechnology industry in Canada,
and by a focused government investment in the mid-1980s
we now have
a number of large companies like BioChem Pharma, which
is a major player internationally. Quadralogic
Technologies is another major player with new things
coming onto the marketplace. We have a number of those
things that we've grown, home-grown companies that
are competitive. So I think the key thing is to make
sure we have the environment whereby small and medium
enterprises can grow large. Magna is now a big
company; it started off small. We've got to grow
those things and have the right environment to do it.
Mr. Rahim Jaffer: I guess that's the key, the
environment too, because R and D is obviously
but if you don't have the right environment—I think
Madam Lalonde touched on it earlier, the simple issue
of the dollar, and then how other companies in say the
U.S. would move in and pick up some of our—
Dr. Arthur Carty: There's a story about Silicon
Valley that I'll convey to you, which I think is a
lesson in many ways. People believe the reason
Silicon Valley is so successful is partly that
there is a clustering of companies there, and there is
such a fantastic exchange of people and ideas in
Silicon Valley. The synergy that has come about as a
result of companies and individuals interacting has
helped that grow. You don't find quite the same thing
in the Boston area. It's not as successful.
So the idea
of community and regional innovation in Canada, where
you cluster companies that have a common interest and
you help them feed off one another, so you
have a local or regional economy that can really move
ahead, I think that's key. If you've got the
environment, the instruments in place within
communities, it can really happen. Again, to come
back to Saskatoon, Ottawa, Montreal, Winnipeg, and to
a certain extent Vancouver, it's happening. It's
beginning to happen.
Mr. Rahim Jaffer: The last question I have is
specifically on that point. Obviously you've brought
up the issue of Saskatoon and what successes
have happened there, and you mentioned at one point, I
believe, the interest of the NRC to look at local and
regional development and those sorts of partnerships.
It sounds good, and I know
there are initiatives obviously at the provincial
level and different areas to look at development and
innovation. In your approach, if you can expand on the
direction, especially on the local and regional partnership
issue, my only concern is then would the NRC
maybe come into conflict with some of those provincial
I know a lot of this stuff is global anyway in
some of the focus, but maybe you could expand on
what's happening there so there wouldn't be any
duplication, or what sorts of innovations and what your
thoughts are on where that's going.
Dr. Arthur Carty: First of all, I would say
the focus of our regional and community innovation
initiatives is actually to bring people together so
that there isn't any conflict between what
the province wants and what the federal government as
seen by NRC and perhaps the regional development agency
in some cases and local industry is capable of
doing. So the whole thrust of this is to work together
with a common goal in mind.
You don't want to duplicate resources and you don't
want to be in conflict with what a province sees as
their priorities. That's very important.
The Chair: Thank you very much, Mr. Jaffer.
Mr. Walt Lastewka: Thank you, Madam Chair.
My first question was similar to Mr. Jaffer's. We
still have that branch plant mentality. I'm glad
you said, and I've heard more people say, that we
have to grow our small businesses to be large
businesses, to be Canadian businesses, to move forward.
You talked about new products and innovation and so
forth, but I didn't hear you say too much about the work
you can do in your area on helping systems in
industry. There's a lot of work being
done at NRC to develop and fine-tune systems. You
talked about the laser a little bit. Could you tell us
a little more about new technology and productivity
improvements in those fields other than the
Canadarm and so forth?
Dr. Arthur Carty: Yes. I think there's an example
in my text about Air Canada. I didn't describe it
Mr. Walt Lastewka: That's the 320 monitoring
airplanes, on page 3?
Dr. Arthur Carty: Yes, the diagnostic system.
This is an example of systems where the thrust for the
project was the expertise we've developed in
software and expert systems over a period of time in
our Institute for Information Technology.
We've worked with Air Canada and also with General
Electric Aircraft Engines to develop an integrated
diagnostic system that essentially provides diagnostic
information from the aircraft when it's in operation to
the ground so that it can be analysed and processed and
provide feedback to Air Canada ground staff. It can
provide information that will enable the company to
plan its operations better, to schedule maintenance to
project potential problems before they arise.
So this is an expert system that is amassing data
from aircraft operations, analysing it on the spot,
making it instantly available, but also over a period of
time allowing better planning. This is now being
implemented with Air Canada, and they believe that from
the A-320 fleet alone—they've got something like 30 or
40 A-320s—they'll save millions of dollars annually on
better planning, better scheduling, better maintenance
of their aircraft. Also, they'll avoid accidents as a result
of this intelligent system that has been developed
and put in place, again through several years of a working
collaboration between NRC and Air Canada.
And Aérospatiale and other aircraft
manufacturers are interested.
Mr. Walt Lastewka: So I see this as a safety and
up-time project. Improving the up time improves the
productivity of the equipment, in that case being
When you look at new products and new systems, is
there any priority, from your experience?
Dr. Arthur Carty: Do you mean our investments in R
and D? I suppose you could say investments in
computers, in software, in information technology in
general is enabling and it will affect productivity.
I think in fact the gains we're beginning to see
in productivity in Canada are due to the fact that there was a
lag in the response to the new generation of
information technology that has come onstream and
been implemented. I think
productivity gains are resulting from
that. New technology does impact very much on
innovation and it does impact very much on
productivity. I wouldn't try to separate the two.
There's a role for both.
The Chair: Last question, please, Mr. Lastewka.
Mr. Walt Lastewka: What would be the best way to
explain productivity to the ordinary individual, like
Stan Keyes? How would you explain that?
Dr. Arthur Carty: How would you explain
productivity? I think the best way to explain
is perhaps to ask, in a
conversation, what is it in your
workplace that would enable you to do your job better?
That's where you see productivity advances, when a
person can actually, using the technological tools at
hand, better improve their output and their
productivity. I think you can see that rather nicely
via the use of computers in the workplace.
People tend to think that technology puts people out
of work. It doesn't, actually. It creates jobs. It's
rather like the story people were telling about
computers and information and technology doing away
with paper. That's not the case. Technology doesn't
do away with jobs; it actually increases the number of
jobs. It provides completely new opportunities. So
that's nonsense, that technology does away with people.
The Chair: Thank you.
Madame Lalonde, please go ahead.
Ms. Francine Lalonde: I would like to continue talking about
productivity. We know that introducing technology into a company
does not necessarily improve productivity if the labour force and
management are not prepared for it.
When I was at university, I taught what had happened at GM
when they introduced the Saturn plan. They had a great deal of
difficulty getting as high a productivity as beforehand, when the
work was organized differently. Perhaps you'll discuss that later.
Organizing work differently is one way of increasing
productivity. Just reducing the number of foremen increases
productivity. We don't talk about that enough.
Dr. Arthur Carty: Managing and organizing the workplace are
Ms. Francine Lalonde: Yes. Here's something else. We have
known for a long time that the large multinationals rarely invest
elsewhere than in their parent company's country. Pratt & Whitney
is an exception.
So Canada has a major structural problem, and in my opinion,
everyone must know about it. I'm speaking of Canada and Quebec.
Canada is a small country.
Dr. Arthur Carty: Indeed.
Ms. Francine Lalonde: In terms of investment, Canada is
lagging behind in relation to other G-7 nations, and that's well
documented, because several multinationals do not do a research
here. So either we accept this situation or government must
intervene. Tremendous efforts have been made in Quebec,
particularly by the government of Bernard Landry. He prepared a
plan entitled Bâtir le Québec, which focussed strongly on
developing technology. At the time, people even thought that he was
going too far.
We must become aware of this problem. I think that
parliamentarians must be the first to know about the situation in
Canada, but that doesn't mean that we must not try to ensure that
businesses invest in R&D.
The same thing holds true for labour force training. In
Quebec, we tried to encourage business to invest in labour force
training, but finally we passed legislation, as many other
countries did, to force business to invest in their labour force.
What is the National Research Council doing to help the
provinces, for example Quebec, that devise their own development
and innovation strategies? What is your partnership strategy? It is
nowhere to be found. I do know, however, that the Industrial
Research Assistance Program, for instance, is carried out in
conjunction with the CRIQ in Quebec.
Dr. Arthur Carty: The IRAP program plays a very important role
in the growth of small- and medium-sized companies in Quebec, but
the NRC also has two of its larger institutes in Quebec. We have
the Biotechnology Research Institute, which now has nearly 500
people. It has doubled in size over six years thanks to
partnerships and thanks to the companies in the incubator in
Montreal. The BRI and the biopharmaceutical and bioenvironmental
companies in Montreal interact a great deal. We also have the
Industrial Materials Institute in Boucherville, which is itself
important and which has dealings with the universities, such as the
Université de Montréal, the Université du Québec and McGill, as
well as with companies in Quebec that are involved in the area of
industrial materials, namely plastics, polymers and metals.
These are partnership models thanks to their interaction and
their integration in the province of Quebec and in the Quebec
industry, as well as within Quebec's innovation culture.
The government of Quebec recently published a report entitled
Innovation au Québec, and the NRC's two institutes get very good
marks in this report. They are models.
Ms. Francine Lalonde: Talking about partnerships, you
mentioned BioChem Pharma. That company started with research that
was done at the Microbiology Institute, which had a hard time
living with researchers...
Initially, the research being done there was supported by the
Fonds de solidarité and the Caisse de dépôt. There was local
support, and it became a very large company, and you said that it
was important at the domestic level. When people really pull
together, these partnerships become possible.
Dr. Arthur Carty: Yes. It is important for small and medium-
sized companies to be in an area that promotes innovation. To grow,
they need not only support for R&D, they also need to be in an area
where there are other companies working in the same field. We call
To be able to grow, they also need the support of government
in terms of regulation and policy. Finally, they need managers who
are familiar with innovation.
Ms. Francine Lalonde: Thank you.
The Chair: Thank you, Ms. Lalonde.
You're going to speak, Mr. Shepherd, then Mr. Keyes,
and then we're going to have to stop. Mr. Shepherd,
Mr. Alex Shepherd: Getting back to this branch
plant economy thing, I don't know how far down the road
we go with that. It seems to me we're saying that
foreign ownership inhibits domestic research, leading
to lower standards of living. Is that a fair statement?
Dr. Arthur Carty: I think it's a difficult
equation to balance. After all, if you bring a
multinational to Canada, they do create jobs and they
do pay taxes. And creating jobs and paying taxes is
important. So let's not say that a company that's in
Canada creating jobs and wealth is not welcome because
they don't do R and D. I don't think that's the case.
Mr. Alex Shepherd: No, but we're focusing on the
innovation gap, and presumably the innovation gap is
between us and the Americans when it gets right down to
When you talk about technology transfers, to what
extent are those technology transfers going right out
of the country?
Dr. Arthur Carty: Well, you know, we live in a
global marketplace, and things are changing at a rapid
pace. To think that we can isolate ourselves from the
world is not very sensible. For example, in our
approach to technology transfer at NRC, when we have
developed a technology we think is useful it's usually
done from the beginning in collaboration with a
Suppose that something has happened in R and D that
has brought something to light and in which we haven't
had a partner at the beginning. What are the choices?
Well, you look for a Canadian company that has
expertise in the area and could possibly accept the
technology, take it and run with it—license it, for
example. That's one option. If you don't have a
Canadian company that has the capacity and the
capabilities, what do you do? Well, you have two
choices. You start a company. In other words, you
create a company from scratch. That is increasingly a
very valuable mode of technology transfer. NRC is very
much in the business of spinning off and starting
companies when there isn't a natural receptor in
In the past there might have been situations where, if
there wasn't already a Canadian company and you wanted
to see your technology in use, you'd transfer it to
somebody outside the country. There's much more
emphasis these days on starting new companies,
incubating them, growing them, providing them with the
oxygen initially to get them on their way and making it
work that way.
So I'm less concerned about that. I'd be more
concerned about small and medium companies being
inward-looking and not looking at world markets and
world opportunities, because I think that's really
going to be one of the criteria of success in the
future: how much you can attack the world markets, the
We're a small country, you know. The market is small.
Mr. Alex Shepherd: I understand that, and I'm not
talking about closing our borders or any of those good
The Chair: Last question, Mr. Shepherd.
Mr. Alex Shepherd: You mentioned a collaborative
process with General Electric. Presumably when all the
smoke clears, General Electric owns the technology.
Dr. Arthur Carty: No, they won't own the
technology. Air Canada is the principal collaborator
on that. General Electric is also working on it. The
best they would do would be to license the technology
from NRC and put it into use in Canada. Air Canada
would be the major licensee.
Mr. Alex Shepherd: But in a case like that,
General Electric could take the technology and market
it in the United States.
Dr. Arthur Carty: Their interest is of course in
the engine side of it. And yes, we would expect that
if it was a multinational.... There are many in Canada
to whom we would license technologies who are operating
here, like Merck Frosst, for example. You know, we do
business with Merck Frosst. Merck Frosst is a big
company. They're one of the principal investors in R
and D. We don't have any problems with investing in
Merck Frosst, even though the products will be on the
global marketplace, because they have a big presence in
Canada. They employ a lot of people and they also do R
and D. We have no resistance to that.
The same would be true of Pratt & Whitney. We have
strong interactions with Pratt & Whitney in Montreal
and Toronto. They're a multinational, but they are
creating jobs and wealth for Canada. The aerospace
industry in Canada has grown enormously—partly
Canadian, partly multinational. They're all
multinationals. Bombardier is a multinational company
The Chair: Thank you very much, Mr. Shepherd.
Mr. Keyes, please.
Mr. Stan Keyes (Hamilton West, Lib.): Thank you.
Just some quick questions, Madam Chair.
Thanks very much, Mr. Carty, for your presentations to
When you speak of GE, Pratt & Whitney, Frosst, the
aerospace industry, etc., these are big
companies. You can see where their institutions
understand things link NRC, IRAP, ICAST, you name
the program. But have you ever had complaints that
given the size of NRC and all these different
fingers from NRC, maybe NRC is a little bit user
unfriendly to a small enterprise trying to get up off the
ground, that it comes up to a monolith called NRC and
maybe is intimidated by what it has to do in order to
progress through this system?
Dr. Arthur Carty: I would say yes, that is
a possibility. We are a technology and an R and D
organization, so to a company that isn't involved in R
and D, there might not be a way for us to really help
them very much.
I think we've tried to get over the problem of small
companies not being able to access our resources.
That has been something we've focused on. We have
a much closer relationship these days between IRAP and
the IRAP ITAs and our institutes. I'm sure
there are companies that will have difficulties
with this, but we tried to minimize that as much as
possible. I think we're more open than we've ever been
Mr. Stan Keyes: Oh, I don't question your openness
or your abilities even. I fully agree that NRC is
doing a fantastic job. I'm one of those who have
spoken up to ensure that you have the funding to
continue the job. I'm just looking at.... If you're
looking at some kind of a flow chart, for example, and
at the bottom of that flow chart is SMEs, and SMEs have
to work up through this system through the ITA and
through up into NRC and try to get the funding and
all that kind of thing, you can imagine how
intimidating it would be for a small enterprise to
Dr. Arthur Carty: But I think from the ITA's
point of view, it isn't really intimidating. In terms
of the statistics, 80% of the companies IRAP works
with have fewer than 50 employees.
Mr. Stan Keyes: Good. I'm glad to hear that.
Dr. Arthur Carty: These are largely small
Mr. Stan Keyes: I agree with your message
that NRC is the government's best agent of innovation.
Do we do any work with steel plants?
Dr. Arthur Carty: Yes. Over the years we've
done a lot of work with companies like Dofasco.
Mr. Stan Keyes: Yes, that's exactly what I was
going to use, being from Hamilton, of course.
Dr. Arthur Carty: In fact we had a major project
called the Bessemer project, which was to develop—
Mr. Stan Keyes: Dofasco in particular—let's focus
there. They've done one heck of a great job with the
innovation and technical changes, etc., to produce the
product they do now. They seem to have not run into
this innovation gap. It seems there is no innovation
gap, from what I've seen, at Dofasco.
If there is a concern about an innovation gap, do
officials from NRC ever go to a place like Dofasco and
say “How did Dofasco close this innovation gap, and
how can we apply those principles or those techniques
to ensure that we can close our innovation gap?”
Dr. Arthur Carty: One of the things I haven't
talked about, but which is a very important part of
what we do at NRC, is that we take advice from
companies very seriously. Each of our institutes has
an advisory board that is by and large drawn from the
industries and the clients that particular institute
would serve. So all those boards are chaired by people
from the private sector, from outside NRC of course,
and the makeup of them is external. That advice we
consider very seriously. We consult people very
broadly through workshops and round tables whenever we
have a change of program, whenever we're looking at
something new, to ask which directions to go in.
For example, manufacturing technologies is an area
where Dofasco and Stelco and also General Motors and
other large and small players would be involved. We
have an advisory board that is being drawn together to
look at the future of manufacturing in Canada. They
will tell us where we should be going. We get that
So we do very much listen. Our clients are extremely
important. Every year each of our institutes has to
report back on their client interactions they reach. We
have a performance framework that does this.
Mr. Stan Keyes: Thank you.
The Chair: Thank you very much, Mr. Keyes.
Dr. Carty, I want to thank you very much for being
here. I apologize for our late start and for keeping
you overtime, but we do have rules that we have to wait
for opposition members to arrive before we can begin.
So we apologize for that. We do appreciate both
presentations and the interesting discussion. We look
forward to meeting with you again soon.
We're going to suspend now for about three minutes.
We're moving in camera to do the Y2K report. We need
all members to stay for that, because we have votes.
[Proceedings continue in camera]