[Recorded by Electronic Apparatus]
Thursday, October 31, 1996
The Vice-Chairman (Mr. Lastewka): Ladies and gentlemen, we will now proceed, pursuant to Standing Order 108(2), with a review of science and technology and the innovation gap in Canada.
We do have presentations this morning. We have one report that is in English and French, and the balance are in English. I would ask permission to circulate those.
Mr. Ménard (Hochelaga - Maisonneuve): But you will obviously be having them translated. No, there is no problem. We would be glad to.
The Vice-Chairman (Mr. Lastewka): We're going to start with Mr. Oliver of DowElanco Canada Inc.
Before we go to Mr. Oliver, however, I would ask each person, starting with Mr. Goodfellow, to introduce themselves and their companies, and then we'll proceed with Mr. Oliver.
Mr. Randy Goodfellow (President, Goodfellow Agricola): Good morning. My name is Randy Goodfellow. I'm a consultant who works with companies in the high-tech sector, particularly in the life science area. If you want to get a little more focused, a lot of it is in the agriculture biotechnology area.
I know a fair number of the companies in your area, Morris. I'm pleased to be here today to discuss with you some of the observations and the challenges of some of these companies.
Dr. Jom Aw (President, Kalyx Biosciences Inc.): Good morning. I'm Jom Aw, president of Kalyx Biosciences, a three-year-old Canadian biotechnology company located in Ottawa. I have more than 20 years of experience. I'd like to share with you some of the exciting rides I've been taking with the Canadian community. Thank you.
Mr. Adam Chowaniec (President and Chief Executive Officer, Tundra Semiconductors): Good morning. I'm Adam Chowaniec, president of Tundra Semiconductor. We're a one-year-old spin-off from Newbridge Networks Corporation, which is involved in semiconductor and microelectronic technology.
Mr. Roger Jenkins (Managing Partner, Aerocapital-Logisoft-Infosoft Group): Good morning. My name is Roger Jenkins and I am a managing partner of a venture capital group which manages three Quebec information technology funds, Aerocapital, Logisoft and Infosoft.
Mr. Bruce Ackman (Manager, Commercial Development, PARTEQ Innovations): Good morning. I'm Bruce Ackman, representing PARTEQ Innovations, which is the technology transfer office of Queen's University. I am going to talk this morning about the university's perspective on this subject.
Dr. Calvin Stiller (Chair and Chief Executive Officer, Canadian Medical Discoveries Fund Inc.): I'm Cal Stiller, a physician from London, Ontario, and the CEO of the Canadian Medical Discoveries Fund.
Mr. John Oliver (President and Chief Executive Officer, DowElanco Canada Inc.): I'm John Oliver. I'm president of DowElanco, which is a joint venture between Dow and Eli Lilly in the agricultural biotechnology field.
Mr. Bruce Linton (Director, Business Relations, CrossKeys Systems Corporation): I'm Bruce Linton. I represent CrossKeys Systems Corporation, an affiliate company to Newbridge Networks. We focus in the area of telecommunications, specifically the creation of software products for that marketplace.
The Vice-Chairman (Mr. Lastewka): We will begin with Mr. Oliver.
Mr. Oliver: Thank you, Mr. Chairman, ladies and gentlemen. It's a pleasure for me to be here this morning, because in my belief what your committee is doing is absolutely vital to the economic and social health of Canada as we enter the 21st century.
I come at my comments from a base of experience that spans 35-plus years in agribusiness. Currently I work in Calgary, Alberta, live in Oshawa, Ontario, and farm at Napanee, Ontario. I believe this gives me a unique perspective of Canada, and not just from 35,000 feet up.
I will address the questions posed to me by your committee and hopefully present some insights of value.
One of those questions was what the critical industries and technologies were that would create opportunities for the Canadian economy in the 21st century. There are several, no doubt, but I see two that are interlocked and absolutely critical.
The first is the agrifood system, from the farmer's field to the dinner table. The second is the agricultural technology industry, specifically biotechnology, where we genetically engineer crops and animals to produce products with superior quality, nutrition and health traits.
Keep in mind that in agriculture we're entering an era that the world has never seen before. In my mind, the golden years are ahead for farming. As an industry we have been demand constrained, and as an industry we will be production constrained as we enter the 21st century.
It is my belief that land and food prices could double in the early part of the 21st century. I believe Canada must participate at the leading edge of new technology if we are going to mitigate this demand-driven food price spiral in the period between 2000 and the year 2010.
The second question was what the role of government was in promoting emerging technologies.
First, I believe we must recognize that we are truly a player in a global economy. We must grasp that fact willingly, and we must take an active part in the leadership. Tell the facts of this global economy to the citizens of Canada. Help us break down this historical passiveness, this retrenchment, this ``we can't do it'' idea - an isolation tendency that many of our citizens have.
Secondly, recognize that there are winners and losers in the high-technology game for Canada. We can't be all things to all people. Pick the top five or six priority industries, then assist, support, mentor and nurture them on a macro basis to develop them successfully.
Thirdly, work to develop a revenue-neutral, tax-assisted, start-up funding model for the targeted winners. Help grow those industries and technologies as fast, as broad, and as deep as possible.
Fourth, keep our regulatory system in step, even a step ahead of our trading partners. Harmonize, at a very minimum, with the key OECD trading partners of Canada: the U.S., Japan, and western Europe.
What impediments are standing in the way of emerging technologies? Which government programs create the greatest barriers to economic growth? What can the government do to lessen the burden on innovative farms?
As a government, don't send mixed signals. We are looking at common investors in many cases. Don't send a mixed signal like a high-profile pharmaceutical patent review and at the same time say you're wholeheartedly supporting agricultural biotechnology. The needs are the same in terms of the patent and intellectual property framework base that's needed.
Support sound regulatory systems for biotechnology products such as we currently have and that are working quite well, rather than support widely divergent views such as have been presented at the CEPA regulations review.
Remove the cost of redundancies. Seek to build the most cost-effective and efficient structures. I was personally involved in helping to sort out one active ingredient that was used in various industries. Five regulatory departments were involved and we couldn't sort it out.
Take as long a view as is humanly possible and visibly and vocally support when you talk about those winning technologies.
What steps can be taken to promote a climate that encourages both science and entrepreneurship?
First, put the winning technologies in full view with political speeches and directives to the bureaucracy to support them, and rally around the winners.
Second, develop meaningful tax-effective, tax-assisted, revenue-neutral support programs.
Third, join with other industry spokespeople and other Canadians in recognizing and promoting the winners as role models for others to follow. Everyone likes to be identified with a winner. I think you need to look no farther than to ``Silicon Valley North'' to see how people rally around winners.
How well are Canadian institutions meeting the skill needs of the high-tech industries? I don't want to generalize. I can speak only in specifics about some I am working with, and some are doing it very well.
I have a lot of contact with the Universities of Guelph, Saskatchewan, Calgary, and limited contact with Queen's. These universities, I believe, are on top of the situation. They're flexible, they want to help, and they want to be part of the future. Other institutions, and some public institutions, are having a hard time dealing with the profit motive, and I believe these institutions will get left behind. Ultimately they may perish, because in a time-constrained world the private sector can't stand the time, cost or frustration of bringing them along.
How can Parliament ensure that the government follows its results-oriented science and technology strategy?
First, send a strong, undiluted signal via directives, speeches and one on one with senior bureaucrats that this is the direction, this is what is going to be followed, and this is the strategy for the future.
Second - and I realize the necessity of going not to the marketplace but to the voter every four years - try to take a long-term focus. Don't go from 1996 out to the year 2010. Go out to the year 2010 and come back to 1996, and build the strategy that way. That's the world we're fighting in. We're not dealing in the future in 1996, we're dealing in the years 2010 and 2020, and that's where Canada can stake its ground.
Third, really focus on the targeted technologies and develop contacts and in-depth understanding of the resulting industries. Then help to mentor and nurture, sending a message of support and encouragement to those industries. They will create the jobs.
Ladies and gentlemen, I don't need to remind you that nothing succeeds like success, and we have the tools in Canada to do it. Thank you.
The Vice-Chairman (Mr. Lastewka): Thank you, Mr. Oliver.
We'll now move to Mr. Ackman.
Mr. Ackman: Thank you, Mr. Chairman. I'm here today to present the universities' perspective on the fostering of innovative research- and development-based start-up companies.
I think it's fair to say the universities represent a substantive source of primary research in Canada. Among the universities, we are trying to move that into a more applied research and have some means of controlling or directing the research to where the commercial applications are more apparent.
I think it needs to be stated that the universities are at the heart of many of the start-up high-technology success stories in recent light. Within Canada I would point to Biochem Pharma, Biomira, Quadra Logic, Neurochem and Polyphalt. All of these are spin-offs of university-based technology. In the United States, perhaps more widely known are Digital Equipment Corporation, Genentec, Raytheon, Lotus Development Corporation and Biogen. So there is a track record and there is value in university-based research.
That university-based research inevitably gives rise to intellectual property, and the university technology transfer office is the vehicle through which that intellectual property is captured and exploited. Our role involves providing a service to the academic community and an outlet for their intellectual property to be managed professionally. We provide a liaison with industry so that when industry is interested in university technology, they have a proper forum and vehicle through which to conduct that business.
However, our mandate increasingly is to offset declining revenues from public sources of funding for the university. That is a difficult task and that is what is forcing us within the universities to be creative and proactive and go beyond the more traditional technology transfer paradigm of licensing.
As I say, the intellectual property we are presented with is almost invariably at a very early undeveloped and therefore highly conceptual state, and this makes it inherently unappealing to Canadian industry and industry in general. There's a tremendous degree of risk associated with it. Much of this is caused by the lack of funds for primary research and the need of academics to publish above all else, so we are forced to patent and then try to license technology at a very early stage.
One of the other problems early technology faces at this stage from a commercial perspective is the lack of qualified and willing receptor companies within Canadian industry that are willing to deal with novel technologies that are at an incubation stage. This combination of limited resources at our end and limited resources, ability and willingness at the commercial end has given rise to what we in our industry deem a commercialization gap.
To address this gap, university technology transfer offices like PARTEQ really need to access funds. I don't mean that we should be given funds; I mean we should access funds. Not only that, we should develop resources and expertise to go beyond the traditional licensing paradigm and actually foster, create and nurture high-technology start-up companies directly on campus. In this sense we have the opportunity to add value to these conceptual technologies before we present them to industry.
In order to capture this value, the onus is on the university technology transfer office to develop business, management and business start-up skills in order to do this. I also think the business and financing climate within Canada needs to be ``incented'' to support these early ventures, perhaps through tax incentives or other risk-sharing, risk-reduction programs.
I would like to focus on PARTEQ for a minute to give you an example of what's happening in technology transfer. We have been involved in no less than eight significant start-up ventures where we've taken a proactive role. We are also indirectly involved in numerous others. Increasingly, we feel the traditional brokerage that we do, which is primarily licensing of nascent technologies, fails to capture all of the value inherent in these technologies. This technology often goes south of the border or overseas and is not adequately exploited for the benefit of Canada.
I think our current activities in terms of sponsoring start-up companies are inefficient. This is because we do not have adequate resources to do it effectively. It has to be done in the old-fashioned way - adding value through hard work and time-consuming activities. An example of this is a recent start-up company we were involved with called Neurochem. It took us 18 months to put the initial round of financing in place, and that was not for lack of effort. We were required to go into the United States to find a portion of that capital.
However, within our industry there are some encouraging signs, and I want to focus on these for a second - more specifically, on the emergence of labour-sponsored venture funds. We see this as a tremendous resource and source of capital that can potentially be available to start-up companies. I think organizations like the networks of centres of excellence are all adopting a commercial focus, are all geared toward adding value to their technology, and are effectively managing the research that comes out of these centres.
There is also a growing awareness within other technology transfer offices in Canada and the United States of the importance of capturing more of the value inherent in the intellectual property that comes out of the universities. One government program of particular note is the technology transfer program out of the National Research Council. This is something that is deemed very attractive and very attainable for a start-up company.
One of the problems with many of the funding sources available to start-up companies such as Neurochem is that they all rely on matching funds, which is the obligation that the start-up company needs to come up with 50% of the capital sought.
I'll just close with some suggestions. As good as funding programs like the technology partnership program and industrial research assistance program are, they still require the obligation to come up with some capital. A system where funding is not contingent upon matching funds but upon competition, something like the SBIR program in the United States, where funds are awarded on the merit of the technology and the merit of the entrepreneurial venture....
I think there needs to be an effort to facilitate knowledge-based lending among the bankers and financial institutions in Canada, because that's what universities produce and what they try to peddle - knowledge - and that has been a limitation to date. Lastly, I think there should be some inducement to reduce the risk and facilitate the ease, comfort and understanding within Canadian companies toward university-based technology. Thank you.
The Vice-Chairman (Mr. Lastewka): Thank you very much, Mr. Ackman.
We'll hear now from Mr. Chris Albinson of the Canadian Advanced Technology Association.
Mr. Chris Albinson (Director, Consortium and Government Relations, Newbridge Networks Inc.): Thank you, Mr. Chairman and members of the committee. I'm actually here representing Newbridge Networks today. I appeared before you representing CATA last week, but I would like to give you a bit of the flavour of Newbridge and its affiliate program.
We're speaking about that today because it is a program that Newbridge initiated. We have two member companies of that program, also represented today, to tell you specifically about their venture branch. We will try to give you a high-level view of how we decided to create innovation in start-ups, as well as the challenges and roadblocks we faced.
Speaking of blockages, I apologize for being late today, but Newbridge is adding 100,000 square feet of new space to accommodate 1,000 new engineers next year, and there were six cement trucks standing between me and the parking lot exit. As you can imagine, trying to back six cement trucks out of a narrow parking lot was no easy task. Nonetheless, I'm here and pleased to be here.
I would ask the clerk's assistance in passing out a presentation to the committee, and I'll speak to it as that's happening. I'd like to talk about the connection between innovation, jobs, growth and wealth, and I think that's a fundamental equation that we need to improve. Canada is doing well on that front, but much needs to be done to improve it. I'll also talk a little bit about why it's important to grow rooted companies. By rooted companies I mean companies from this country that are Canadian controlled and managed for export.
I'll start with a Newbridge example, because just ten years ago Newbridge was a Canadian start-up company. I'll follow that with a little bit on the Newbridge affiliate model, the companies we now have in that program, and the barriers to growth, to moving innovation forward. I also want to talk a little bit about the innovation system and how we can improve it.
Why do you want Canadian-rooted innovation companies? I think I can cite the Newbridge example. The company was founded here and now has $1 billion in sales, 90% export, and 4,000 employees globally, 3,200 of which are in Canada. I think that ratio would be very different if you looked at non-Canadian start-up companies. We do 90% of our R and D and 90% of our manufacturing here. That means that most of the value of that $1 billion in sales in every year is captured in Canada for Canadians, and I think that's an important statement to make.
We have operations in three provinces. We find that once Canadian companies start here and are successful here they want to stay here and they'll grow. Newbridge is now in British Columbia and Ontario, and just yesterday we announced our first operation in Nova Scotia. We're very pleased to have done that.
The affiliate program started three years ago. It was basically a response by Newbridge to an overwhelming change in technology. We believed that Newbridge alone could not accomplish all the technology and innovation change required to meet that challenge. From our perspective, the best way to do that was to start up companies around us that could focus on those technologies for export, companies that were synergistic with us but were fundamentally driven by entrepreneurs driving those technologies forward in conjunction with us. I'll tell you about how that program is working.
The companies that are now in the Newbridge Keiretsu, if you like, are: two companies in British Columbia, Castleton and StarVision, one in distance education in medicine and the other one in signal processing; Vienna Systems; CrossKeys; Tundra; Televitesse; West End and TimeStep, which are in Ontario; and lastly, Telexis, which is also in Ontario. You can see what those companies do on the next page. We'll speak about what CrossKeys and Tundra do, so I won't cover that.
How does this model work? In an innovation company, there are two fundamental barriers between their concept of what they want to do and their ability to execute. I would say one is the administrative things that get in the way, that slow the entrepreneur or the innovator in getting the product done. One of the things Newbridge does is to tell the affiliate not to worry about finance, not to worry about human resources, not to worry about their information systems, not to worry about their health insurance; we'll look after all of that. We tell them to concentrate on getting the product done.
The second thing that normally hurts a Canadian innovation company is that because we're expert-oriented by definition, it's very difficult and expensive for a small company to suddenly take its product worldwide very quickly. What Newbridge does for our affiliated companies is to say, our global distribution channels are yours; if you want to use the office in Paris, use it as your own; if you want to be introduced to a customer in China, we're happy to do that.
So we do two things that basically shorten the cycle from product concept to export. One is to tell the innovator not to worry about the administrative side but to concentrate on the product. The other one is that we'll help you sell your product worldwide as soon as it's ready, which is a great competitive advance for a small company. That's one thing we have done, but I think there are lessons there that can actually be applied through organizations like the CRC, which has an incubator trying to do part of this. NRC could do more on this front as well.
Again, this is only a three-year program, but the results to date are that we now have thirteen affiliates, ten in Canada and three in the U.S. The oldest is two and a half years old, which is CrossKeys. I'll let Mr. Linton talk about CrossKeys's success. We have sales in total of about $30 million and growing at 100% per year, 578 employees, and sales that are 85% export-based. The leverage to Newbridge, which is one of the reasons we're doing this, is surrounding ourselves with complementary technology of another $60 million in Newbridge sales.
I would basically summarize the affiliate strategy by saying it's a difficult thing to do because it means that a large corporation has to be tolerant of an innovative and fast-moving company within its realm, which is not an easy thing to do. It's a cultural issue, and I'd say larger firms have difficulty with that.
One of the advantages Newbridge has is that it's only 10 years old, so there are a lot of people in the building who still remember what it was like to have been in that environment. It provides a good umbrella in the infrastructure for those companies to move forward.
One thing the government could do is actively push large corporations to do more of this, be it in the biosciences, the technology field, or any other field. They could provide this umbrella for Canadian start-ups and provide the vehicle for global markets, and you do have the levers to help make that happen.
I want to talk briefly about that. I'll go back to the slide I presented to you in my last presentation about the innovation system and what can be done. I'd like to point out one example in which the government started out on the right foot, but I'm a little concerned that it's gone a little sideways on us.
If you look at the lower right-hand corner, where it talks about early deployment...one of the things the government can do is be very aggressive in deploying new technologies and attracting new business. An example of this is LMCS. Canada leads the world in deploying LMCS, having just announced that this week. Unfortunately, the best Canadian company that could have created thousands of jobs in Winnipeg was not included in that award, and I think that's a tragic mistake we've made.
We haven't taken advantage of the opportunity of deploying quickly by tying Canadian companies into that invasion cycle so they can prove their products at home and then export them. Instead, we gave licences for two proposals by companies that are dominated by U.S. technology. They will prove their technology here and take it to the U.S. market, which is very unfortunate. It's something we can do a better job of if we move forward.
To sum up, from a recommendations point of view, having a competitive and stable environment for R and D, but also finding support structures like the national centres of excellence and innovation and incubation centres....
I think one of the things this committee could look at is removing the barriers that stop smart, intelligent people in the national laboratories and the universities from moving their technologies into the commercial field. Currently, NRC is prohibited from taking equity in start-ups. When they want to move their technologies out of the labs, they have to tell the innovators that they have to pay for them. The last thing you want a four- or ten-man shop to do is have to pay for technology instead of using those funds to actually take the technology to market.
If NRC were allowed to take equity in that investment instead of taking money for the technology developed, the funds could be focused on moving the product to market. NRC and the government could then recoup their costs by converting that equity into cash if the company was successful. That's just one example of the many things we could do to improve the transfer of technology from universities and national labs into the commercial side.
To sum up, the connectivity issue is a very important one. If we look at the biosciences or pharmaceuticals, there are many things we could be more active in to ensure that large corporations take an active role in fostering Canadian companies - not for the Canadian market but for the global market - and I think we should try to do more.
Thank you very much.
The Vice-Chairman (Mr. Lastewka): Thank you very much.
We will now move to the presentation by Kalyx Biosciences. Dr. Aw.
Dr. Aw: Thank you very much, Mr. Chairman, members of the standing committee, ladies and gentlemen. Thank you for the privilege of allowing me to share some of my experiences with you. I've spent fifteen years - and, more importantly, I'd like to say that I've spent fifteen winters - in this country. I believe I bring with me an international view. I've worked in four out of the five continents.
I represent Kalyx. Kalyx, despite being just three years old, has actually launched eight new biotechnology products and has gone into twelve different nations.
In August, when there was an 8,000-person epidemic of hamburger disease in Japan, we were the first company in the whole world to be able to provide them with a task-kit to detect the hamburger disease - E. coli.
I'd like to share some of these successes with you and also some of the challenges we're faced with.
Life sciences, including biotechnology, are some of the fastest engines of jobs, of wealth and health creation in the world. We must take part in these emerging technologies. I believe we must decide now, collectively and corporately, to take the leadership, all of us in public, in private and in academic circles. We must decide that we want to be a top-five nation within the OECD nations. Right now I believe we hover around a mediocre 18th position, well behind even some of the less-advanced countries.
I believe if we were to ask whether we can be a top-five nation in terms of technology commercialization, the answer is absolutely yes. I believe the key is successful commercialization of our technologies, the ability to capture the essences of our technological knowledge, of our intellectual capacity, and transform them into real-life products, real-life companies, to real-life customers.
I brought with me a little kit. This shows it can be done. Within 18 months we launched kits. Kits are going to Japan, to Europe, to South America, and to Australia. This kit is also being used in high schools here. We're generating a lot of interest among high schools, among universities and colleges, and I believe we can position our nation among the leaders of the world.
How do we add value to our intellectual capital? The success stories from the information technologies are well known. We have heard the success stories of Newbridge and its spin-offs, but I believe we have a not-so-enviable record among the life sciences. There shouldn't be any reason to stop us, because the infrastructure for science and technology within the life sciences in Canada today is one of the finest in the world. How do we proceed?
I believe we should create new companies. It may sound obvious, but we should create new companies. We should improve the financing environment within the life sciences community. We should instil a winning attitude, certainly among our youth as well, because they are going to be the future leaders of the world.
How do we nurture young companies? Again, we've heard the Newbridge story, but let me very briefly share some of the experiences we know of in the life sciences community. In the United States, after just six years in business, a typical life sciences company can create as many as 282 jobs. That's a lot of jobs, because 100 companies will create 28,000 jobs. That's exactly what Saskatoon has done in Innovation Place; they have 100 companies I believe they've developed in less than six or seven years. I believe that pockets of excellence can be developed in every single major city in Canada.
The average technology company grows at a compounded 20% growth year after year. This is a tremendous record, and we must share in this kind of success.
In our industry, and I think this is typical of technology companies, one company creates a few companies, it spins off, and a few companies create clusters. When clusters get to a critical mass, they start to lift off and form industries. I do not see any reason why Canada cannot take part in such tremendous growth. Look at Ottawa-Carleton's telecommunications community; I believe there are about 750 companies now, maybe 36,000 value-added jobs. I believe there are 5,000 vacancies. It's something we would like to see happen in the life sciences community within Canada. Naturally, more innovations will generate more new products, and the spiral goes upwards continually rather than downwards.
Mr. Oliver has said that nothing breeds success like success. We didn't compare notes but it's exactly true. The profound effect of technology companies on job creation, on wealth creation, on the quality of life, on the competitiveness of nations, is very well documented, but what we need is a collective will, one that has leadership at the highest levels, that includes government, private industry, and academics. We must articulate this leadership down into the next level, the next generation.
We only need to look at the U.S., Japan, Switzerland and Sweden. Very often I like to throw in the example of Singapore. I consider Canada my home and I owe nothing to Singapore, but Singapore is an island state that does not collect enough rainwater for its people. It doesn't have air space. Every single jet plane that takes off from Singapore needs to get permission from Malaysia and Indonesia. We are many times bigger than Singapore. I believe that we have to be ahead of nations like that.
What we need to do is to spur on, to encourage, technological entrepreneurism. We have to link up government with industry, with academia. We have to provide the leadership to our people.
One of the biggest challenges among the life sciences community in Canada is financing. It has been brought up before. I believe that the telecommunications arena of financing is alive and well because they have successes to spur them on. They have new money to spur them on.
But in terms of start-ups, small companies...and small companies, let us remember, are one of the biggest engines of new growth and new jobs, in equal degree to older companies. But financing within start-up companies is a very difficult thing, especially for biocompanies, companies that take part in the biotechnological, the life sciences, field. We have had difficulties looking for smart but patient money, because the life cycle is long. We need to fine-tune our venture capital, our labour-sponsored funds, our banks, IRAP, all kinds of....
I'd like to say a good word about IRAP. I think it's doing a great job, and I think we should have more of such funding.
We as a company incubated in the NRC and we had IRAP funding to get us going, but I believe we have given back many times more than what we have had invested in us. We have to provide the excess and the availability to those technological entrepreneurs who would like to have a go at this new economy.
I'd like to address another issue that has been very close to my heart as a new Canadian. I believe we need to instil a winning attitude among ourselves and our children. I believe there's a lack of self-confidence. Sometimes it is easier to sell a non-Canadian product than a Canadian product. I believe we should reverse the situation. I think we should buy Canadian if the quality is there, and I believe the quality can be there, because buying Canadian does many things.
There are two critical things I'd like to bring up. First of all, sales increase cashflow, cash inflow in particular, and sales and cash inflow will increase new investments, and so again the spiral goes up. Just as importantly, domestic testimonials provide the springboard to export sales. Time and time again young companies with new products will tell you of foreign customers who ask, can you give me a name or two of Canadian users, people who are using it in their own backyard? It is very embarrassing, and it is not possible to export sales if we cannot provide one or two or three or four names of Canadians who have proven the quality of our products.
I'd like to very briefly tell you a a success story about a ragged barn. I think I should share this story because there are lessons I have learned from it and I can share them with you. I actually know a person who had one quality product, and because he couldn't afford it he rented an old ragged barn of a university. He is now 440 persons strong in the life sciences community.
How did it happen? It happened because the local universities, the governments, the hospitals, and the schools started to buy his products and they used his products as a standard to compare other foreign products. In so doing, they helped improve his products and they increased the number of new products in the pipeline. This is exactly what's happening with the IT sector in Canada.
The benefits are mutual. They actually generate new jobs for the people who contribute ideas and they are sending streams of royalties back to them, and of course that leads to an increase in jobs.
I'm down to my last three slides, but I'd like to re-emphasize the role of our young people. I think one of the prophets said that old men dream dreams and young people have visions. I think I'm getting to the stage where I'm starting to have dreams, but I'd like to leave a vision behind. I'd like you to join with me in what I think is a very exciting role: let's leave a vision behind so that the future leaders of Canada can take part in transforming ideas into products.
In our company, one of the ways I motivate my people is - and we have been successful; we have had products very quickly out in the pipeline. We build a box and we leave it in front of our people and ask, can I create things that will go into a box? If it is a service, can I create a service on which I can put a value-added price tag? Can I patent the idea? Intellectual property transforms into intellectual capital.
We would like to train a whole new generation of innovative, excited, motivated, entrepreneurial Canadians who can then create these new products and start to sell them. The value-addedness is that we can export them, and that brings money back into the country.
The idea of training and mentoring is a role that all of us can take part in. People in government, people in public enterprises, and people in academia can all take part in that.
Once again, what we need is a collective leadership, a national will to transform these ideas into commercialized products, and let us articulate these as clearly as we can.
I'd like to finish up by making a lot of ``we can'' and ``we will'' statements. I believe that in the life sciences we can succeed in technology commercialization. I believe we can catalyse wealth and job and health creation right here in this nation. I believe we can spur on technological advancements. Yet I believe we will still be a leader among the nations in terms of technological entrepreneurism.
I want to thank you again for your time and interest.
The Vice-Chairman (Mr. Lastewka): Thank you, Dr. Aw.
I will now proceed to Tundra Semiconductors. Mr. Chowaniec.
Mr. Chowaniec: Thank you, Mr. Chair.
I apologize, first, that the presentations handed out this morning are in English. I will have French versions available tomorrow, if anybody would like them.
Tundra Semiconductor is a one-year spin-off from Newbridge. Mr. Albinson outlined very well what our advantages are in being part of the affiliate model. What I wanted to concentrate on today is to speak rather on behalf of the microelectronic and semiconductor industry in Canada, of which Tundra is one part.
The semiconductor industry is one of the fastest growing industries in the world. We have some statistics from the integrated circuit engineering group. The yellow bars represent total world electronic sales projected out to the year 2000, which are growing quite rapidly. Those electronic sales are made up from many different industries: automotive, communications, and consumer. The semiconductor industry, which is the green bar on the bottom, is a single monolithic industry that underpins all of the other growth in electronics. This year the forecast is that the industry will be worth $174 billion worldwide, and by the year 2000 close to $350 billion worldwide.
Some analysts suggest that by 2010, or thereabouts, this will be the largest industry on earth. Why is that? What is propelling the growth? There are really two fundamental issues.
One is the increasing content of semiconductors in all products. If you look at automobiles, for example, there is now more dollar-per-dollar semiconductor content in a car than there is sheet metal or steel content. That's expected to increase very rapidly over the next ten years.
Second is that semiconductors are an enabling technology. They enable innovation to happen in a lot of other industries such as communications - even biotechnology. Therefore, the health of the semiconductor industry and the critical mass of the semiconductor industry affect the competitiveness of a large sector of the economy.
In Canada today the statistics are that our total exports of semiconductors are about $2 billion. If you subtract from this the products that just come in and out of the country for a little bit of value added, our real generated exports in semiconductors are $1 billion, which represents a tiny fraction of the $150 billion in worldwide sales today.
The players in Canada that represent where that $1 billion of exports comes from are as follows: Mitel, Nortel, and Tundra in Ottawa; PMC in Vancouver; Genesis in Toronto; Gennum in Burlington; CMAC in Sherbrooke; IBM in Bromont; and Celestica in Toronto.
It's critical that we try to get this number up in the next decade.
What are the issues that are preventing us from growing this number significantly? First of all, R and D funding; for example, Tundra, at this point in time, is spending 20% of its revenues on R and D to get new products out. We're at the limit of what we can do in terms of R and D spending, yet, at the same time, support for R and D funding from government is declining. We need more R and D funding for the industry.
Secondly, within the university community, because of the financial pressures, universities are actually cutting back on spending on engineering. They're cutting back the number of professors, and they're cutting back on the services they provide. They are doing this at the very time when there is a massive shortage of engineering talent, not just for semiconductors but also for all industries. This is a very detrimental situation.
Thirdly, at this point in time we have no foreign semiconductor investment in Canada - none. This is a situation that we must change if we're going to grow the critical mass in the country.
The final point is that we are unable, at this point in time, to attract U.S. talent into Canada because of the way our taxes are structured.
What is the role of government on these issues? I think the first is to understand the power of this enabling technology. It should support the research and development of companies in this industry. They are already expending themselves more than they should be. They cannot possibly raise the spending, and therefore they cannot accelerate the rate at which we can grow this industry.
We need to focus on graduating more engineers and scientists from university.
We have to attract foreign investment to improve the critical mass. We also have to review our policies that make it very difficult for us to attract talented people with knowledge, especially from the United States.
In summary, we need help. What can we do? I think we need closer university-government interaction. One model of that is the Canadian Microelectronics Corporation, which is run out of Queen's, but supports 27 universities across Canada. This is a government-industry funded institute that basically helps provide students across the country with advanced equipment and software to try to educate them and train them in this technology.
We're working very hard with Industry Canada on attracting foreign investment. In this industry in Canada we need a lot more help and we need assistance in getting talent into Canada to support the industries.
In terms of accountability, the growth of the industry can very easily be monitored. There are ways that we could actively look at how successful we are in the next five years in improving the situation.
I also wanted to make note of a new socio-technical methodology called future search. It could bring people together to analyse the situation in more depth, and it could help us put together policies that could advance this industry in the next decade.
Thank you very much, Mr. Chairman.
The Vice-Chairman (Mr. Lastewka): I'll proceed to Goodfellow Agricola, andMr. Goodfellow.
Mr. Goodfellow: Again, thank you very much, Mr. Chairman and members of Parliament, for the opportunity to speak to you this morning.
I anticipated that a number of the speakers previous to myself would cover a broad range of issues, so I decided I'd focus a bit on bringing forward a couple of my understandings of the stakeholders and look at those stakeholders in the technology transfer area. Those stakeholders are those who are in small companies, multinational companies, government and the academic sector. Then I'll discuss a bit about how we can develop a better cohesiveness between those sectors. That will of course help grow and nurture the small businesses.
Let us first look at the small companies. In many cases the small companies in Canada are Canadian companies and they are actually relatively small by international standards. In many cases - and this is from observation and from interacting with these people - they'll admit it themselves. There is a depth of management issue, particularly as it's getting time to go to the international marketplace. Often for these small companies the cashflow situation is much more critical than their longer-term tax considerations, so sometimes when we put incentives in place on a tax basis, it doesn't really help some of these small companies with their immediate needs.
Let's look at the multinational companies. Well, Canada does have some multinational companies, but in many cases the multinational companies present in Canada are headquartered in other countries. Canada has a high level of foreign ownership - we've been saying that for a long time - and though the largest portion of funds invested in research and development in Canada in the private sector come from the multinational companies, those multinational companies conduct their research closest to home.
In the Newbridge case, of course, you were indicating how 90% of your research is being conducted near home. Fortunately in that case it's a Canadian company, but if it's a Swiss-based company, or a German-based or an American-based company, the majority of the research is going to be conducted near the headquarters.
Multinational companies often treat Canada just as another sales territory. They often place their most senior people elsewhere. Thus, the decisions about what happens in Canada in research and development and the market are made outside the country. Canada then becomes under-represented.
In multinational companies there's also a ``not invented here'' attitude; for instance, it's why should we collaborate with another small company or why should we collaborate with the university on developing a particular science, since it's going to steal from our own internal budget for science. It's an impediment to collaboration, and it's an attitude that needs to be changed. It shouldn't still be seen as an expenditure; it should be seen as an opportunity to collaborate and to grow. I think that's the attitude that needs to be addressed.
I've stuck university and public sector laboratories together as one category because I think there are a lot of similarities today. At various times there might have been more differences, but basically today they're both cash strapped. Both traditionally have internally focused cultures. Efforts have been made and results are good in some areas, yet there's a lot of distance to go in both government and some of the academic institutions to be more outwardly focused. Both of course are undergoing extreme pressure to be outwardly focused.
The way in which resistance is expressed by some of these institutions is, well, who's going to do the basic research if we cozy up with the private sector? How do you actually maintain some sort of an independence and impartiality in your research if you get too close to the private sector?
I would suggest a fair bit of internal cultural changes are required in small companies, in multinational companies, in the universities, and in the government sector. That attitude change should be directed towards something that should replace it, which is Canada incorporated. We also have to pick some winners to get the Canada incorporated, because we can't be everything to everybody.
The first thing to do is address the human resources issues, which is decrease the misperceptions between the groups and the misunderstandings about each other's motives. I don't think a whole bunch of cynicism is justified, but at times it comes out and expresses itself. I think one way of doing that is by increasing employment exchanges between the sectors and increasing the trust level. Everything is built upon trust.
I think there needs to be more frequent conferences of stakeholders, at which people get to meet each other. It's opportunities; it's building. It ties right into this cluster concept of when you rub shoulders things happen, people start to trust each other, the brains start working, and creativity starts happening. It's ongoing regional circles of discussion, innovators' forums - just do it.
It doesn't have to be grandiose. It can be just pizza and beer night. Every second Thursday we get together and hash over our science. We put some engineering into it, put some people from different sectors together, and develop a common language and common approach. We need some leadership. The senior people in the private sector, the senior people in the government, and the elected officials need to say the things, say them over and over again, and walk the talk, not just write a policy paper and not pursue it further.
What we really need to glue a lot of these diverse pieces together is a technology transfer professional, someone who could integrate the various pieces. We need someone who can take the small sparks of activities and say there's a need over there, there's an opportunity here, there's some capital there, or there's some good people here who could be complemented by these good people and make it happen. Develop those integrators.
I would suggest to you the development of these integrators - there are a few extremely good examples in Canada of integrators, but there are not enough of them. Those people have developed by circumstance, but I don't think we should let it happen by happenstance. I think we shouldn't leave it to serendipity. We should set in place a group of people whom we perceive to be or who have proven to be great integrators. We should set in place the academic and the public and private sector people who are really keen on developing the profession of technology transfer and put in place a curriculum, both educational and work exchange, so that the whole experiential aspect of it.... You're not likely to get an MBA graduate coming out and automatically becoming a transfer agent. It might not be a person at all from a business background who has the attributes, and it's more human attributes that are needed to be able to do the integration required.
What type of skill sets are required of one of these people? It's a profession and has to be a profession. They have to be able to recognize opportunities and to be able to network. They have to be people people. They have to be everywhere at once. They have to be driven. They have to find and develop partnerships, and they have to be able to evaluate the contributions of various peoples and various institutes and bring to institutions an entrepreneurial idea or development that will yield jobs. They have to be able to value that and help with the negotiating process. They have to be able to balance and mend egos, etc. They have to know how to strike the deal, and they have to know how to keep it in place. That, I would suggest to you, is the human component required to help this along. It's nurturing. The word has been used before; it's nurturing.
Thank you very much.
The Vice-Chairman (Mr. Lastewka): Thank you very much.
We'll now proceed with the Canadian Medical Discoveries Fund Inc., Dr. Stiller.
Dr. Stiller: Thank you, Mr. Chairman. I was invited to this standing committee last year and couldn't come because I had a problem with my back. Mr. Gleeson presented his views, and I thank you for your indulgence at that time and for your invitation to come back.
At that time the Canadian Medical Discoveries Fund was just in its infancy, and we're now a year later. I consider this a report to the board representing a significant shareholding in the Canadian Medical Discoveries Fund, since we have the benefit of tax credits for our creation. I think I have a responsibility to answer with respect to how we have used those funds and whether we have created value in return for those tax credits.
Let me just go back to the beginning of the Canadian Medical Discoveries Fund. I do not take credit for it. This is an extraordinary example of how entrepreneurship - which has been championed so well here and articulated so well in the previous presentation - that came from within the federal government has had an effect. The individual most unlikely as an entrepreneur is Dr. Henry Friesen, president of the Medical Research Council of Canada. If he were here today, you would bet he wasn't an entrepreneur. He's one of Canada's most distinguished scientists. He's quiet and self-effacing, and he is an entrepreneur through and through.
When he took over the Medical Research Council - and I was on the council at that time - he set out on a course to put in place some very important steps.
First of all, he made the council recognize that government moneys would not increase. That was a reality, that we surely would fight it and we would advocate more federal dollars, but in that climate it was unlikely to occur. Therefore, a series of steps needed to be put in place that brought creative partnerships to really make the medical industry, as a spin-off of our fundamental platform within our universities, seen as a benefit to Canada. We began to create within Canada a recognition of the benefits of science, discovery, and technology as they relate to a knowledge-based industry in the future.
There were four things identified at that time that were necessary. One was strategic partnership, and I'll refer to that in a moment. That really had to do with a number of partnerships, including that with the pharmaceutical companies. The second was the development of skills. A jobs program was put in place with one of the federal agencies. I wish I could remember which it was, but it was launched in Winnipeg and it took individuals who were university graduates and had a good, fundamental education in terms of the know-what kind of knowledge and put them into research laboratories to give them skills for know-how. That's been an enormous success.
It hasn't been profiled, and I think the government should profile that as a great example of how you can take unemployed young people who don't face any optimism with respect to their own future and move them, within a 10- to 12-month period, into the private sector - high-quality, high-paying jobs. This would really fill a need that has already been referred to two or three times.
The third thing that was identified was the need for a greater and more vibrant process of intellectual property protection and technology transfer. It was hoped at that time that a fund could be provided across the country to help the universities in that regard. You've heard from technology transfer people: the limitations are fundamentally resources.
The fourth thing was capital - the kind of capital that would allow technology transfer to occur.
So we started on a journey, which was.... We had the Boston Consulting Group come in to do a study with respect to what was missing in Canada. Why do we have this superb science in Canada, frankly competitive, on a qualitative basis, with anything known globally? Quantitatively, of course, we're small. That's the nature of the size of our population and our country. Qualitatively we were very good, but we had a very poorly developed private sector in terms of the health industry. They identified some key defects, if you will.
If you'll turn to your first graph, after the initial report of the Canadian Medical Discoveries Fund.... It's called ``Research Investments Create a Virtuous Cycle of Growth and Development Opportunities''. This was the result of the Boston Consulting Group's study. You see that it starts from a basic research platform here at the top of this cycle and goes through start-up companies, growth companies, public and mature, and then feeds back in.
They identified that the basic platform was small but of high quality and that we did not have the kinds of start-up companies and growth companies that we see in the U.S. That was due to the fact that we had a lack of pre-venture and venture capital that had two particular qualities: it was intelligent - there was knowledgeable capital - and it was patient. The Canadian Medical Discoveries Fund was created out of the Medical Research Council to provide for this link.
The next slide shows where the Canadian Medical Discoveries Fund, on the right-hand side, fits into that. The networks of centres of excellence, which you have referred to, fills part of that gap in that it's largely government funded. On the left-hand side, in terms of the public and mature companies, the Medical Research Council/Pharmaceutical Manufacturers Association partnership was rolled out to fill that gap and to increase the pace and vitality of this virtuous cycle.
The next page comments on a statement made by the president of the Science Council of Japan, who said that research is power in the 21st century. That is an extraordinary statement from a country that built its industry largely on technology and tried to do the same in the biotech area. You will see that on the next page there is a piece that I photocopied from Business Week. If you look under that helix, it refers to Japan's history of trying to do the same kind of downstream product development it did with other technologies. It's failed, and it has had an epiphany.
They said that what they need is a solid, fundamental platform of discovery and that this basic science is absolutely critical to their future success. So they have increased their funding in economic downturn time. They have increased their funding in a most dramatic way.
I make the comment across the country: don't ask me to print dollars on paper taken from trees for which we never planted the seeds to grow. The seeds are planted in the fundamental platform, and basic science is absolutely critical to our model 2010 vision that we've referred to here if we are going to have this as a leading driver of economic activity in our community down the road.
The next slide shows you the trends in budgets for health research. You can see that all lines lead up except one, and that's Canada. The support for MRC has in fact been reduced. I can tell you, as chair and CEO of the Canadian Medical Discoveries Fund, that when 50,000 Canadians have invested $4,000 each - and our fundamental platform, which we look to exploit for profit and economic benefit in this country.... I look with alarm when that fundamental platform is shrinking.
It's a concern to our shareholders. It should be of concern to our society. I draw your attention to that.
I understand that we have been in a time of particular constraint. I laud the government for the approach it has taken. We are competitive as we have never been competitive before on a national level. But as we come out of this trough, remember that in the year 2010, biotechnology and knowledge-based industry will be a major economic force in this country. We must not in any way injure that fundamental platform.
I would ask you to look at the next page. Our skilled worker growth is occurring largely in Canada in a disproportionate way to the rest of the OECD. I think that's an important note to make, that those are the kinds of jobs that in fact we want to build.
Canada's national health system is an important piece of our economic strategy. For about $750 per vehicle in workers' health care costs, that advantage is given by way of our health care system.
I don't take all the credit for the next chart, but I take as much as I can. If you look at venture capital investments in the life sciences in Canada - this was sourced from Mary Macdonald & Associates - look at 1993 and 1994. The creature of the Medical Research Council of Canada, the CMDF, was created in December of 1994. Venture capital investments in the life sciences doubled between 1994 and 1995, and it looks like they're going to double again.
That's the critical point that's been made by virtually everybody here. That source of capital at the point of transfer of fundamental discoveries out into products that are going to have economic benefit has been missing in Canada. My suggestion to you is that through two things - through an important linkage of partnership through the MRC and through your provision of the tax inducement for the Canadian Medical Discoveries Fund through the labour-sponsored venture capital - that's been an important issue.
I want now to go to a few comments to close, Mr. Chairman. First of all, I want to address the report of the Canadian Medical Discoveries Fund. If I take you to the second page, when we were here last year - when Mr. Gleeson was here last year - we had $15 million invested in the fund and at that time I think we had three investments. We now have $185 million and the investments that you can see here, 19, go all the way from seed capital and early-stage start-up to first-stage expansion and expansion, and they go from Victoria to Montreal, and we're about to announce one in Halifax. It has been an extraordinary journey. It is an experiment that is being looked at closely internationally. It was written up in this week's Science as an extraordinary example of what they call the reforestation program for the fundamental resource called knowledge and discovery in the health and biosciences area.
My model is this, Mr. Chairman. The engine of growth in a knowledge-based economy should be where the majority of discoveries occur, where the primary repository of knowledge is, and that happens to be universities. If you go up in your satellite and look down on the United States and ask, where is the huge growth of high-value, knowledge-based industry, Boston, San Diego, Minneapolis, Texas and Miami pop up. Why? Because that's where the major institutes of learning and knowledge creation are.
So the engine in fact is the universities. The fuel is capital - appropriate capital, capital that is patient and intelligent and risk-taking. The vehicles are public-private-institutional partnerships. They are with the universities, the research institutes, the hospitals, and the private sector.
Those three elements, I believe, are absolutely important for us to be competitive in the future.
What can you do? I can't say much more than what has already been said. You need to buy into this vision that in the year 2010 Canada will rate amongst the top three or four performing countries in the world with respect to technology-based industry. Get excited about it. I've thought about holding a forum here, a breakfast or something, at which we could get members of Parliament to come out every month and hear about the exciting things that are happening with respect to science in Canada and discoveries and new start-ups that frankly are changing the view of the world of these individual people working in our Canadian centres.
I believe very much in the role model. What we're seeing happen across Canada is what I call the Hewlett-Packard model. It's an ``oh, that's how you do it'' experience, where somebody who has been working and has been a solid scholar and scientist and made a discovery has suddenly linked up with some capital, created a company, and is excited about his or her future.
Other people in that institution look at them and say I know Aaron Fenster; I've worked with him for years. Now he has a company with 36 people and international sales. He's excited about his future and students are coming from across the country to study there. I'm as good as Aaron. I can do it. If he can do it, I can do it. That's the ``oh, that's how you do it'' experience.
This doesn't grow geometrically to begin with. Take the Newbridge example, which is the best example we can have. We just have to imprint that in our minds and say that can happen all across the country. It grows arithmetically and then geometrically.
Thank you very much.
The Vice-Chairman (Mr. Lastewka): Thank you.
We will now go to CrossKeys Systems Corporation. Mr. Linton.
Mr. Linton: Thank you, and thank you also for the introduction with the Newbridge association.
In preparing for today, I actually tried to look at why CrossKeys is successful. What has made us probably an excellent example of what this committee would like to see replicated? As Mr. Albinson indicated, we began as an affiliate of Newbridge. Many of the things Chris indicated, such as the administrative aspects, the financial aspects, and the ability to focus on what we wanted to build - I'll get into the product area we have targeted - were quite accurate, as well as the fact that there was an opportunity to go to market.
One of the things I think you also have to highlight with the affiliate model is the mentorship that exists with the structure next door. You can turn to the people who have built Newbridge, the people who have pulled together, whether it's technologies that are required, the teams to build those technologies, access to the capital, or methods they've used to access that. There is a global perspective and the expectation that success is measured in the same terms, with the same scope of growth and accomplishment, as Newbridge has succeeded at.
Our expectation of success is something that looks at a business plan that targets not less than a 50% compounded annual growth rate for a five-year period. Those are many of the things that I feel have driven us to become a very successful three-and-a-half-year-old company.
I sort of surveyed the people within our company to try to determine whether we could step back one step. What have been the issues we looked to the government for and what have been the issues we've been able to attribute our success to?
One of the things we've looked at is that the market we've targeted is a very global market. It's a telecommunications marketplace, and as I've put in some of my slides, it's a very concentrated marketplace, where prior to competition there were approximately 70 companies dominating it and generating 95% of revenues.
Since then, with the implementation of competition, we've been able to find that those key players in the past are looking for new suppliers, suppliers such as a Newbridge for their ATM and frame relay and the best-of-breed applications. They're also looking for software suppliers, a direction they never turned to in the past. They're looking for companies that create the software that allows them to manage these networks they've built, using the best-of-breed applications.
They're also looking for software that allows them to turn to their customer and ask what it is that Mr. and Mrs. Customer need. What is it that I can deploy to you to win and retain your business? That's where a company like CrossKeys has the focus exclusively. We look at how to build the best software applications to take this global marketplace to allow the previous monopoly suppliers as well as the new start-up suppliers to deploy the services their customers are demanding.
As I've indicated, these market trends have now pulled in.... As many people are aware, the telephone companies are now in competition with wireless service providers, cable companies. There's the trend whereby utilities players are now also entering into this market.
We, as a company, have grown into a situation in which we have 120 customers, 18 of which are the previous top 40 telephone companies. We have, as I said, 30 countries that we've installed into. This base has been leveraged using our base product, which we built in the incubator and introduced using Newbridge.
This brings us to the point at which we are today, which is targeting to be a $25-million company in our third fiscal year. I think we are just beginning to experience many of the issues of what government can do for us.
We continue to need skilled personnel. We're at 175 people within our company, and we've now begun to feel the crunch that I believe many companies feel as they're looking for their first 50 personnel.
Repeatedly, as we turn to the universities, we have only four universities, with a possible fifth, to which we look for graduates in computer science and engineering. We feel they possess the required telecommunications and software development knowledge.
We would like to see if this committee in its direction could assist in mirroring the programs offered at universities such as the University of Waterloo, Carleton University, the Technical University of Nova Scotia, the University of Victoria and Memorial University. We find that these institutions have pulled together the cooperative education programs and academic studies looking at software beyond how it may be applied in the development of consumer-oriented applications to look at the large applications required by the telephone companies.
As for access to capital, we had our seed funding from Newbridge, and we've been able to run cash-positive for much of the time.
Now we're at a stage at which we wish to substantially accelerate our growth, although it's been rapid to date. We're looking to raise secondary rounds of financing. We are at that tier at which we don't wish to be public, yet we don't wish to be dominated by venture capitalists and their expectations of lending us money and directing us on how to run our business.
We would request that this committee consider how one could structure the vehicles for private companies to remain private, access capital, not lose their Canadian-controlled private corporation status and not become a grey zone whereby they may need to be reporting, yet not responsible for, trading.
As we ventured into this area, we found that there was an incredible opportunity for legal counsel to charge us significant sums of money in order to keep us at the status we have, not changing. That access to capital and the associated rules have been quite cumbersome for us over the last six months.
Consider access to markets. It was excellent to have our initial introduction with Newbridge and to have the opportunity to sell the first release of our product, which is closely associated with Newbridge products, to those customers. We are now a bigger and more diversified company, and we can't look to our other partners to offer the same open access as Newbridge.
We're at the stage at which we need to have the credibility of an installed base and the introductions that trade commissions, marketing programs and trade shows support.
Deregulation and changes in the actual operations in different countries change at different rates, so we'd appreciate it if our embassies in those countries could continue to inform us of what those changes are and the opportunities thereof.
Say a database was compiled. CrossKeys is a software company that focuses on telecommunications. The triggers for opportunities are created when this threshold of deregulation, competition and other attributes are attained. We would benefit from that information.
We cannot keep track of Germany's changes in 1998. The U.S. is at this stage. Thailand has this occurring. It's very difficult to keep current on those regulatory changes as they're occurring in other nations. That would be very useful for us.
There are the ongoing trade commissions. We are going to be participating in the next one with the Prime Minister. We feel these are excellent. If you don't have a domestic market in which you can actually demonstrate your product in any significant way, then actually having the support of your national government as you go to market these programs is a significant benefit.
Take sector programs. I'm not asking for significant funds, but I do feel that as the sector programs allocate the funds they have, there's the idea that these are allocated to clusters of companies that need to work together in order to access the funds and deliver the results the government wishes. This is an excellent way to bring Canadian companies together.
I know we're currently involved in one such program - historically, we have been in two - whereby we would not have had the ability of the partners and potential suppliers within Canada had it not been for the sector program, which essentially forced us to work together in order to develop a complete solution that would then receive some funding from the government. I think the secondary benefit of having us work together is almost as equally great as the actual cash that comes in.
There are things we see ongoing that we would really like to ensure they continue. There's the capital gains exemption for Canadian-controlled private corporations. As people have invested as private shareholders, and they grow a bit with the value of the company, it's something that we feel is an excellent benefit to the early investors.
We would ask that perhaps there could be a review of angel funding, and whether or not there are possibilities for the capital gains exemption to be extended to not only include the first time they invest and receive their $400,000 in gains, but to let it be looked at through multiple cases whereby when the young people with the ideas and the ability to deliver on those ideas need the cash, we could turn to the individuals with the patient capital, those who have the money to invest. If their incentive was not only a reasonable return but a capital gains exemption, that would be excellent.
As for university incubators, although they're beginning, we find that sometimes other presenters have requested that there be experts focusing on tying us, as private enterprise, to the universities. That would be quite useful, because as a company we don't have the focus of 200 people and the ties to know which institutions are doing what research and how to find access.
On occasion, we have attempted to do this but have never successfully completed one of these transactions simply because the cycle times and the uncertainty of whether or not we were actually on the right trail caused us to decide that it was probably not the best use of the limited resources we had in our company. Not only having the incubators, but having a clear shuttle system to tie those to our company would be excellent.
Computer science and engineering programs - I know they were mentioned - have faced tough times for funding. We depend heavily, in excess of 80%, in our company on graduates of computer science and engineering. I expect that ratio to continue due to the technical complexity of the problems we attempt to solve.
There are the science and research tax credits. I understand that there has been a history of some abuses by some software companies or some software that has been built for certain sectors. The science and research tax credits are very key to our view of what we can afford to do in R and D, to ensure that they continue to go forward and that all software is not viewed in the same way, that the expectations of what companies can deliver to represent the research they've implemented in the area of software are not the same as people who would turn to a hardware vendor or a medical centre.
It would be appreciated if the groups responsible for the science and research tax credits could carefully look again at software and how they may reduce the burden on small- and medium-sized software companies, which are required to validate the work they've done in order to be eligible. This has become, in the last few years, a significant increase in effort in order to validate what we're doing as research and be eligible for the credits.
To conclude, we're here as a success. I think many things are being done very well or we would not have been able to succeed in the Canadian environment with a global target for our products.
The universities do graduate excellent people. The number one competition that we continually see at many of the institutes we also target for software is Microsoft. I would assume that means we're doing an excellent job of creating well-educated people who can build the best software in the world.
We've had ongoing relations with Industry Canada. We find that they do a very strong job in terms of looking at and targeting how they could be of benefit, what data they can supply to us, and what reports are of interest to us.
We deal with Customs and Excise regularly, and software somewhat confuses them, I think. They prefer to take the computers apart, for example, to understand if there is software in it. We would request some way to look at software, as software can be transported in any and many ways.
There needs to be an education and an understanding of what software is when it crosses the border and has a valuation. The tape may be worth $35, but the content is presumably worth much more. Having a review of how Customs handles software crossing the border, what they expect the supplier of the software to provide in order to validate what is going across the border, and knowing the value would be useful for us.
That concludes the things that are specific - perhaps it's more specific than useful - to CrossKeys that are for your benefit. We have been successful, and I believe we will continue to be successful. Hopefully, some of the issues I've raised could be reviewed.
The Vice-Chairman (Mr. Lastewka): Thank you. We'll now hear from Mr. Jenkins from Aérocapital-Logisoft-Infosoft.
Thank you for your patience.
Mr. Jenkins: On behalf of my associates, Mr. Bernard Hamel and Mr. John Simons, I wish to thank the members of the committee for inviting us to express our point of view within the framework of this round table on the review of science and technology and the innovation deficit in Canada.
I do not intend, nor pretend to be able to summarize in the next few minutes what is at stake when we speak of a Canadian innovation deficit. I will just focus on a couple of challenges that we consider crucial in the short term. I will speak from an operational point of view stemming from the practical experience we have derived from our holding companies. I will be happy to go into it further during the question and discussion period.
I would like to start by introducing our group.
Aerocapital, Logisoft and Infosoft are three venture capital funds totalling $30 million and managed by three general partners. We operate under a limited partnership structure similar to all private venture capital funds in Canada and the U.S. This means our ultimate goal is to provide superior financial returns to our limited partners, or if you prefer, our shareholders.
We do this through the creation and development of early-stage technology-based companies in the aerospace information technologies and multimedia industries. The targeted companies must possess unique technologies, know-how, patents and/or intellectual property.
By emerging companies, we mean the following. The external environment is such that those companies operate in new global markets with a limited client base and with non-standard products. From an internal perspective, the companies have an incomplete business strategy, when they have one. They have an inexperienced and incomplete management team, limited management information systems and limited financial reporting systems.
Considering this description, some may view this as a missionary sort of activity and, to a large extent, that is true. Please do not worry, however, after four years in this field, my partners and I have developed a number of tactics that enable us to sleep in spite of the disasters that threaten this type of business every day.
I will come back, a little later on, to the characteristics of the sort of companies we target. These characteristics have a crucial importance in the context of the review that is been conducted here today.
Before that, however, I would like to take a few moments to describe the progress our group has made in the last few years. In the last four years, we have invested in 13 companies, and we will be investing in three more before the end of 1996.
We are also expanding rapidly the capital base of the funds we have under management. Aerocapital was created in November 1992 after two years of trying to put together the capital required to get it started, in this case $10 million, the single shareholder being the Fonds de solidarité des travailleurs du Québec.
At that time, the Fonds was the only financial institution that believed in our concept of investing in emerging technology-based corporations and I may be forgiven if I take this opportunity to salute their aggressiveness and their foresight. Four years ago, the Fonds was already concerned by Canada's technology deficit.
In December 1995, nearly a year ago, Logisoft was founded with an initial capital base of $10 million. Along with the Fonds, we had, as shareholders, France Télécom, Télésystème National working through Telsoft, a technology venture capital fund of the Charles Sirois Group.
Finally, last June, Infosoft was launched with the Fonds, once again, as one of its shareholders and, this time, not only was the Fonds the lead investor, but it also supported financially the whole launch process until other private investors came on board.
On the basis of ongoing discussions, we foresee being able to get other private groups interested in contributing within the next few months an additional $10 million to Infosoft. The Fonds will then own 100% of Aerocapital, 70% of Logisoft and 50% of Infosoft. It will thus have played a major role in creating investment vehicles in response to a very real and ever more pressing need of Quebec's and, more generally, of Canada's economy.
Will you say to me venture capital money is now available for technology companies and the problem is the lack of good projects? We hear this every day. According to the last reports in the industry, the total supply of venture capital in Canada in 1995 was $6 billion, $3.7 billion of which was in Quebec, representing 45% of the Canadian total. Of that $6 billion, nearly $4 billion has already been invested in businesses. There remains a sum in excess of $2 billion to invest, including $800 million from Quebec. The total number of investments made in Quebec in 1995 was 236, for a total of $258 million invested, making Quebec the most active region in Canada.
In Canada, the rise in investments was stronger in technological sectors than in traditional sectors. In fact, there were twice as many investments in technological sectors as in traditional sectors. The breakdown of investments for 1995 reveals that there is $241 million in traditional sectors and nearly double that, $429 million, in technology. This $429 million is divided as follows: $102 million in information technology; $143 million in the electronics and communications sector; $129 million in health and biotechnologies; and finally, $55 million in other sectors.
The reality, at least from our perspective in the field, is that very little of that flow of capital is directed toward emerging technology companies. We try every day to find co-investors to share the risk associated with that kind of investment. Believe me, this is not obvious. With the kind of profile I drew a few moments ago, who would like to risk large amounts of capital in such an undertaking?
And yet, it seems obvious to us that something must be done in this field to ensure Canada's economic prosperity at the turn of the century. After all, the corporations we are helping to launch today will hopefully become the leaders of tomorrow.
What can a government do in this context? Several things, in fact, the least of which being to hand out subsidies. I would now like to get back to the characteristics of emerging companies that I had mentioned a little while ago.
Considering their profile, these companies really need money, of course, but they also need help in all aspects of management if they are to develop as quickly as is required by the highly competitive global environment. And that is the concept of smart money broached in the presentations made by those who spoke before me. Only management and investment professionals are in a position to put together that kind of money. The Fonds de solidarité's contribution was crucial to the companies we were able to launch and I hesitate to say that that contribution should go even further because I do not wish to appear biased.
I would advocate that government incentives be maintained and increased in order to encourage the general public to contribute to the financing of emerging technology-based companies.
Allow me to cite the following example of a structuring governmental action that was a great success in Quebec and that we support whole-heartedly. I'm talking of Innovatech, in Greater Montreal. This semipublic entity created in 1992 by Quebec's National Assembly to promote technological innovation received a budget of $300 million spread out over the period going from its foundation to the year 2000. Innovatech made its first investment in January of 1993 and has since then never stopped acting in the interest of the economic development of Greater Montreal.
In less than four years, that corporation made 144 investments worth a total of $160 million. These investments are always intended to increase the innovative capacity of private businesses and to contribute to the competitiveness and economic growth of Montreal and, more generally, of Quebec. But, what is special about these investments is that they bring together all the ingredients and elements required to create a synergistic effect, that they always act in partnership with other financial groups, never take a majority share - in fact, on average, they buy into 20% of the subscribed capital - , a fast decision-making process comparable to our own; decisions being approved by a board of directors drawn from the high technology business sector.
Another crucial factor in the success of our emerging technology-based companies is the scientific research tax credit program. Once again, we are completely in favour of maintaining, and even intensifying these incentives which are crucial to our emerging companies. In order to stimulate investment in these companies, these investments could perhaps provide a bonus for private investments made by venture capital professionals. This would have the effect both of stimulating investment in a vitally important sector that is, according to us, insufficiently developed and of increasing the control and therefore the return on the moneys thus provided by government. In that context, what the Americans have done with the Small Business Investment Company, or SBIC, deserves to be closely studied by our own government authorities.
Finally, I would like to address two issues that look beyond sheer financial figures on the surface to the dramatic consequences for our technology-based companies. The first issue is the availability of skilled, highly trained human resources in the various scientific disciplines, and the second is the social status of the entrepreneurs in Canada.
The perception still exists that science is too difficult and therefore only the fittest or the smartest or the hardest working need apply. Thanks to TV, kids educate themselves at the feet of professional athletes and pop entertainers with glamorous lifestyles and colossal earnings. The truth is that science may not command superstar salaries, but it's a surer way to better wages than other fields of undergraduate study.
One year out of university, the highest average wages go to professionals in health, engineering, math, computers, and the physical sciences. Yet despite prospects of superior earnings and employment, the percentage of Bachelor's degrees awarded in science and engineering is declining. This is a real problem for our technology-based companies because, as we know, human resources represent the raw material upon which we can face international competition and build a stronger economy.
On the other hand, our star entrepreneurs do not get the same attention as do their counterparts in the U.S. The consequences of this relative lack of knowledge are twofold.
First, the performance of the Canadian stock markets regarding technology stocks is an indication of the lack of understanding of the Canadian public in general. We must do something to create and stimulate the growth of the Canadian stock market. We cannot much longer afford the luxury of seeing our star companies listed only on NASDAQ to get a fair market value.
Secondly, the Canadian pension funds in general do not invest as much as their American counterparts in the high technology sectors. There was a time when virtually no vehicles were offered to the pension fund manager to funnel these investments other than the direct approach, which is not practical for large funds like these. But the situation has evolved and the statistics show that Canadian venture capital firms have evolved and managers of those funds are more and more able to perform in the high-tech investment sector.
In closing, I would recommend that the venture capital industry, the government, and the pension fund managers work together to find a scenario in which the available capital can be directed efficiently to nurture the creation and the growth of emerging Canadian high-technology companies.
Je vous remercie.
The Vice-Chairman (Mr. Lastewka): Thank you very much.
We'll begin with questioning, and we'll start with Mr. Ménard.
Mr. Ménard: I will have to ask you to excuse me since I have to leave at noon. I have to get back to Hochelaga - Maisonneuve to take part in an employment workshop.
I sense two things that stand out clearly from the presentations we heard here this morning. The first is, without a doubt, the lack of funds. I am not sure I understood the message correctly, but the lack of funds that was brought to our attention this morning specially concerns emerging companies, those that have been operating for only one or two years, which have a difficult time justifying their financial results and which do not meet the banking industry's longevity test.
You are sounding the alarm and saying that we must supply them with the necessary capital, but that it doesn't necessarily mean giving them subsidies. I understand that the four parties in the House, the Reform Party, the Bloc Québécois, the NDP and the government majority unanimously agree that subsidies as we knew them are gone forever. I wonder whether you could be a little more precise on that point. I think that it's a message well worth hearing.
What really surprised me this morning, is that none of you mentioned the Technology Partnership Program. That worries me, because, as you know, and setting aside any type of partisanship, the government has attempted to make its science and technology policy more coherent since, in the past, there really was no such policy. The government has provided a consultation register and has attempted to create a $250 million program called the Canadian Technological Partnership program targeting a certain number of industrial sectors including communications and environmental high technology. That program is even supposed to provide assistance on something that concerns me a lot as a Montrealer, I'm speaking of the reconversion of military industries to civilian use.
This program was not supposed to be a traditional subsidization program, but a program that provided a type of financial assistance that would eventually be paid back. The example that comes to mind, the one that was most mentioned in the media, is, of course, the $86 million in assistance granted Canadair in Montreal.
What do you think of the Technological Partnership Program, if indeed you have any knowledge of it? Is it really helpful? Do you consider it to be a great starting point? Say it were to be increased, what suggestions would you wish to put forward? Do you believe that we, as a committee, should very specifically recommend the setting up of a fund specifically for emerging companies that are less than two years old?
The Vice-Chairman (Mr. Lastewka): Mr. Albinson.
Mr. Albinson: Thank you for the question. I think the technology partnership program was mentioned briefly by several members.
I can tell you from Newbridge's experience that when we started ten years ago we took advantage of a program called the MSDP program. The government advanced us some shared research funds, which Newbridge had fully repaid as of last year. These allowed Newbridge to get where it is now. I think both Tundra and CrossKeys also currently have proposals in front of the technology partnership program as part of their growth and expansion plans.
I do see this as a key program where risk is shared. But it is not a grant. The money has to be used wisely because it's going to be spent again. I think it is a very important connection to make. I think it is an excellent program.
I would say one thing about the technology partnership program. It tends to be very large and moves rather more slowly than may be appropriate for small companies. It is difficult for small companies to wait eight, nine or twelve months to find out whether or not their application was successful.
By comparison, a program like CANARIE has smaller funds, but moves much more quickly and is working very well in the technology field.
I can't speak about the medical sciences.
Mr. Ménard: Does everyone understand that the Canadian Technological Partnership Program was announced last April? Are you concerned about how proposals will be dealt with? As far as I know, the minister was supposed to strike a committee responsible for analyzing proposals, but that has not yet been done. Are you worried that, in the end, the technological partnership program's way of dealing with proposals would be so slow as to not be able to respond to your actual needs?
Mr. Albinson: I think with any new program there are growing pains, so I want to give the department the benefit of the doubt when it comes to learning how to do it. But I would say it has moved, especially for small firms, more slowly than we would have hoped. The technology is evolving so quickly that if you put a proposal in and don't hear a response for eight to twelve months, by the time you get a response the market window for the technology is starting to collapse on you. So I would suggest it may need to move forward.
Maybe CANARIE is a better vehicle for small and medium-sized companies than the technology partnership program. There is a mix on this.
Dr. Stiller: Thank you for the question.
The TPP program is very innovative, but there's one small limitation, and that is that the moneys have to go to the universities. A small modification in which the matching moneys - if it could also go into a company in which the universities had equity, it would actually encourage the further step of commercialization in terms of start-up.
I have no other comments except that I think it's well-designed in its intent; it's just that it's in its infancy.
Mr. Ackman: I'd like to comment on that. We've been quite successful at Queen's with the TPP. We have two proposals that have been granted, and I think two more under consideration, and in each of those cases Queen's does have an equity stake in the companies. So it has been a very effective means for our companies to get started, and it has been a tremendous incentive for us to take the lead role in submitting the applications on behalf not only of the university but the start-up company.
Mr. Ménard: I wrote down two suggestions made by PARTEQ and about which I would like to have a bit more information. Someone said that it would perhaps be a good idea to base the loans on a company's know-how. Would you have a specific proposal we might include in our final report.
You have just said something which would no doubt be of interest to the committee, but I feel that you did not quite say everything that was on your mind when you spoke of the need for a competitive type of subsidy. What do you now mean by the two things that you just said?
Mr. Ackman: I'll start with the first question, which has to do with facilitating knowledge-based lending.
The sources of capital the university typically seeks at the early stage are venture capital and the banks. I think the banks are trying, but they are so - I don't want to say mired - ensconced in asset-based lending that it's very difficult for them to put a value on a patent, and I think that's one of the inherent problems. When you try to come up with a dollar figure or net realizable value for an item of intellectual property embodied in 10 to 30 sheets of paper, plus any other value that's been added to it, it's very difficult to have any kind of consistent, recognizable method.
Typically, when we are charged with putting a value on our start-up companies, book value has no basis in fact. Net present value or any kind of discounted cashflow methodology is also extremely uncertain because of the disparity you would get in someone's discount rate, let alone the uncertainty of the projections, because they are inherently pro forma.
I suppose there are other methodologies, but the only way we have shown any success in being able to put a value on it - and I use this.... How Queen's does it might be considered a method by which other lending institutions try to understand the difficulties. They do all of the traditional methodologies - discounted cashflow, book value - and then it has to be a comfort level and a reliance on the entrepreneurial team at hand. Fundamentally, they will have to satisfy themselves that if the whole thing blows up, the only thing they will be left with is perhaps some residual interest in the intellectual property, and the value of that outside of the entrepreneurial team and outside of the know-how is inherently reduced.
The Vice-Chairman (Mr. Lastewka): Dr. Aw has a comment before you leave, Mr. Ménard.
Dr. Aw: I don't want to get out of sync with Mr. Ménard's second question, but I'd like to echo Dr. Stiller's response, which is that from the perspective of a young Canadian biotechnology company, the TPP is a very innovative fund. However, I'd like to make a pitch that a greater ratio be allocated to biotechnologies since it is one of the two premier and leading sets of emerging technologies. From a small company perspective, I would like to see a greater speed to the handling of the files. I believe the funds should be allocated to the private sector because that's where the money is most efficiently used. Being a younger company we are almost always asked to come up with up-front cash being directed to the universities. As I think all of the speakers said, financing is one of the greatest challenges to a young company. Thank you.
The Vice-Chairman (Mr. Lastewka): We now move to Mr. Schmidt.
Mr. Schmidt (Okanagan Centre): Thank you very much, Mr. Chairman.
I would like to express my appreciation to everyone of you who has come. I think this has been a remarkable display of energy and variety of people who are interested in this technology area.
If I might make an observation, Mr. Chairman, one almost feels overwhelmed when one hears all of this information in the space of one hour. It's a lot of stuff to digest and the problems are many and complex.
I want to focus on a couple of areas that tie right in to the answer Dr. Aw just expressed and to what Dr. Stiller addressed earlier.
The question I see is this one. While we need to have the commercialization of new ideas and the translation of them into new products that can be turned into money that can do all the things we want in our economy, all of that is based on the initial research that needs to underpin all of this. So we need both of these. One without the other won't work. I think it's often the translation of some of these basic ideas into commercial products that gives rise to new research that has to be done on a very basic level. So it's not an either/or proposition; it's a working together of these.
I really want to zero in on your plea for the life sciences, and I guess you indicated that in a subliminal manner as well. What should be the science strategy for Canada in terms of applying research and development money, both at the commercialization level and at the basic research level?
Dr. Stiller: My biggest plea is for consistency. In terms of the fundamental platform, if there's a suggestion.... Nuances are everything here, and I understand from time to time in terms of budgetary statements that fiscal constraints are absolutely necessary and important to our own health as well, but a lack of commitment to the fundamental platform shakes the confidence of the young people we absolutely need in those laboratories to generate the discoveries from which we can create jobs.
Partnerships are based on trust, and this is a partnership. It is a public-private partnership that starts at the macro level with the Prime Minister's Office, the Minister of Science and Technology, the Minister of Finance and the heads of the research councils, all singing from exactly the same page in the same hymn book that science and technology - and our area in particular, bioscience - is a fundamental plank in the economic platform of Canada. We will be consistent and we will seek to harmonize from jurisdiction to jurisdiction within Canada.
I didn't refer to this earlier - this is not the forum in which to do it - but our financing, which we do from the bench level on.... I think a good third of our time is taken up just trying to get over the regulatory hurdles, involving the accountants and lawyers to somehow get us by those, to creatively meet the needs of a particular technology that needs to be financed.
I think it comes back to the issue of vision. Is the money spent in research and development in this country really an investment, or is it a grant? It's seen as a fundamental investment. I think then everybody would begin to get rid of the obstacles that individually are small but collectively inhibit.
Mr. Goodfellow: I have a comment and I understand Dr. Aw has one as well, but I'm going to take a different spin here. You asked what the Government of Canada needs to do in the basic and applied research areas? Is there some sort of policy, position or strategy that should be put forward, and where should the money be spent?
I would suggest that it's not a matter of where the money is coming from, because there is money there. There are labour funds that are growing like the dickens. There are companies that can grow and companies that, when they do grow, put money back into the system. Today's angels were yesterday's entrepreneurs.
The thing is, and I'm talking from the perspective of the life sciences and biotechnology, which is part of life science, it's the climate that is created and the leadership that is provided.
I'm going to ask a question here and do a bit of a survey. Over the last couple of days the Ottawa Life Science Conference was held. It's the premier life science conference in the country. How many members of Parliament were there? How many ministers were there? You've got to walk the walk, you can't just do the talk. There were very few people there providing leadership.
Mr. Schmidt: Mr. Chairman, how many parliamentarians were advised that the conference was here? It's all very well for you to sit here and say you guys aren't interested, but how can we be interested in something we aren't told about? I think we have to carry that one very carefully.
We had a presentation from the SSHRC people, for example. ``You guys don't care about social research'' - but it wasn't true at all, and they instituted the very thing Dr. Stiller mentioned here a moment ago. They put on breakfasts periodically to talk about the research, which is exciting. It's great stuff. Please let us know.
Mr. Goodfellow: Someone was invited to open the conference and was unable to do it, and that person is an extremely well-placed person within the cabinet of the government.
Mr. Schmidt: Please don't brand us all with the same brush.
Mr. Goodfellow: I'm sorry, but some leadership has to be provided.
The other comment I'd like to make is that Dr. Arthur Carty, who is the president of the National Research Council, was presenting on the strategies of different countries - Germany, Japan, etc. - and where their priorities are, and when he got to the Canadian slide there weren't any priorities, and he indicated that we still have to devise that. It's a very good comment. We have yet to devise it, but when are we going to do that? We're going to be so far behind the rest of the world that we may not have many other sectors to focus on.
Mr. Schmidt: That's exactly the question I'd like to have answered. We need to know exactly where we should focus. I think Dr. Aw and Dr. Stiller indicated that to some degree, but I would really like to know. Our Newbridge people have given us a lot of stuff, and our information technology stuff is really moving along, but are we doing it for the country, for economic development? That's where we have to go. As a government, I think it's very important that we get the right direction here. We can't be everything to everybody.
The Vice-Chairman (Mr. Lastewka): I should point out - maybe I should have done this at the beginning of the meeting - that we did meet with Dr. Carty earlier in the week when we started our discussions, and a number of other companies, and of course the objective is to do this report and hopefully push that to that conclusion.
Dr. Aw: Mr. Chairman, I used words like nurturing the environment, instilling a winning attitude among our young people, and linkages between the universities and government and the private sector. While I made a fairly strong pitch for helping young biotech companies grow, I'm fully cognizant of the fact - I've spent seven and a half years as a professor of microbiology in a medical school - and I believe fundamentally in what Dr. Stiller stated so well, that the engines of new ideas will come from the universities.
It's the transmission. It's the transformation of those ideas into products and processes that I think should be the national will. I believe we should translate that and articulate that consistently. As Dr. Stiller said, let's identify the pockets of excellence that we have developed in our infrastructure. It may take more than a few fora, but let us sit down together and identify where we are strongest. Newbridge's success is because we are extremely strong in the telecommunications sector. Let us sit down together, let's identify the one or two specific areas where together we can do those things that I've been saying. Let us then draw up that plan, articulate it, and lead the next generation into it.
I could say right off the top of my head - and it needs more research and discussion and analysis - something like medical devices...we've got pockets of excellence in some of the major universities and here in the hospitals. Dr. William Keon is a world-renowned heart surgeon. Dr. Stiller himself is a well-renowned organ transplantation surgeon. Let us focus on these pockets of excellence and let us nurture them. We can't be all things to all people - that's a cliché that always seems to work - so let us focus on these and let us build the nation's technological entrepreneurialism together.
The Vice-Chairman (Mr. Lastewka): Mr. Oliver.
Mr. Oliver: I think Mr. Schmidt has hit on a very key point here. I think our tradition as Canadians is that we're concerned with cost and not value. We sat at this very stage we're sitting at today with information technologies and life sciences. We sat at that crossroads in the 1930s and we traded the agricultural chemical industry for costs. We sat at that stage in the 1960s with the human pharmaceutical industry, and we traded it off for cost. Today we're sitting there with that opportunity, in the early part of the 21st century, with the information-age technologies and the life sciences.
We've got to go for value, and we've got to put together a national vision of this country that's so exciting and compelling everybody wants to be a part of it. That's what leadership is about. It's creating that vision of the future that's so exciting and compelling everybody wants to be a part of it.
We don't have a vision, ladies and gentlemen, of Canada in the year 2010 or 2020. We need to start with that and put in that window - science and technology. We have to do the symbols that are right. We have to recognize the winners, we have to give this winning spirit, we have to learn from what I heard here today, with Newbridge Networks and its approach. The learning is there, we've got the pieces, and we've just got to have the will to do it.
The Vice-Chairman (Mr. Lastewka): Thank you.
Mr. Albinson, did you have some remarks before I go to the next person?
Mr. Albinson: I'll just reiterate the last point.
We do have the pieces. I think there's no question we have the capital, there's no question we have the people, there's no question we have the basic research capability. The focus and the connectivity are clearly missing. When you lose that synergy at each step - from the basic research to the research out to the entrepreneurial company, the entrepreneurial company trying to get to distribution and export - the company stalls and the innovation stalls. What happens is the wealth isn't created, and when the wealth isn't created you can't recycle it into basic research.
The whole mechanism is broken. Without the focus and connectivity in the leadership, you're not going to see it. We had an opportunity on LMCS to do that. We saw a new market opportunity. It was a global market, we had the basic research, and we were going to be the first in the world to deploy this. We did a great job on it.
By the way, there's a small company in Winnipeg called Broadband Networks. It's the premier company in leading that technology, but it's not going to have any part of it. The wireless technology that's going to be involved in the two licences is going to be U.S. based. We stumbled again.
We have to get better focused and have better connectivity. We have to take our concepts and our innovation and turn them into wealth and jobs for Canada. Without that focus and leadership, we just won't get it.
The Vice-Chairman (Mr. Lastewka): Mr. Shepherd.
Mr. Shepherd (Durham): Thank you very much. It's been very mind-boggling today. I think we're dealing with some intergenerational problems too. It's the old technology meeting the new, and I'm not sure which one of us is sitting on the other side of the table.
I'd like to get into the concept of connectivity, if I can use that word, and look at the problems of financing merging technologies. I'll just write down some of the ways we're doing that.
It strikes me that we have a band-aid approach to this. We have scientific tax credits, IRAP, and labour-sponsored venture capital. We have all these little instruments that seemingly have sometimes overlapping purposes.
We could sit down and reinvent this. I suspect when you're going into new technologies, you all sit down and put the past to one side and see how you can invent a new methodology.
The governments are saying they're supportive of emerging technologies. How can we do it efficiently? We've already stated, in real terms, that we have over a billion dollars in scientific tax credits plus all these other programs. So there's money sitting here, and there is the desire and the technology. How are we putting them together? Do we need some kind of better vehicles to focus on? We talked about mutual funds.
Also in this country one obvious thing is that we have these demographics. We have a huge baby-boom population here that's retiring. They have tonnes of money. They're looking to invest it. We have all these opportunities on the table.
What's the synergy of putting that together more efficiently than what we're doing now, and how is the government part of that? We're willing to give tax incentives. How do we put that into a homogeneous pooling system? Do we have any thought processes on that?
Mr. Chowaniec: I have a couple of thoughts.
I think if you look at some of the people around the room here and where the growth in industry is coming from, you will see it's not coming from companies offshore investing in Canada. It's not coming from large companies in Canada investing more; it's coming from small companies spinning off and starting up and creating the kind of growth you see. Yet most government programs are monolithic. They treat all companies the same way, and I believe the emerging growth companies need to be looked at from a different perspective. They have different needs. They fit into the infrastructure differently.
Even taking a simple example like the TPC program, the only award under that program so far has gone to a large company in Montreal, which has absorbed one-third of the total funding under the program. That's not going to do a lot for the hundreds and thousands of small entrepreneurial companies across the country that are trying to grow from where they are today.
I think it would be extremely useful to look at our policies from the point of view of what the policies are for large companies, what the policies are for medium-sized companies, and what the policies are for the young growing start-up and emerging companies.
Dr. Stiller: I would say there are two things.
First of all, I understand this is a political system, but one could, in these areas, say they're really interested in their shareholder because their shareholder is a citizen of Canada. For anything they're going to do in terms, for example, of awarding a program, if they don't see some benefit coming back to their shareholder in terms of residual technology or a technical platform or profits, they're going to ask why they are involved.
I think the Winnipeg issue is that you just have to ask yourself, in the final analysis, for whose benefit this is.
Your general question, though, is an important one, because we can't recreate the system; that is, we can't abolish everything that's there and redo it. But we should learn to understand it. Each one of these things has occurred in a point in time, usually for some other reason, but then begins to play a role in this whole idea of transferring technology and creating new technology-based start-ups.
For example, with the labour-sponsored venture capital corporations, I'm sure they never had that in mind with respect to the kind of program the Canadian Medical Discoveries Fund has; yet it's been adapted for that.
I really do think we need to sit back and say, here's our road map to get from here to here, so what do we need? What kind of vehicles do we need? What roads are we traversing? The major players sit down, in a non-partisan way, and say they agree that's the road map, now where are the obstacles and what vehicles need to be changed a bit to make them work a little better?
There are major obstacles with respect to applying our kind of money to some of the needs here, simply because the regulations never anticipated that this is the way it would be, and we've had to be very inventive to try to apply it.
I think you've really started something. I think we need to sit down and draw up a map and say what the steps are, what the vehicles are, what currently is being used, and what adaptation could be made to make it work better.
On the example of the Canadian Medical Discoveries Fund, I should tell you that actually on the prompting of the minister, NSERC is launching a fund called the Canadian Science Technology Growth Fund, which is modelled after the Canadian Medical Discoveries Fund. This is great. It is something that has worked.
Back to your issue, you could turn some screws and make some changes that would make it work better. I think there's an idea there.
Mr. Oliver: I agree with what Cal has touched on.
I think we have to go back to what Chris said this morning in his comments. The strength of this is in creating a future for Canadians. You need to have that home-base support, what Jom Aw mentioned. You have to support Canadians.
I think we have a fascination that if it comes from outside, it has to be better. We have to remove that, and we have to recognize the objective that we're building a better Canada with better jobs. We have to focus on the way to get there. We can't do it by being all things to all people. We have the opportunity.
The next information age explosion in the early part of the 21st century is agricultural biotechnology, because the world cannot feed the demand as we stand today. That's sitting there. It's billions of dollars.
If I had a blank page, I'd marry Cal Stiller with a Newbridge concept. That thing is rolling downhill. That is a snowball that can just create wealth like this country has never seen. The government's role has to be to facilitate that kind of thing. Be a facilitator, provide the positive environment, get the direction set right, get Canadians focused on the vision, and it will roll.
Dr. Stiller: Can I just make another comment, because something is rolling here.
For example, one of the inhibitions that we have is in this area. Your resource really is intellectual property. In the resource field, if you own the oil field or the gold mine, that's your resource. In this area it's the intellectual property. Who owns the patent?
So what's our field to play in? Where are we mining? We're mining our universities, but there is some superb intellectual property that exists down at MIT, Harvard, Texas, or over in Germany. I'd like to buy that oilfield and just move it to Canada and say now Canada owns that and that's going to be exploited in Canada for Canadians to create wealth and export internationally.
I'm just thinking about the little things. It's actually a big thing.
I can't spend our money to take a little company like Dr. Aw has created to broaden his intellectual property for his platform by buying intellectual property in another jurisdiction, simply because there are restrictions as to what that money can be spent for.
It's a small thing. If we did a road map and said we were going to be the leaders, we have the vision and the confidence, so what do we need to achieve that...? Whatever we need we will bring to the table, and we'll bring it in the vehicle that allows us to be competitive.
Mr. Shepherd: I guess because we want to be competitive, we look at what other countries are doing. I know we can't copy other countries per se because they have different cultures and so forth. I think we've mentioned that we're 18th in the world. The bottom line is, who is the best? What are they doing that's better than us? We don't want to copy them, but we'd like to take where they are and innovate that so that we are the best.
If we look at the Japanese example or at the German model, or whatever the case may be, what are other people doing that's so much better than what we're doing? How do we take that and make it that much better for us?
Mr. Goodfellow: Thinking about countries around the world that have been successful, they have taken an approach that it's a country incorporated. You've heard of Japan Incorporated. We've even got an example, as we almost have Québec Incorporated. That's where you'll notice, from some of the comments, that a lot of the venture capital is being invested. It's an attitude as well as anything where players start coming closer together.
The question you asked is so fundamental. The answer is also very fundamental. I heard it expressed earlier that we can't be everything to everybody; we've got to take the leap of letting some things go and focusing on some sectors that really can provide benefits to us. There are obviously political costs to letting things go, but there's a longer-term gain in focusing on the winners.
For example, in Japan, when they focus on their tax incentives or their investment incentives, some industries get higher levels of assistance than others. Not everybody is at the 20% tax incentive; some are at 15% and some are at 40%. It depends on how they want to assist particular winning sectors.
In Canada we often want to be fair to everybody, but in the end we are actually unfair to the best potentials and over-generous to the not-so-good potentials. It's focusing, and then it's a matter of letting everybody know that you're doing it and why you're doing it, and getting people forward around the vision and the effort.
The Vice-Chairman (Mr. Lastewka): Dr. Stiller.
Dr. Stiller: If you think about what levers of government you used to develop our natural resources and think of the intellectual property as the equivalent in this, many of those levers are not used in this area because of worries about past abuses or egalitarianism and fairness or not allowing it to creep.... I think a lot of these tests of how you drive an area have already occurred in the resource sector very successfully in Canada.
My suggestion is that you look at the levers of government, which are primarily in the tax area, as an offset to risk, to induce people to launch their careers and put their money in a particular area. If you use those same models and levers of government, I suspect it might work very well.
The Vice-Chairman (Mr. Lastewka): We'll go on to the next question.
Mr. Ackman: I'd like to give one specific example that I think is an indication of how directed and how focused some countries are about innovation.
In my capacity I'm looking for people to buy my technology. I've been approached by individuals from Finland and Singapore, who are placed in Canada, and they are looking within Canada for technology that relates to areas of interest back home, specifically companies back home in Finland and in Singapore that are looking for golden opportunities in other oil patches.
There's a very good example of countries that have some higher mandates, some very focused idea of what they want, and have put in place a very solid mechanism to go out and get it. I think that's something we lack. We're on the other extreme. I have trouble finding companies in-house for my technologies.
The Vice-Chairman (Mr. Lastewka): We'll go to Mr. Albinson for a short one, and then we'll switch over to Mr. Murray.
Mr. Albinson: I think the idea of focus is important, but just think of it in terms of clustering. If you look at any of the successful clusters, and even if you go back to the older technologies - the auto sector - government played a very important part in setting up the auto pact in 1967, creating probably the largest economic engine the country has right now in the Golden Horseshoe. It took a lot of time and effort to set up that cluster. Knowledge clusters similarly need that kind of effort.
Silicon Valley was in large measure set up by the U.S. government. If you look at most of the clusters around the world, it was active government participation in moving the required resources, both on the public and the private sides, together in concert with a very clear objective to develop a world-class cluster in X, Y, Z, to make sure they were the best, that they have the exportability to make it happen - and they've done it.
I'm starting to see some of that happen in Ottawa in the IT sector, where you're actually seeing that the venture capital is now intelligent. The companies are starting to spin out, but it's certainly not Silicon Valley yet. We can't get a law firm that will work for equity yet. That's my measure of whether we made it yet.
In Silicon Valley you can get a law firm, an accounting firm, a distributor and a manufacturer that all work for equity. We don't have that yet. We don't have that mentality. We have a way to go to catch up. If we focus our efforts on creating a couple of clusters that are competent in ensuring that the resources both from the public and private sectors are working in concert aggressively for a target, we can win. But you need that kind of directed action.
Japan is doing it, the United States is doing it, Europe is doing it, but we're not. We're the only G-7 country that does not have a silicon foundry capability. We missed that window. We're trying to catch up. Adam is actively working to help make that happen.
That's another example of a key technology, be it a silicon foundry or LMCS. We're not focusing the efforts to make sure we develop clusters that create wealth. Once you get them set up, you can walk away as a government. Look at Silicon Valley. That's just a money-making machine for the U.S. You go on to the next cluster and set that one up, but you've got to have a focused strategy to make it happen.
The Vice-Chairman (Mr. Lastewka): Mr. Murray.
Mr. Murray (Lanark - Carleton): Thank you, Mr. Chairman.
I've found this very enjoyable, very interesting, and also very frustrating. My colleagueMr. Shepherd was talking about a generation gap. I'm old enough to remember the Lamontagne report in the early 1970s. There's been a lot of discussion and hand wringing over the intervening 20-odd years in this town about science policy, the development of science culture in Canada, and how we do this.
I'm not sure if Mr. Shepherd touched on this. He was asking if we swept away everything, and where we start, rather than trying to essentially micro-manage our way out of this problem.
I'm not sure that we don't have a very major roadblock, and that's the Canadian people.Dr. Stiller mentioned the word ``egalitarianism'', which was going through my mind as well, and which I thought of often as a basic problem we have here.
I tend to see the answers to a lot of problems in very simple terms. One might consider them simplistic. But I look at human nature really as to how things get driven in society. If we want young people to pursue careers in science, we'll have to do something, as we heard this morning. Admittedly, we have to make it exciting for them, remunerative, and something they want to aspire to rather than being, say, a rock singer or a ball player. The question is how to do that.
I've often suggested that we might want to look at differing tax regimes, because I think it does come down to individuals reacting with very basic human instincts. For example, when you're an engineer and you can get a job in the United States rather than in Canada, you look at the tax system there and you look at mortgage interest deductibility, and all sorts of things, and you wonder why you would ever come back to Canada once you move there.
These are very fundamental human problems we're dealing with. I'm not sure that successive government programs are going to tinker around the edges.
I'm sorry to be preaching here, because you're the experts; I'm not. I've been frustrated by this whole thing for a long time. I think we do need a science culture in Canada. I'm not sure that politicians can create it on our own, other than by taking extremely bold steps, which probably would mean for at least a period of time making some Canadians more equal than others. I don't know how politicians do that and get re-elected. I don't think Canada has embraced....
The stories we hear from companies such as those around this table are wonderful. All Canadians would applaud them and be proud of them. But are you willing to say, well, I guess those guys are more important than I am to the future of this company and therefore I think the Government of Canada should give some breaks to them that they wouldn't give to me? Personally I'd doubt it, but I'd like to hear your thought on that.
Mr. Oliver: I'd like to give a real-life example, because I believe what you've talked about, Mr. Murray, is called marketing in the commercial world. I think the challenge is to create the vision that everybody wants to be a part of. I'll give you a specific example of a brain drain the opposite way.
One person I would recommend the committee hear from is a fellow by the name of Dr. Murray McLaughlin, who was president of AG-West Biotech in Saskatoon and is now deputy minister of the Saskatchewan department of agriculture. He is the guru behind the cluster that formed in Saskatoon. Saskatoon has a world-class cluster of agricultural biotechnology companies.
DowElanco just bought part of a company in San Diego, one of the two biggest agricultural biotechnology firms, a company called Mycogen. We took a 46% equity in February of this year. As we look at the rationalization, they had their head office in San Diego and their research labs in Madison, Wisconsin, and our global headquarters are in Indianapolis.
The rationalization is, why have this huge facility in Indianapolis and this smaller facility in Madison doing agricultural biotechnology work? Why not merge the people together? At the same time, Saskatoon, which to most Americans is one step from the end of the earth, is sitting there with this cluster of technologists and companies.
The people want to follow the science. They don't believe the science is Madison to Indianapolis. They believe the science is Madison to Saskatoon. We're just at the stage of announcing that we're going to increase our staffing in basic research in Saskatoon because the people who are following the science and want to be at the leading edge want to be with the others who are going there.
DowElanco in Indianapolis is an agricultural chemical company. Saskatoon is a plant genetics-based cluster. It can be done. It's just a case of marketing. If you have a vision that's so compelling - if you need to hear from somebody who started it in 1989 with about four people and now has several hundred people in Saskatoon in a multitude of companies, there's a message there. If you look at what the Premier of Saskatchewan did, he's the salesman for agricultural biotechnology for the province. It's leadership and vision. That's what it's about.
Dr. Stiller: I'm going to make a comment here, at some risk. People ask me why we don't have that kind of advocacy for science in Canada. They ask why we don't have a science caucus. The U.S. has a science caucus, a very active leadership, vibrant Nobel prize-winners coming in. In fact, when the NIH went before the Congress, they had their budget increased over their recommendation, a 5.9% increase.
I try to explain to people that you can't have a science caucus in Canada because we have a parliamentary system.
Mr. Murray: It's possible.
Dr. Stiller: It's not possible....
Mr. Murray: In the 30th Parliament there was a science caucus.
Dr. Stiller: I'm sorry?
Mr. Murray: There was a science caucus at one time in the Parliament from 1974 to 1979.
Dr. Stiller: Was there really?
Mr. Murray: Yes.
A voice: Of MPs.
Dr. Stiller: Of the opposition parties or the government?
Mr. Murray: It was actually a government MP who started it, but there was a science caucus.
Dr. Stiller: That's quite remarkable. I said it couldn't happen in the parliamentary system. How can you have an advocacy that might in fact end up not being a government policy-oriented conclusion, if you will? That's very interesting.
If we could get something like that going, and a number of individuals, including some people around this table who.... There are some very articulate spokesmen here with respect to what can happen in Canada. Using Saskatoon agri biotech....
I tell you, you go to San Francisco to the bio meeting - and John's absolutely right. If you're talking agri biotech, you're talking Saskatoon, Saskatchewan, where I grew up and worked at Intercontinental Packers. I never thought it would happen that, on an international or a North American scale, if you think agro biotech, you think Saskatoon.
You can get a combination of champions, people who are of goodwill and who can fundamentally believe in what they're talking about, and a group within parliamentarians who say yes, this is really important. It's important for Canada in the year 2010. We're going to educate our colleagues and we're going to get excited about it and we're going to be a receptor for innovative ideas as to how to lay out this road map and make sure there aren't any blind alleys.
Dr. Aw: I just want to reinforce the two previous comments, which I value greatly. In a small way what we're trying to do is to take the next steps. On behalf of Kalyx, we're trying to make that strategic linkage with Saskatoon, with the pockets of agricultural biotech excellence in Guelph, and hopefully with McGill as well, with Macdonald College in Saint-Hyacinthe. I think it can be done. It's taking the next step.
I think even small and young companies like us can do that. What we're looking for is that national will articulation. It might mean a national round table forum like the one Dr. Arthur Carty has started. Perhaps all of you members and all of us from this side could be a part of that national discussion.
In terms of the articulation of the success story of Saskatoon in linkages with some of the other pockets, I think we will very quickly and very clearly show leadership to our fellow citizens.
Mr. Jenkins: I have a short comment about Mr. Murray's comment. I don't think we're talking here about making some Canadians more equal than others. I would suggest to this panel that it's about a national catastrophe. We're badly behind the G-7 countries. We read it every day, day after day, and the gap is increasing. We're talking about catching up and creating wealth for that country.
Mr. Murray: I'm just arguing that I think you have to appeal to human beings, individuals who are going to do that as a country.
Dr. Aw mentions a national round table. I can't remember what they called it when the Conservatives first came in in 1984. They had promised to double the amount of industrial R and D performed in Canada. There was a huge conference and the Prime Minister set up the National Advisory Board to advise him personally, and we're still where we were.
In many ways there have been great advances. Obviously there are companies that have done very well, some of which we've seen here today, but in terms of turning Canada into a country that does celebrate those successes and that has universities turning out the graduates we need to feed those companies, they're desperately looking for the talent. That's where I find the frustration.
I talked about some people being more equal than others. I'm just trying to figure out how you make Canada an attractive place for people not only to come to but to stay in, to attract the best minds you can in the world because it's such a wonderful place to perform R and D and to set up companies and get them going.
Dr. Stiller: Mr. Chairman, may I make one more comment?
I wasn't going to refer to this, but I've decided I will. A couple of weeks ago the Medical Research Council held a meeting of the research bodies from 14 countries. They started out with the G-7 and ended up with a G-14. They asked me to put forward a paper on innovative funding for research, which I did.
That has gotten a lot of international attention. It's provocative. It takes a different approach. It says we must do a blending of public and private. Ultimately, if we actually reinvest the returns we get here into the fundamental platform, government can back off in the future. So everybody's ox gets gored a bit in it. I'd be happy to have that provided. It is not a final answer. It was laying out a new way of looking at funding.
The comment just made here by Roger is a key premise. Without a significant fundamental platform, it doesn't matter what you want to do, it doesn't matter how good you think you are, and it doesn't matter about attitudes; it's not going to work.
Business Week said the reason the U.S. is number one in biotechnology is because of the NIH. Our fundamental funding is too low; it's just too low.
The question is, how do we get from here to there? We've had problems, and I think it's a combination of a public and private partnership that will get us to there.
But, Mr. Chairman, I would be happy to have that provided after the fact.
The Vice-Chairman (Mr. Lastewka): We'll table it with the clerk so the rest of the members will be able to receive it.
Mr. Goodfellow: I have a comment on the idea of a science caucus, or some body like that, which will have a direct focus on science. I believe it has to be something that is not just caucus-driven, but it must bring in the private sector.
I know I challenged you earlier when I asked how many people were at the Ottawa Life Science Conference, but if we have the collaboration of those in the government sector who can articulate and help develop the culture and the leadership, and those in the private sector, they have to be charged with the same things. If we have a forum in which we can say, to be able to reach that goal we're going to have all these communications, all these messages, and all these nuances that we're going to have to deliver over time, and it's really darn important that this one, this one, and this one are there to continue to give the nuanced messages, to continue to tell the students who were at the Ottawa Life Science Conference that this is important right now, and way down the line as well, and to tell those companies that are trying to build that this is important for the country.... You create that drive, you create that feeling, you create that momentum.
The biggest salesperson in Saskatchewan for agriculture biotech is the premier of the province. He'll go anywhere in the world to give that message. I'm not saying that's necessarily the role solely of the Prime Minister or of the Minister of Industry. I'm saying everybody has a bit of the role and some people have more of the role. It has to be consistent and articulated over and over. Then people will start to say, I've heard that before, and maybe I believe it a bit more now. It has to be continuous and it has to be articulated over and over.
The Vice-Chairman (Mr. Lastewka): Ms Brown.
Ms Brown (Oakville - Milton): Perhaps Mr. Romanow is a great salesman because he is selling a concept that fits with his philosophy, which is that government should be active; government has a role to play in the economy and this is the way he's going to play it. This is what I see as one of the essential problems, responding to the frustration of my colleague Mr. Murray.
Somebody suggested that we have to have a national articulation of will, that we want to have a science culture, and that we want to nurture these industries.
You're asking for things like government at whatever level to create these clusters, such as the Silicon Valley. That might be municipal, provincial, federal - it doesn't matter.
Over here we had an idea about teaching facilitators developing a curriculum to teach people who can pull everything together and identify the opportunities. That seems to me to be a logical role for government. Certainly, investing through the technology partnerships is a role for government, and I'm getting the feeling that you would like us to make more money available.
All those ideas are working against the prevailing ethic in the voters' minds, which has been sold to them for the last 12 years, and is continuing to be sold through certain of our media. These are ideas such as: government is too big; government should shrink its activity; government should shrink its spending; government should stay out of the marketplace. Essentially, the bottom line is that government is bad, keep out of business and let business cope.
What you're telling us is that in this sector, which is emerging, you need government not to stay out but to get in there and pitch with you.
I am saying to you that as politicians we have to both recognize the ethic that is out there in the public's mind, or their attitudes towards government.... I'm going to ask how many of you have been writing letters to the editor against this neo-conservative philosophy, which suggests government should just stay back, hide its head in the sand, and perhaps deliver good health care?
In other words, there's a larger context in which this debate is taking place, and I think the Romanow example is excellent because it shows a politician who has a philosophy and is comfortable executing it in his public activities. He was elected in that province with this philosophy.
The more general philosophy across the country, and it's particularly exemplified in Alberta and Ontario right now, is the opposite of that. Yet, as was put forward, we would like to get re-elected, so we need your help to sell this other idea that indeed if we're going to be globally competitive, we have to get out there and work together - and government has a role to play.
I'll just throw that out. I'm sure it will get some response.
Mr. Albinson: I agree with your assessment on the general level of the sentiment out there, and a lot of it is well founded. But I also think that if you look at the polling data that comes back consistently...if you ask the average Canadian if they want the government to invest more in research and development, as a priority, the answer comes back yes. They don't want you to be helping coal smelters or certain technologies or industries for which they don't believe, from their gut level, there's a future in. But if you say, listen, we're going to invest in research and development that's going to provide jobs for your kids in the next century, then the response is positive, despite the fiscal difficulties.
Ms Brown: As an example, the only high-tech industry we've invested in in the last little while is aerospace, specifically Bombardier, and the hue and cry is tremendous. I have letters on my desk -
Dr. Stiller: Where did that hue and cry come from? Did it come from the press, or did it come from...? I had a lot of hallway talks on that issue. This kind of kneejerk reaction shouldn't be helping a giant become a bigger giant, which is what seemed to be coming out in the press. I have to tell you it was not shared in the hallways. There was this sense of pride that here was something that was really a kind of General Motors internationally, and it was developing. It was Canada and it was Quebec, and Canada was not going to repeat the aerospace story of a couple of decades ago.
I think there's going to be an echo on that story that's going to be positive. If you ask people whether they want their government to be involved in medical research - let's just talk about that - Maclean's magazine did a poll, and for Canadians, in terms of identification, health actually came ahead of hockey.
Your point is well made. In fact, we need to be better spokesmen -
Ms Brown: You need to participate in this discussion.
Dr. Stiller: I hear you.
Mr. Albinson: I think Mr. Oliver brought up earlier the point of marketing. It's an issue of how we create a science culture right across and allow people to understand the value of R and D and the strategy of it as we go forward.
I would probably argue that if you'd made six announcements about bioscience and information technology investments and then announced Bombardier six months hence rather than coming out with it front and centre, people would have understood the full picture. That's just a personal opinion.
I think, generally, there's a sentiment in the country that they understand the power of technology and why it's important to their future. They're willing to invest in it if it's presented to them in a way they believe in, in a way they understand, and so they think it is going to generate jobs. I think you can do that in a compelling way.
Mr. Oliver: Ms Brown, I don't think it's a black and white ideological discussion that is the way forward here. That's the reason that I think the Saskatchewan model really needs to be looked at - and the role, because the role of government was not to get involved in passing out money and bribery.
They reached into the private sector and brought an individual in with the mandate of creating a cluster of agriculture biotechnology to support their resource-based industry. Then, between the province and the feds, they gave both infrastructure and some budget. But what they brought in was the best technology hunter - and I worked with him for 15 years - I know in that industry in the world.
If you went to Maui to a scientific conference or to Germany, Murray was there talking about what they had in Saskatoon. When he had the cold call done, which again is back to selling and marketing, and he needed the closure, he could call on the premier. The premier would go to Germany and convince Hoecht that this is where their biotechnology should be centred for the world, in agriculture biotechnology.
That's what we need, this partnership. The funds and so on will flow if we have the commitment and the ambassadors.
He had a private board who were ambassadors for this.
Does that sustain itself when you take away this kind of leadership? I don't know, but it always comes down to leadership, vision, ambassadorship, and then putting the marketing plan together.
Ms Brown: It can be pretty difficult for us when the lead editorial in The Globe and Mail the day after the Bombardier announcement was very negative and not well researched. It would have been helpful had there been letters from people in your sector, looking for government intervention in the R and D field, to write back and say, look, Globe and Mail, this is not investing in coal smelters; this is exactly the kind of thing the government should be doing.
Dr. Stiller: Mr. Chairman, you should record a sense of guilt on this side of the table.
Some hon. members: Oh, oh!
Dr. Stiller: You are absolutely right.
Mr. Albinson: We did do that, though. When the program came out we were very much front and centre. As a company, Newbridge made its executives available to both the local and national press to talk about how important that program was to advancing science on a number of fronts. Personally, again, I think it was the wrong first announcement. It was a good investment for Canada. If we had marketed it a little differently, I think you would have had a difference response.
But we are making efforts to support the program and others like it. I think it is important to do that, and we do do it.
Dr. Stiller: We have a responsibility to respond to that kind of an editorial. The point is made and we should take it.
Mr. Chowaniec: I want to say that you can't change people's attitudes over night. If this is a cause we believe in we have to find a way of very strongly, consistently, and over a long period of time, making people aware of it. I think people's attitudes will change.
Maybe The Globe and Mail didn't like Bombardier. The Globe and Mail has no idea that Silicon Valley in Ottawa exists. We spend an enormous amount of our time collectively trying to put it on the map so that we are seen not just nationally, but internationally, which will help all of our business. But today, even in that context, Newbridge is an unknown name in Toronto. We're only at that level.
I think we need, as I think many people have said here, the leadership just to tell the story as a start to making the kinds of changes in direction we're looking for.
The Vice-Chairman (Mr. Lastewka): I have to take a chairman's prerogative at this time, because you have just hit on a point that has been something I've learned in the last two or three months after travelling across Canada.
I was in Jim Murray's department for an afternoon. I'd hear quotes like, if you only understood how the R and D system works in Canada; if you only understood this about R and D in Canada; if you only understood this other thing, etc. After hearing that for about four or five presentations, I said, that's it; I don't know anything about research. Could someone tell me about the R and D system in Canada, how we pick priorities, how we develop, and the whole works? I stood back and waited for an answer.
Among the group of about 25 people they said they probably had 25 different ideas on what it is in Canada. It's no wonder the people of Canada don't understand it. I don't understand it. I'd like to have somebody tell me the whole picture of R and D in scientific research in Canada, all the linkages and everything that goes together, all the priorities picked, and how we as a country decide on things. I don't know where that's located.
Mr. Oliver: Do you want me to take a start at it?
That's the reason I believe you can't do it from 1996 going up to the year 2010. You have to go out to the year 2010 and ask what the world will be like in the year 2010. Then you have to decide in which areas Canada has the competency to lead the world, and then defend that competency.
I believe when we get to the year 2010 we're going to find a world that doesn't have enough food on its plate because of the demand that's there, because of what's happening in Asia. I think because of that we have to ask the following questions. What supports our having a leading position? What supports our citizens not being held hostage to that kind of price spiral? What industry is going to win in that? Can we lead in that industry?
That's how you start to pick the priorities. You'll find there are five or six areas that stand out when you get the consensus of what that year 2010 or 2015 is going to look like.
We can't do it from looking in the rearview mirror or from driving the past into the future on a straight line.
Mr. Albinson: I think we've already done it in the past. Just because it's science doesn't mean it's necessarily more complex. The auto sector was a very important economic engine for this century. Canada did a very good job of securing itself a major portion of that industry by focusing resources, by putting training in place, and by making sure the infrastructure was in place to allow that industry to be successful.
We did it in the Golden Horseshoe. Likewise, we're doing a very good job in aerospace in Montreal. As John said, we just need to focus on the five clusters that are going to be important in the next century and get to work right now on putting those things in place.
You could already say, off the top of your head, agrifood, telecommunications and biomed - we know those are going to be important. We know what's required, so let's just get on with the job of making it happen. And you could do it.
Dr. Stiller: I was going to say that there is no answer to your question. Nobody could describe for you research in Canada. It is a map on which everybody drew their own pathway without any real articulation of where we were going or what we needed to be competitive. An endeavour starting in year 2, as opposed to year 7, as opposed to year 23 along this road, was never seen as part of that major road to Rome.
It's not possible, frankly, without a huge circuitry, to describe to you how research occurs in Canada. The fact of the matter is that we have excellent science. We have a poor transfer to the private sector. We have some important examples of the fact that it can occur and it's beginning to occur.
I would suggest that now is the time to do the John Oliver. We have to say where we're going to be in the year 2010 and what we need to get there. We have to have this as a leading economic engine for Canada and to create some optimism for our young people in terms of their future.
Then every time someone asks with respect to a program...you ask how it fits into it in terms of our current generation of shareholders in Canada who are going to be around in the year 2010 and employable. Is it a benefit? Demonstrate it to me. Is it the best? Is it based on excellence? It is not egalitarian. Is it based on excellence, because only excellence is going to survive in the year 2010?
The Vice-Chairman (Mr. Lastewka): So do we ask where we want to be by the year 2010 and draw the map so that we know how we get there from today to 2010?
Somebody has to draw that map.
Dr. Stiller: Yes, and I think you can. It isn't as if it's going to be some huge monolith, and you say that if you're not of the following phenotype and genotype you're not allowed on the highway. Discovery and creativity and excellence come from individuals, and you can't predict that. But you can provide the road upon which they're going to travel that encourages them. And yes, I think it can be done with people of good will who have some vision.
Somebody asked me the other day why I had such optimism. I said it's against my nature, but the fact is I wander out in that garden and the seeds have been planted and the shoots are up. The sun is shining and I'm telling you that bloom time is just around the corner.
We have an opportunity to be competitive in terms of technology in Canada in a way that we, as average Canadians, do not understand. It's a huge success story about to come on us.
The Vice-Chairman (Mr. Lastewka): Mr. Ackman.
Mr. Ackman: I want to add a cautionary note to this idea of going forward 13 years and building back from it. If you do it with the perspective of what industries or what areas we are going to concentrate on, you will get to that 13-year milestone. By then the terrain will have changed and you'll have nothing in the pipeline.
It is not simply a process of our planning 13 years out for what is going to be the pre-eminent technologies at that time. We really have to plan over the next 13 years to put in place a mechanism that allows for the continuous identification of new technologies.
I guarantee that if we were to go back five years, the emerging technologies would differ from what we are talking about today. If you go forward and estimate what the technologies of the future are, we will be wrong or we won't know what they are now.
Whatever gets done has to do with the notion that it is a continuous improvement or a continuous process rather than a destination.
The Vice-Chairman (Mr. Lastewka): That's what I had in mind. The map would always have the continuous improvement factor.
Mr. Oliver: Along the lines of what Cal was saying, if we do it that way we will find there is a huge value for Canada in the horizontal exchange between the industries that we have decided are going to be the world leaders in the year 2010.
It's been a learning experience for me this morning to listen to Chris talk about what they're doing in Newbridge. I hadn't heard about that. I've already made a note that I'm going to take a team of people in there and learn how they're doing this.
We have an opportunity to apply what they're doing from an entrepreneurial point of view to the medical and the agricultural and biotech areas. The gestation periods are much different for the products, but the concepts are the same. The way they're approaching things will transfer back and forth if we pick these winning technologies. We'll end up with one plus one equalling three, four, or five. That's another thing nobody has captured yet. Canada stands in a great position to capture that if we do it right.
Dr. Stiller: You don't abandon the support of basic science in all of this. I don't think anybody around here is suggesting that for one second, Mr. Chairman. I hope that's not misinterpreted.
The Vice-Chairman (Mr. Lastewka): We'll go to Mr. Aw.
Dr. Aw: Mr. Chairman, you have started a series of discussions that are extremely relevant. I want to fully support the John Oliver model of looking down the horizon and then planning on using the Cal Stiller model of drawing a road map so that we get to where we want to be.
I think it does not detract from Mr. Ackman's question. That road map will be a dynamic road map. It will be sensitive to all the nuances and the changes.
It is not even a model that has not been tried. Very recently, and by total coincidence, we were reminded of the story by Dr. Murray McLaughlin himself, that when President Kennedy decided to plant a person on the moon by the end of the 1960s, they actually did it. But they made their decision to land a person on the moon way before the 1960s. The changes, the innovations, the value-addedness and the dynamism actually allowed them to put the first person on the moon.
I believe we are at such an exciting stage that we can actually do it.
Mr. Shepherd: On a point of order, Mr. Chairman, I would like to indicate my desire to carry on with some of the suggestions. Could we have Dr. Murray McLaughlin appear before the committee?
The Vice-Chairman (Mr. Lastewka): It will be noted.
Are there any more questions? Are there any more comments by our witnesses?
Over the last number of days and weeks we've learned a lot. We started off at the National Research Council with Dr. Carty, and visited a number of companies: CML Technologies, Jet Form, and Vitana.
You've come here today to enlighten us even more. I'm sure that as we go down this route, as Mr. Murray mentioned, we keep filling our heads up with what we should and should not do, or how we should facilitate to make things happen on this study. The round table here today was very enlightening.
During one of my travels - and this was mentioned here yesterday or the day before - one of the universities made some comments that they're now working closer with industry. Why were they doing that? They don't have as much money so they're working closer with industry. The comment was, where had they been in the last ten years?
We heard a little bit of that today, I'm not sure whether it was Mr. Albinson who mentioned that.
There seem to be more partners involved, whoever they are. In one of the sessions I attended even the community city council was part of the research at the university to make sure there was understanding, information and knowledge being dispensed to the citizens who needed to know what's happening and what is changing, as Ms Brown mentioned.
I think what you've done today is enlightened us one heck of a lot. I'm sure the members are going to have many discussions on how we proceed on this.
The one thing I've been reinforced on very strongly today is a thing called attitude, a thing called winning and a ``Canadian can do'' attitude. We can do it, by putting ourselves somehow closer together and making it happen in a shorter length of time, by getting from stage to stage faster, and by removing those roadblocks. What we're all about is trying to put that all together.
So I want to thank you very much for your time today. I'm sure it will help us down the road as we go through this whole study.
I want to again ask that if you have copies of your overheads or any of your presentations, you could perhaps leave them with the clerk or send them to the clerk so that we can refer to them. I think it's very important, because we are spending a lot of time on this.
I would like to close by informing the committee that our next meeting is on Tuesday, November 5, at 3:30 p.m.
This meeting stands adjourned.
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