THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Thursday, March 30, 2023
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 11:30 a.m. [ET] to study matters relating to banking, trade and commerce generally.
Senator Pamela Wallin (Chair) in the chair.
[English]
The Chair: Hello, everyone, and welcome to this meeting of the Standing Senate Committee on Banking, Commerce and the Economy. My name is Pamela Wallin and I am the chair of this committee. I would like to introduce the members of the committee who are here: deputy chair, Senator Colin Deacon; Senator Bellemare; Senator Gignac; Senator Loffreda; Senator Massicotte; Senator Galvez, who is not a member but is with us today; Senator Smith; Senator Woo; and Senator Yussuff.
Today, we are continuing our study on business investment in Canada. For the first panel, we have the pleasure of welcoming in person Robert Gagné, Director of the Centre for Productivity and Prosperity at HEC Montréal; and joining us virtually is Norma Kozhaya, Vice-President of Research and Chief Economist at Conseil du patronat du Québec. Norma will be with us until 12:15, and then will break away. Welcome to you both and thank you for being with us today.
We will begin with an opening statement from Mr. Gagné, followed by Ms. Kozhaya. Please go ahead.
[Translation]
Robert Gagné, Director, Centre for Productivity and Prosperity, HEC Montréal: Thank you for the invitation. I believe I was invited for a document called Productivity and Prosperity in Quebec — 2022 Overview. It’s a document we’ve been producing annually since 2009. It reports on the structural condition of the Quebec and Canadian economies. That said, I’d like to draw your attention to and discuss another study that I conducted this past November, which deals with the state of competition in Canada. I believe that the structural condition of Quebec’s and Canada’s economy is closely linked to how we manage competition in Canada, or rather how we do not manage it. You will see that I don’t tend to mince words.
The committee is looking at business investment, but investment and innovation are means, not ends in themselves. Through them, we aim to make businesses become sustainable, perform well economically, and produce goods and services at reasonable prices, with significant variety and high quality for Canadian consumers.
I will end quickly by saying that I don’t feel I reinvent the wheel in these reports. I take you back to the mid-1980s, when the Macdonald Commission studied all these issues and made many recommendations for developing the Canadian economy. Unfortunately, very few of those recommendations were acted upon. The main recommendation they did follow was to enter into free trade agreements with just about everyone on the planet. However, in doing so, we didn’t ensure that we had a strong domestic market or that our businesses were sustainable, productive or prosperous so that they could compete internationally.
Some of the Canadian business success stories that followed the free trade agreements have more to do with a relatively favourable exchange rate than with competitiveness developed by businesses. I will end my presentation here.
[English]
The Chair: Thank you very much. You can be as frank as you want. It will actually help our study. You have a deal.
We now have Norma Kozhaya. Please go ahead with your opening comments.
[Translation]
Norma Kozhaya, Vice-President, Research, and Chief Economist, Conseil du patronat du Québec: Thank you very much. Good afternoon, everyone.
Business investment and productivity issues are of primary importance to business competitiveness, wealth creation and bringing up the standard of living for Canadians. Canada does lag behind OECD countries, particularly the United States, in private investment and productivity. For example, according to the C.D. Howe Institute, for every dollar of new investment in machinery and equipment per worker in the United States, the relative rate is about $0.37 in Canada.
This gap between Canada and the U.S. has continued to widen over the past five or six years.
Productivity growth, meanwhile, has also been lower in Canada, averaging 1.1% per year from 2000 to 2019 — so before COVID — compared to 1.5% in the United States.
Why is that, and what would be some potential solutions? That’s what we’re going to discuss over this noon hour. The answer can be simple and complex at the same time. I’d like to quote well-known Quebec economist Pierre Fortin, who produced a report on this issue several years ago in Quebec:
We note here, at the risk of oversimplifying, that if we want more investment, we must increase the expected return and reduce the anticipated costs.
A range of factors come into play for a business deciding whether to invest in Canada or elsewhere, including taxation; regulatory burden, complexity and predictability; labour costs; workforce skills and qualifications; workplace culture; and the quality of utilities, as well as digital and transportation infrastructure. If the investment proves profitable, the business will invest.
These same factors come into play in the broader economy. We also look at the industrial structure of the economy, since there are more capital-intensive sectors. We can consider the presence of large corporations, since they are more likely to invest, compete globally and drive the growth of SMEs. Finally, investment and productivity depend on the ability to innovate and commercialize innovation, conduct industrial research and development and develop and retain intellectual property. Public procurement can also play a strategic role in the equation.
Thank you.
[English]
The Chair: Thank you both very much. These are all issues that we’re examining on a daily basis as we sit. So I’m sure there will be questions to follow up.
Senator C. Deacon: Thank you, witnesses. Your opening comments are right on the mark in terms of where we have been focused.
Mr. Gagné, I hope you have contributed to the ongoing competition policy review by Innovation, Science and Economic Development Canada, or ISED. Your comments there would be very important, and I think you’ll find some vigorous agreement with the competition commissioner in the need for dramatic change.
This is directed to both of you, Ms. Kozhaya and Mr. Gagné. It is around the need to develop and retain intellectual property, or IP. One of the comments I’ve read is that you’re seeing a need to increase the amount of funding at the granting councils, but we have a very leaky bucket, we’ve heard. I’ve viewed this for a long time. We’re great at discovering, but we’re terrible at mobilizing our intellectual property as rural Canada to make sure that we create the opportunities, jobs and wealth that those ideas have within them.
Are you doing something, are you seeing something specifically different that you’re doing in Quebec that is enabling you to retain more IP and create wealth around more IP? What are the key lessons that you’re learning in that regard? Thank you.
[Translation]
Mr. Gagné: I’m not an intellectual property expert, but I’ve done quite a bit around it. Not so long ago, I was director of research at HEC. I set up a large-scale project that you’ve probably heard of called IVADO, which aims to develop and propel artificial intelligence in Canada.
I understand your question, but I’m not certain the answer I’m going to give you will be satisfactory to you and your colleagues, because I’m not sure that intellectual property is such a big deal.
Increasingly, relevant technological developments are neither protected nor protectable by patent, in particular. It’s true that when you look at the data on patents in Canada and compare it to other countries, notably the United States, it’s weaker. On the other hand, let’s just say that if IBM owned a semiconductor assembly plant in Bromont, I’m sure the technology would be protected, but it wouldn’t show up in our data in Canada. It would be in IBM’s data in the United States.
I’m going to take you back in time a bit. I’ve been studying the evolution of Canada’s structural economics situation for the past 40 years and the forecasts for the next 40 years, and I believe the issue of patents and intellectual property is of little consequence. We face quite a few more important issues.
[English]
Senator C. Deacon: I’m intrigued what you think those bigger fish are because branch plant jobs create jobs and personal taxes, but they don’t create wealth in Canada that gets reinvested into other growth and competitors.
Don’t you agree with that?
[Translation]
Mr. Gagné: I’m very familiar with artificial intelligence, where we’re seeing major developments. It’s not a technology that protects itself; it’s just not protectable. It’s a fluid technology that’s all over the planet. It’s open-source technology on a grand scale.
Intellectual property is certainly an issue, but it’s only one of many key issues for Canada. You don’t have to agree, but some of the issues that I see as marginal but are getting a lot of focus, like intellectual property and others, are used as a bit of a lightning rod to forget to talk about the real problems and structural issues that are undermining Canada’s long-term growth and economic development. That’s my opinion.
[English]
The Chair: I’m just going to interrupt. We’ll go to Ms. Kozhaya. We have a lot of people, so I’m going to ask everyone to be as concise as they can in response.
Ms. Kozhaya, please go ahead.
[Translation]
Ms. Kozhaya: I’ll be brief. No, it’s not the main issue, but it is an issue. To answer your question in particular, in Quebec, measures have been in place for a few years to make research revenue more profitable. Quebec has a tax measure called DICI, which translates as deduction for the commercialization of innovations. We’re waiting to see how the measure pans out.
Senator Bellemare: Thank you to both witnesses for being with us. Your comments are fascinating. I’d like to hear what you have to say about the following question.
Mr. Gagné, you stated that competition is fundamental and that we must try to stimulate competition to increase investment. I don’t see how that could be possible in all sectors with all the issues we’re facing, including labour and skills development. Productivity is also about skills, but not exclusively. Physical capital is important, but so is the issue of human capital.
In your opinion, how could competition help address labour shortages and increase workforce skills? We need to adapt.
Mr. Gagné: We don’t need more competition, we need a higher birth rate.
Labour shortage is a demographic phenomenon related to shifting demographics. For the past few decades, demographics have been fluctuating.
That said, I don’t need to explain to you that Canada is a very large country with a lot of regional markets that more or less compete with each other because they’re far apart. In addition, we have regulations and barriers to the mobility of capital, labour, goods and services within Canada. I believe that one of the federal government’s key roles is ensuring we have a strong domestic market in Canada. We need to make sure we have very strong competition in markets across the country. Why do we need that? We need it because it will ensure the sustainability, performance and productivity of our businesses. Some of them are active in international markets and they will be better equipped to face global competitors. Canada doesn’t have a strong domestic market right now.
Senator Bellemare: Don’t you think that competition will cause businesses to adopt a strategy to reduce labour costs? On the contrary, it will prevent investment in human capital.
Mr. Gagné: I feel that entrepreneurs in Canada and Quebec are no dumber than those in Europe, the United States or elsewhere in the world. They are conditioned and they make optimal decisions from their point of view based on their environment. In Canada, we have an environment where the level of competition is not very high.
I’m not saying that you can expand or foster competition in all sectors of the economy. We looked at the OECD competition indicators and even if they’re not perfect, they’re still useful. Canada, for example, ranks very poorly in many sectors.
There are a whole swaths of the Canadian economy that are not subject to competition at all. You could say these are societal choices, but still, huge parts of the economy are not subject to competition, even though there’s no economic basis for that. Let me give you an example. It’s a bit anecdotal, but in many provinces of Canada, alcohol, a fairly mundane retail business, is distributed by provincially owned corporations that fully operate outside the rules of competition.
We could talk about public procurement, for example, where Canada ranks very low among OECD countries. Canada is one of the lowest ranking OECD countries in that respect. I have no doubt that the country has significant labour issues; all the more reason for businesses to be efficient. If the labour market is tight and businesses are operating in a highly competitive environment with a tight labour market, they will make decisions accordingly. What will they do? They will invest and innovate more to be less dependent on labour and to become more efficient.
Right now in Canada, we have businesses that are being kept alive on life support thanks to hundreds, if not thousands of tax credits at the federal and provincial levels. Many of these tax credits are paid out on a payroll basis. You hire people, you get tax credits. You don’t hire people, you don’t get tax credits. It’s utter nonsense.
[English]
The Chair: Mr. Gagné, sorry, I’m going to have to interrupt. We have so many people waiting. I ask you that the answers be much tighter. A quick word now from Ms. Kozhaya.
[Translation]
Ms. Kozhaya: Thank you. Yes, the human capital issue is fundamental. We’re even talking about investing more in technology, robotics and automation, and that helps, but at the same time we must invest in skills. In terms of performance, we have something of a paradox in Canada. Even though we have an educated population, that is, a large percentage of people have high school or post-secondary diplomas, there are gaps in basic numeracy and literacy skills and business training. This goes hand-in-hand with capital investment. The EI system, while not the only one, is probably the federal tool best used in this regard.
[English]
The Chair: Thank you.
[Translation]
Senator Gignac: I’d like to welcome my fellow Quebec economists. My first question is for Mr. Gagné — and please follow the chair’s instructions for your response.
The federal budget was tabled two days ago, with new refundable tax credits and many new initiatives. Now, in one of the studies you mentioned, you said that instead of constantly offering new tax credits, refundable ones at that, the government would do better if it reduced the tax burden on businesses and made more room for healthy competition. I understand that this was in the Quebec report, but I was wondering if it also applies to Canada. Does Quebec use refundable investment tax credits or refundable payroll tax credits? Are you comfortable with any form of refundable tax credit?
Mr. Gagné: We’re talking about 80% of tax credits in Quebec. We’ve yet to do a detailed analysis of federal tax credits — we’ll do that in the next few months — but in Quebec, 80% of tax credits are, still today, calculated on the basis of payroll, which is nonsense.
Senator Gignac: How about refundable investment tax credits? Are you comfortable with them?
Mr. Gagné: Not at all.
Senator Gignac: Can you elaborate in one minute?
Mr. Gagné: In Quebec and Canada, we subsidize businesses too much and tax them too much. We should think about granting fewer subsidies and lowering taxes.
Senator Gignac: It has the benefit of clarity, Madam Chair, and I know you appreciate that.
Ms. Kozhaya: As a side note, it would likely be a good idea to reduce corporate taxes in general. However, in some sectors that we might want to target, tax credits would be good, particularly for investment. In the latest budget tabled two days ago, that was one solution. Geographically speaking, Canada is a large economy, but at the same time it’s a small open economy because of its population. Therefore, in some cases we also need investment tax credits and perhaps payroll tax credits, for R&D, for example. You have to balance the two, but both have their merits.
[English]
The Chair: I want to follow up because I know your time is short, Ms. Kozhaya. We’ve heard from Mr. Gagné that oversubsidized and overtaxed doesn’t work, but you mentioned a couple of things in your opening statement about the importance of procurement and incentivizing companies, which takes very focused government activity. Do you have a couple of words of instruction for how governments could be doing this better? Because that’s kind of the focus of our report.
[Translation]
Ms. Kozhaya: Yes, if we go back to government contracts and procurement… we see that in Canada, public procurement is not used enough to help businesses grow and develop a strong industrial sector in certain areas. In compliance with the free-trade agreements, public procurement provides a certain amount of leeway, because it can promote innovation in certain green technology sectors. Public procurement can be the initial buyer of innovation. Again, we shouldn’t abuse it, but I think we’re not doing enough, especially compared to our neighbours south of the border. This is one area where we could do more. There are significant risks and areas that we want to assist, but we also need to assist them with tax incentives.
[English]
The Chair: Thank you very much for that.
Senator Galvez: Thank you very much. I’m going to pose my questions in English because I was just having a conversation with a professor in Oxford on sustainable finances. We were talking about the fact that we are moving into a different type of energy — clean energy, lower-carbon energy — so the labour force needs to transition to these new paths toward a low-carbon economy, but we need to mobilize the finances to help in these endeavours.
I was told that there are sectors that are inflationary and there are sectors that are deflationary. In that sense, for example, clean energy is deflationary because it is cheap, it makes us less dependent on geopolitics, on the sources of oil and gas, on the supply chain, et cetera.
My question is this: Professor, you said we are oversubsidizing and overtaxing. We give a lot of subsidies to oil and gas, perhaps, compared to the U.S. Inflation Reduction Act, or IRA, which is giving a lot of subventions to clean energy. What would be your opinion on that — the U.S. IRA choosing a different approach than the Canadians?
[Translation]
Mr. Gagné: Yes and no. Two things: first of all, on green technologies and that kind of thing, if it’s relevant, if it’s useful, if it’s socially desirable, okay, but be sure it will make its way onto the market. We have plenty of things that are neither relevant nor socially desirable, but they are pushed by the government because there’s someone, somewhere in the government machine who believes it’s a good idea and they’re pushing—
Senator Galvez: For example?
Mr. Gagné: I have several.
Senator Galvez: You can only give me one.
Mr. Gagné: I’m thinking of the tax credit for e-business development. It’s not needed. The other thing that I find dangerous as a professor and analyst is looking at what another country is doing, then creating the measure and saying it’s very good and we’ll import it here. The United States is not Canada; it’s another country that has a different tax system than we do, a different market approach than we do and a different approach to business support than we do.
It’s very dangerous to go to Europe or the United States and pick up partial measures and say that they’re good and we’ll incorporate them here. We have to look at the overall situation. For example, Europe has a very different tax system from ours. As recently as two weeks ago, a Quebec minister went to Paris and she said that such and such a tax was a good idea. Okay, Madam Minister, but that’s not how it works in Quebec or Canada. Unless we change the entire tax system, that measure is not appropriate or it should be used in another way. We need to be careful. That doesn’t mean we shouldn’t be inspired by good practices elsewhere, but we shouldn’t import piecemeal measures without having a bird’s eye view.
Ms. Kozhaya: With respect to clean or green energy, you have to look at the short term and the longer term. In the short term, at the outset, these energies were more expensive — whether batteries, electricity or wind power — but we can see that with research and the development of technologies, they are becoming more affordable. We must continue down this path and help all sectors to decarbonize. As you mentioned, it’s a transition. We need to help businesses and workers make this transition in an orderly fashion and without disproportionately harming certain sectors.
We know that with research and development — whether batteries or automation — a few short years ago, these were not something very realistic. We see that prices and costs are coming down. We need to continue this progress. You have to have the support of government to do it, because as I said, sometimes the short-term returns for businesses are not there. They are forced to decarbonize, but they don’t get any return. We need to support them in that transition as well.
Senator Loffreda: Thank you to the witnesses for being here today. Thank you for joining us, Robert.
Your report, Productivity and Prosperity in Quebec — 2022 Overview, is outstanding. There are graphs of particular interest to me on page 9, where you compare Canada and Quebec with OECD countries. As you said, the situation has worsened over the decades. When it compares GDP in Canadian dollars per capita in 2021, in terms of purchasing power parity, it compares the years 1981 to 2021.
[English]
In 1981, Canada was sixth. In 2021, we were thirteenth. Yet the top five remain the same.
[Translation]
In 1981, it was Switzerland, Norway, United States, Denmark and the Netherlands.
[English]
In 2021, these five countries are still the top five. Why haven’t we learned from the global top performers? What are they doing that we should be doing going forward?
[Translation]
Mr. Gagné: Careful, because the top five includes countries that are more or less relevant to look at, in my opinion, like Switzerland, considering everything we know about its banking system and all that, and Norway, which has a lot of oil — but we have oil here too. However, there are other countries that do well in Western Europe and are not so rich in natural resources or don’t have a global financial centre to help drive data. I’m talking about countries like Denmark, the Netherlands and other northern European countries.
I’ll bring it back to competition, even if I know that some people don’t like to talk about it much. In my studies, I noticed that Western European countries, perhaps since the Second World War and thanks to the European Union, have been able to build a strong domestic market based on competition. There is an obsession with competition in Europe that we don’t have here. These are not countries with right-wing leaders who swear by the market and let people die in the streets; far from it. In most cases, these are social democratic countries, but there is a kind of obsession with competition in the delivery of public services as well as in private enterprise.
Here, we provide public services by centralizing and creating bureaucratic monsters. Thank you.
Ms. Kozhaya: I feel there was a time when we didn’t need to be productive. Our population was growing, with the baby boom and a lot of workers; we still have the resources — and perhaps we weren’t making that our priority — private investment and productivity. It’s important to realize, as you are doing today and as the government is starting to do, that productivity has to be a priority. Maybe the labour shortage will also have a positive effect, in terms of putting more emphasis on the importance of improving productivity. Maybe that’s the kind of thing we can learn from.
We also need to look more to international markets. There are many small countries in Europe whose businesses are developing with an international outlook, precisely because they are small economies, and their domestic markets are not that important. Canada and Quebec also have open economies, but we need to do this thinking while also prioritizing productivity, investment and internationalization, which will bring more competition and competitiveness.
[English]
Senator Woo: This is for Professor Gagné. What is the relative importance of competition policy and investment policy in promoting a pro-competitive environment? On competition policy more specifically, do you have a view or a philosophy of competition policy? Do you support the efficiency test, for example, over questions of concentration and size of corporations?
Mr. Gagné: Good question.
Senator Woo: I’m sure you have a good answer.
[Translation]
Mr. Gagné: The problem with managing competition in Canada… Our November report on competition includes an example you’re all familiar with, Air Canada’s attempt to acquire Air Transat. The Canadian authorities analyzed the proposal and accepted it, saying that it would concentrate the market and that there would therefore be a risk of negative consequences on quality of services and on prices. However, as they say, we’ll cross that bridge when we come to it; we’ll see and we’ll fix the problem at that point. For now, the most important thing is that we need a big carrier. I’m not saying it needs to be efficient; I’m saying we need a big carrier.
The European authorities analyzed the same deal and they said no, because it could harm consumer interests in the North Atlantic market between Canada and Europe. There you go. I think that answers your question. There’s a different philosophy and approach. Here, it feels like the authorities in charge of managing competition favour the size of businesses and the impact on markets and Canadian consumers.
[English]
Senator Woo: That is not your philosophy. What is your philosophy?
Mr. Gagné: My philosophy? You should promote competition as much as you can. You should be obsessed by that.
[Translation]
Senator Woo: Okay, there you go. Thank you.
Ms. Kozhaya: Obviously, we support competition — that’s undeniable. However, we also need predictability for businesses. We need large corporations, and we don’t have enough of them in Canada to compete and help the SMEs in orbit around them. There are ways to spur competition that don’t necessarily involve the Competition Act. Canada has many other regulations that we could work on. We will take part in the consultation currently underway to present those two components. We need to support the objective, but we also need to make sure that it doesn’t bring other pitfalls, in terms of predictability and competitiveness of our businesses, for example.
[English]
The Chair: Thank you. I’m wondering, because I know you have to leave us at 12:15, if you could just cite for us, Ms. Kozhaya, your three concerns about the environment in Canada for business investment. Obviously, there’s the role of the private sector, and investors have to make that decision, but in terms of what government might do. The focus of our report, of course, is advice to government, so we’d like to hear yours.
[Translation]
Ms. Kozhaya: Thank you very much, I really appreciate it. I’m sorry I have to leave at 12:15 p.m.
If we want to foster investment, we have to make sure it’s profitable to invest and we must work to reduce costs. To sum up, we need to keep working on three concerns. First, we need to talk about it more and more, like we’re doing today, so that people realize we have no choice but to improve private investment and productivity to ensure the well-being of all Canadians.
Second, we need to provide an effective regulatory environment. Obviously, the purpose of regulations is often laudable, but in practice you have to wonder if they are serving their purpose and providing more predictability and certainty than uncertainty.
So, regulations are key. They don’t cost the government as much; they are nothing like tax credits. Of course, competitive taxation remains a basic ingredient. We can’t compete if our taxation isn’t competitive and, once again, we need a mix of tax rates and targeted incentives when risks run high for businesses, so they can compete with other countries.
Finally, there is public procurement, which we haven’t necessarily used to date. In the federal budget tabled the day before yesterday, it was encouraging to see reference to the concept of reciprocal procurement. Quebec has started doing this, with legislation passed in compliance with free-trade agreements that makes sound use of public funds. The law is more open to innovation, sustainability and studying the lifecycle of a product or work, so it’s really more developed.
To sum up, I’d say those are the main concerns we need to keep working on.
[English]
The Chair: Excellent. That was very clear. Thank you so much. Senator Yussuff, we have a couple of minutes with Ms. Kozhaya if you have a question.
Senator Yussuff: Yes. Thank you to both witnesses for being here. The debate on productivity is not a new one. It has been going on for quite some time. If we look at the graph, we haven’t made much progress. The two underpinnings of trying to get there are technology — investment in machinery and equipment — and, secondly, training.
Despite many arguments that the government has put forth, generous tax write-offs for equipment and machinery, we have not gotten there. I would ask both witnesses, in your opinion, what’s missing for us to achieve this objective? I think it’s a fundamental question that we have to figure out.
[Translation]
Ms. Kozhaya: Indeed, it’s a combination of factors. We can’t expect any one measure to solve the problem. Work needs to be done on various fronts, because even if there is accelerated depreciation on one hand and longer project approval times on the other, or if the whole process becomes more complex, one doesn’t necessarily offset the other.
That’s why we have to work on all the components at once and assess what works. When we talk about drawing inspiration from other countries, we’re talking about evaluating what works well each time. That is a very good question. Why, despite accelerated depreciation or other measures, are we still not necessarily seeing results in the short term? It’s because there are other things going on in parallel that haven’t necessarily contributed.
Of course, this was a specific context, both in terms of health with COVID and geopolitical aspects. However, there are numbers that still show that it seems to be on the rise, and hopefully that will continue.
[English]
The Chair: Thank you for that and for your participation today. We appreciate that you have to leave. We’ll turn things over now to Mr. Gagné to follow up.
[Translation]
Mr. Gagné: It’s true. For 40 years, we have been trying all sorts of things, different measures, that do not work.
[English]
The numbers are just not there.
[Translation]
Senator Loffreda was talking about the graph on page 8 or 9. Go to page 18 and take a peek at the outlook for the next 40 years. This is not mine, it is from the Department of Finance here in Ottawa, and it is not pretty.
Yes, overall, we’re improving a little bit every year; Canada is making progress. However, there are economies around us that are progressing faster and so Canada is lagging behind, relatively speaking. Again with my math for the day, I would say that there’s one thing we haven’t tried, and that’s fostering competition.
In my opinion, the federal government has a responsibility here and that is to ensure that we are able to develop a strong domestic market, fight tooth and nail against disincentives to mobility, and try to bring markets closer together virtually to foster competition.
Then there will be entrepreneurs, and those who can’t make it will disappear. It’s sad to say, but that’s the reality. That’s not the approach we’ve been using in Canada for the past 40 years. It’s too bad, because back in the day, millions were spent and it mobilized all the analysts and researchers in Canada. The Macdonald report at the time made recommendations that are still very relevant today. Go read it. Change the dates to 2023 and it still applies. We haven’t moved forward. Given that we haven’t moved forward, let’s take the report down off the shelf and see what it says. Other than free trade, we haven’t done much. We’ve tried a lot of little things here and there, one policy and then another, and nothing has worked. Let’s recognize that and be inspired by what’s being done elsewhere.
In Europe, they have an obsession with competition; this is a Quebecker telling you that.
When it comes to business policies, countries in the European Union have less sovereignty than the Canadian provinces. There is unhealthy tax competition in Canada. Some 25 years ago, Quebec created tax credits to supposedly propel industries. That set Canada on fire and eventually Toronto and Vancouver came along with their tax credits.
Today, companies that are not covered by these tax credits are complaining of unfair competition. Why? Because expertise is being transferred from one sector to another. For example, a computer developer who works at Ubisoft can also work in a company that does not benefit from the government’s graces. It’s the same expertise, but when he works at Ubisoft, the government reimburses 35% to 40% of his salary. There are hundreds of examples like that.
Senator Massicotte: Mr. Gagné, thank you for being with us. My question is on the same subject. Several witnesses appeared before the committee and I was surprised that several of them recommended that we pick a winner. In other words, because we’re smarter than the average person, we’ll pick. We did that 30 years ago, and it was a disaster.
Interestingly, I notice that there is a tendency to head back in that direction even now. Quebec often does this with ministers. In your opinion, is this a serious mistake, as it has been in the past? Or is it something that should be repeated because nothing else is working?
Mr. Gagné: That was a huge mistake. Who are these people? What additional information do they have that the market and society at large do not have to identify the winners of the race? They have no extra information, none.
Let me give you an example of what I experienced. I am on campus at the Université de Montréal, at HEC Montréal and at Polytechnique Montréal. For 50 years, the campus has been investing in operational research of a very specific technology: artificial intelligence. We have research centres that nobody is interested in.
All of a sudden, in the last eight years or so, it’s become the hot technology. All the spotlights have been on us. The federal government is investing hundreds of millions of dollars. Nobody predicted it, nobody saw it coming. It’s not the government’s job to look at a crystal ball and guess which sector is going to be successful. Things need to run their course, and whatever happens, happens. Companies want to survive and be profitable. New businesses will be created to take advantage of these opportunities. Let’s stop trying to adjust markets, as we tend to do here in Canada.
To connect with what your colleague said, we’ve been doing it for 40 years, and it’s not working. Maybe, at some point, we need to stop doing it.
[English]
Senator C. Deacon: Thanks to our witness. I think you will get a lot of violent agreement about the need to strengthen competition law around this table. No debate about that.
I’m puzzled, though, about your thoughts and what I’ve perceived that you said that we don’t need to worry about other structural policy areas, such as privacy law or how we protect intellectual property in this country. I worry about freedom to operate for our innovators. If we aren’t protecting our intellectual property and we can grow a company like CAE or other major organizations that are built on huge IP portfolios and protect them in the marketplace and give them the freedom to operate, the fact that our data is flowing out of the country at a furious rate because Canadians are not able to consent appropriately, and so our data is being used by major tech platforms for their benefit but not for the benefit of our economy or Canadians — I’m puzzled that you don’t think those are priorities, or that’s what I perceived in the conversation.
[Translation]
Mr. Gagné: Perhaps you misunderstood. I’m not saying it’s not important or useful. However, I am concerned about the fact that public debate focuses solely on these issues, which are important, but become useless if the foundation is not solid.
It’s important to have a roof that doesn’t leak, but if there is no foundation under the house, it doesn’t do any good to discuss the roof and not discuss the foundation. I propose that we start by building the house properly, that is, with a foundation, walls and a roof. Right now, we’re already talking about the roof, but there’s no foundation underneath. The initial conditions are flawed, but we’re talking about—
[English]
Senator C. Deacon: So I am struggling with what you think the foundation includes, other than competition law reform. We would agree. We’ve heard a lot about that. What else does the foundation include? In a data-driven economy, digital economy, I’m amazed that —
[Translation]
Mr. Gagné: I think there are already some very positive elements in the equation. We have a very high-quality higher education system with excellent universities across the country. We have a fairly good infrastructure. Some people complain about potholes, but in general, we have good-quality infrastructure. We have good physical and human capital. We’re just missing the one ingredient to make it all happen. We have energy, water and open spaces. I’m sure some people have asked you, “What’s wrong with Canada? You have talent, space, energy, infrastructure. What are you doing? Why isn’t it working?”
There is competition. There are certain sectors that we don’t want to expose to competition, but there are sectors that should have more exposure to competition. Obviously, stand-alone companies are not in favour of that. If you were to hear from business lobbies... During my career, I’ve been to a lot of conferences, especially at chambers of commerce, and the entrepreneurs all want less taxation and more competition. They say subsidies are wasteful, except in their own sector. They say their sector is different. They all behave that way.
[English]
The Chair: We have heard from many witnesses in the last few sessions that there’s a mindset problem here, that we kind of lack the ambition.
Mr. Gagné: You got it.
The Chair: Is that what you’re trying to get at?
Mr. Gagné: Yes.
[Translation]
Senator Bellemare: There is a lot of tax competition. I agree with you that tax competition may be a factor that can muddy the waters when it comes to investing more.
When I look at your charts and forecasts, on pages 9 and 18, there are countries that are going to outperform us. You emphasize the lack of competition and say we should increase it, but I think one thing that is not emphasized enough is training.
Senator Yussuff talked about lifelong learning. What aspect of that is not working in Canada? We lack institutions. We have a highly educated workforce, but lifelong learning is a major element if we want to invest in digital technologies. According to surveys, more than half of workers find they lack digital skills and say they are ready to be trained.
I would like to hear your comments on this. We have to remember that human capital and physical capital go together. When I look at other countries, we are lacking—
Mr. Gagné: You’re right, but it’s one of many factors. It has to do with the roof of the house, so to speak, but not so much the foundation. There is a problem with the foundation. Protecting intellectual property requires a training continuum, from kindergarten to the job market, right up to retirement.
If we do only that or if we do it through a patchwork of programs, we won’t succeed, because the basic conditions aren’t right.
Senator Smith: I’m trying to follow the discussion, here. You said we needed a good foundation to develop our business. We have a good education system, good infrastructure, good human capital and good resources, whether it’s energy or water. You also talked about a change in culture.
How do we bring about and foster a change in culture? You said it wasn’t with governments, but are there other groups in the business community that could come together once a year to discuss it? Are there groups that could start the work, providing an overview with steps to follow, to help us improve our competitiveness? That would give us an objective to work towards, one that we hadn’t necessarily set. We’ve discussed the issue at a specific level, but not at the general level. Is it possible to come up with something of a path to success, at least some success?
Mr. Gagné: I think it happens organically. That’s the official line of business groups. It’s thought that a credit is needed, but in reality, businesses find their own way.
The government’s role is to create the conditions to help them make the change. That doesn’t mean doing harm to the environment and allowing water and air pollution. It doesn’t mean leaving people to die in the street. The government’s job is to deal with those issues. Businesses need to have the ability to adapt to the environment and grow, organically. Currently, the attitude towards business is quite paternalistic. The approach is paternalistic, with businesses being told what to do.
Senator Smith: Does that mean the government should establish a long-term plan for the economy instead of worrying about the next election? The focus is always on the short term, so the approach is a bit here, there and everywhere.
Mr. Gagné: Yes, we have elections every four years, and I think our democratic system works well. Senator Wallin spoke about culture and perspective, and that’s exactly right.
[English]
The Chair: Thank you very much, Mr. Gagné, and our thanks to Norma Kozhaya, who had to leave us a little earlier.
As we continue our discussion on business investment in Canada, we are pleased to welcome Frédéric Bouchard, Dean of the Faculty of Arts and Science at the Université de Montréal, and Stéphane Paquet, President and CEO of Montréal International.
We will begin with an opening statement from Mr. Bouchard and then we will hear from Mr. Paquet.
[Translation]
Frédéric Bouchard, Dean, Faculty of Arts and Science, and Full Professor, Department of Philosophy, Université de Montréal, as an individual: Thank you, Madam Chair. Members of the committee, good afternoon.
[English]
I will present my opening remarks in French and in English, and I will be happy to answer questions in either language.
[Translation]
I had the privilege of chairing the Advisory Panel on the Federal Research Support System. The government created the panel to provide advice on how to better support research across the country, especially in universities and colleges.
[English]
Through our deliberations, we heard from close to 1,000 Canadian citizens and organizations and we had the opportunity to discuss with representatives from the U.S., the U.K., France, Germany and Norway. It is a pleasure to share with you today some of our observations and recommendations.
[Translation]
Every country needs strong and competitive research capacity at the national level. Research and innovation are not luxuries advanced societies can dispense with. Research and innovation are necessary conditions of our well-being and prosperity. The strength of the research sector has an impact well beyond university campuses.
[English]
Through our work, we have been struck by Canada’s incredible potential but also by its overall vulnerability. Let’s look at two examples.
Are we truly doing everything we can to attract, retain and empower the smartest young people we can find? The answer is no. The value of Canadian graduate scholarships and fellowships that sustain our brightest young minds has not been increased in 20 years. Our greatest young minds will be leaving Canada — not by choice but by necessity — and they will pursue their research, careers, business ventures and lives elsewhere.
[Translation]
Are businesses investing enough in research and innovation? The answer is no. Business investment in R&D as a share of GDP has been dropping for the past 20 years. That means Canadian businesses are less and less innovative and thus less and less competitive on the world stage. Across all sectors of society, Canada invests less in R&D than it did 20 years ago and less than the average for countries in the Organisation for Economic Co-operation and Development, or OECD.
[English]
Canada’s existing vulnerability will accelerate unless coordinated action is undertaken right away. The U.S., Japan, the U.K., Germany and many other countries are adopting bold strategies and massive investments to ensure they remain scientific powerhouses. They understand that societies that invest in their research enterprises thrive, while those that do not, falter.
[Translation]
Canada has assets, but it needs to use them more effectively. We have fantastic universities and inspiring students and researchers. The granting councils do an outstanding job of supporting research, but if we want to go from a position of weakness to a position of strength, we have to make greater investments in research and innovation. Above all, we need to rethink how we approach collaboration.
[English]
How will we retain our most talented minds? How will we anchor forward-looking businesses and industries in Canada? Yes, it’s about investments. But more importantly, we need ambition, purpose and a plan. Our committee, our panel, recommended the elaboration of a national science research and innovation strategy for Canada to establish common objectives for Canada’s research and innovation ecosystem.
That’s not all. Revolutionary research is often interdisciplinary. Lucrative innovation is often developed in partnerships. The biggest science challenges are often global. To support these new ways of conducting research, we need new ways of doing things.
With this in mind, we recommended the creation of the Canada knowledge and science foundation — a new funding body that would support world-changing, mission-driven research. That approach would allow the existing granting councils to focus on supporting the groundbreaking, investigator-driven research so essential to discovery.
[Translation]
If we truly care about the well-being and prosperity of our communities, we have a collective responsibility to take a more ambitious approach to research and innovation. We truly hope that our recommendations will help all of us dream bigger. Thank you very much.
[English]
The Chair: Thank you very much. Now some remarks from Mr. Paquet.
[Translation]
Stéphane Paquet, President and CEO, Montréal International: Madam Chair, Mr. Deputy Chair, ladies and gentlemen of the committee, thank you for inviting me today to discuss foreign investment. I was asked to say a few words about myself, so here goes. I began my career as a reporter at Radio‑Canada. Then I moved to Le Soleil and La Presse, before becoming deputy publisher and editor-in-chief of Groupe Les Affaires, here, in Montreal. In 2012, I was appointed the Agent‑General for Québec in London. It wasn’t until I returned to Quebec, two years later, that I joined Montréal International as Vice-President of Foreign Investment.
I have been at the organization’s helm since January 2020. Since then, Montréal International has been named the top economic development agency in the world, not once, but twice. That title was bestowed upon us by an American organization as well as a European organization. As you can see from my career path, the Canadian economy, the Quebec economy and the Greater Montreal economy are of great interest to me. I am specifically interested in how important the world’s contribution is to those economies.
My experience has taught me that, if you want to develop a modern and prosperous economy, you have to be outward‑looking. That is crucial, emphasis on the word crucial.
I have some figures to give you to start with, and we can go from there. There are about 2,000 foreign subsidiaries in Greater Montreal. They represent about 1% of all companies in Greater Montreal, but they generate 10% of the employment in the metropolitan region — so 1% of companies, 10% of employment and 20% of GDP. These 2,000 subsidiaries contribute to the development of our local SMEs. How so? According to a 2019 AppEco study, when we looked at the numbers for all of Quebec, we realized that foreign subsidiaries were buying about $17 billion a year from Quebec suppliers. To put this in perspective, that’s the equivalent of Hydro-Québec’s total sales, in Quebec and in the United States or other provinces.
So, keeping in mind that we also want to restore our trade balance, foreign subsidiaries are an essential ally. According to Statistics Canada, approximately 55% of all Quebec merchandise exports are attributable to foreign subsidiaries operating on Quebec soil.
In short, foreign investment in Greater Montreal, Quebec and Canada contributes to economic development, including bringing new customers to the region and opening its international network to local SMEs. In other words, the SME may not export, but it will sell to the foreign subsidiary across the street. These foreign subsidiary investments are essential for Canadian companies to compete in the global economy.
Beyond the numbers, foreign subsidiaries contribute to the common good of the modern economy that all Canadians need. For example, last year, 20% of the direct foreign investments that Montreal International supported were in the life sciences sector. Those companies will help us develop next-generation drugs for rare diseases and new viruses. We see this phenomenon in the clean technology sector or in the fight against climate change. Yes, there are Canadian solutions; yes, there are Quebec and Montreal solutions, but there are also solutions elsewhere and we would be crazy to miss out on them. The presence of these subsidiaries can definitely help us move more quickly.
I would like to take this opportunity to share with you two important approaches that I believe should guide our next actions with respect to direct foreign investment in Canada.
First of all, I want to make it clear that you need to keep an international focus. I say this because you doubtless feel, as I do, protectionist winds blowing around the world. Our message is to keep economies open. Secondly — this is new to us, but it’s new to everyone — corporate social and environmental responsibility standards vary greatly from one jurisdiction to another. They must be standardized. Indeed, global standards will allow us to deliver concrete results in terms of attracting defining projects, projects that all Canadians will want to see happen.
Thank you for your attention. I am happy to answer your questions.
[English]
Senator C. Deacon: Thank you to our witnesses. I will ask slightly different questions to Mr. Paquet and Mr. Bouchard.
Mr. Bouchard, I’m specifically interested in what you see the mechanisms are to enable Canada to finally start to capture the value of our investments and research to the granting councils and other mechanisms, because the majority of our research is mobilized outside of Canada. It creates opportunities and jobs outside of Canada, and then we purchase back the products and services that result from our research at a much higher cost. What are the specific mechanisms that you see us doing differently?
Mr. Paquet, when you’re looking at the role of foreign direct investment, or FDI, in this new world, which is much more data- and IP-driven, where Canadian data is currently flowing out of the country at a considerable rate and being used to the value of foreign entities versus the value of Canadians, and where our IP is not being properly protected to ensure that the value it creates is unlocked for the benefit of Canadians, how do you see managing those specific issues within the foreign direct investment world that we are in today versus the more bricks‑and-mortar world of the past?
Mr. Bouchard: Thank you for your question. Maybe I will speak to three components relatively quickly.
First of all, the current ecosystem — this was the conclusion of our report — is highly fragmented. You have a bunch of very good organizations that managed to work together but that weren’t designed to do so over a shared strategy. It’s not just abstract. Everybody is in favour of people working together. It has real consequences because many projects that have high innovation potential are not strictly technological or biomedical but need to have some expertise from the social sciences and humanities, for instance. Right now, in the current ecosystem, it’s difficult, even with the goodwill of all — and there are goodwill and competence — but the programs and agencies don’t have their rules aligned so they can easily work together.
The second component — and here I will specifically pick technology — is that the current system is not designed to accompany the maturation of a technology from discovery to commercialization. Various organizations take care of various parts of this, but if you think of it as a relay race, going from the lab to the market is actually more difficult in Canada than elsewhere because you don’t have the plumbing, if you will, between agencies.
Our proposition for a Canada science and knowledge foundation, one of the roles is you let the granting councils do their job — and they do a great job at sustaining investigator-driven research. In terms of technology readiness levels, TRLs, which play a big role in innovation policy — and this is a caricature — you say, “Granting councils, you do the low TRL, and when you get to mid-TRL, you pass it to the Canada science and knowledge foundation, which gets you to pre‑commercialization. Then, if it still works, you can pass it on to the Canadian innovation and investment agency.” If you have the right plumbing between these agencies, then you can limit the mission drift of these organizations that are tasked with more and more mandates over time. You can say to them to focus on basic research or mission-driven research or commercialization, but different actors play different roles, and we arrange the plumbing so they work together.
Finally, some programs do it well, but actually, it’s difficult to have stable programming over longer durations for partnerships between universities and industry. I say “industry,” but it could be non-profits. It doesn’t have to be technological.
Our ecosystem approach to research and innovation is making sure that one funding body has the mandate to accompany diverse partnerships between universities, colleges, non-profits, a department, and making sure that their realities are reflected correctly within these programs. I think I’ll stop there. I’ve been too long already.
[Translation]
Mr. Paquet: Thank you for the question. In fact, I won’t quote Mr. Gagné, who was telling us earlier that he wasn’t certain this was an issue. If we’re not certain, let’s make sure we have as much intellectual property registered in Quebec and Canada as possible.
That said, there is one aspect that bothers me somewhat, which is comparing the presence of foreign companies in Quebec or in Canada with the lack of intellectual property created in Canada.
First of all, some people believe that in the absence of foreign companies, local talent alone would create new intellectual property, which would undeniably be held by Canadian companies. Nothing could be more tenuous. The intellectual property developed by Quebecers, Canadians or Montrealers is developed for foreign companies. It’s not just their brains that are developing it, because they’re collaborating with individuals from all over, in Korea, the United States and Europe, which enables them to develop extraordinary things.
Secondly, this is far from theoretical. We see it happening in Montreal: There are players, workers who have been part of large groups for several years and who, from one day to the next, have an idea and think they can launch their company and take their idea further.
You see it in the video game industry, where people have started their own studios, but you also see it in the development of ideas. An example that comes to mind is a company like Legion Labs; when you look at the founders’ backgrounds, you see renowned individuals. It’s not a zero-sum game; there’s something for everyone when the networks are open and you can tap into the best.
Senator Gignac: Welcome to our witnesses. I have two questions. My first one is for Mr. Paquet. I know your organization well, because I worked with it in a former life. I congratulate you on being the best development agency in the world. I see that you heard what Mr. Gagné said, so I would like you to respond to that.
You are attracting investment to the country. Are tax credits an important aspect? According to Mr. Gagné, there are too many tax credits and we should instead reduce taxes and tax credits. Why are tax credits so important for Montréal International to attract investment? Do people come for that reason, or do they come for the talent in the Montreal area?
Mr. Paquet: In fact, I won’t answer your question; they come for both. We could have the best tax credits in the world, but if it were just a matter of cost, other countries are less expensive than Greater Montreal, so those people would go there. You need a mix of tax credits and talent.
The reason we also need tax credits is that we’re not alone. I am willing to stand down, I am willing to recommend that the government lower the tax credits, but the others have to do it too. When we look at the video game industry, for example, 7 out of 10 provinces in Canada offer tax credits; some provinces are even more generous than Quebec. Quebec has won because we have more talent; it is now fifth in the world in terms of video game production. So, we certainly need talent and tax credits, but everyone has to be willing to stand down at the same time, and you know how complicated that is.
Senator Gignac: My next question is for Mr. Bouchard. Thank you for being with us. We just talked about intellectual property. What is the priority for universities with respect to commercializing intellectual property? Are Canada’s world-class universities working together or are they working in silos?
Mr. Bouchard: Those are both excellent questions. On intellectual property, I believe that we need to reverse the chain of events. Research is increasingly expensive and researchers are trying to fund it as best they can. For example, a helium cylinder, which is essential, whether in biomedical or natural science research, cost $200 about five years ago, and now costs $700. So when they choose either funding or partnership, industrial or otherwise, that choice is determined by the need to find someone who can pay for, in this instance, helium.
When the time comes to discuss intellectual property, our researchers, because there is not enough funding from granting agencies, sometimes enter into research contracts with companies, but they don’t always keep the intellectual property. The company — and I’m really talking about patents — keeps some of the intellectual property, but not really the full economic potential. It’s more out of necessity than out of a desire to just give away intellectual property. That’s one part of it.
As far as cooperation goes, there’s a bit of a mix here. Individual researchers are collaborative by nature; this has been true of universities since the Middle Ages. Do universities work together? Canada has been rather clever in developing some of its major programs, especially for infrastructure, to encourage universities to work together, since you probably don’t need eight electron microscopes within three square kilometres. Collaboration is facilitated by the Government of Canada.
I would like to point out, by the way, that Quebec also does this through the Fonds de recherche du Québec. It varies enormously by country, because university funding is treated so differently that sometimes universities have no incentive to collaborate, whereas in other countries there are significant incentives to do so. The researchers themselves — this goes back to the question about video games — are looking for talent and they want to play with the best. If the best player is in Tokyo, they’ll want to play with the Tokyo player; if the best player is in Trois-Rivières, they’ll want to play with the Trois-Rivières player. That’s how it is in science: Excellence drives people, and talent seeks talent.
[English]
Senator Woo: Thank you to the witnesses.
My question is for Dr. Bouchard, and it’s about the changing context for the funding of international collaborative research by the granting agencies. The changing context is that applications for funding, increasingly, are put through a national security screen, which means that CSIS has a veto over funding proposals, in effect. We’ve already seen this at the Natural Science and Engineering Research Council, or NSERC, and the winds seem to be blowing in a direction of similar measures on the part of the Social Sciences and Humanities Research Council, SSHRC, and the Canadian Institutes of Health Research, CIHR.
Can you comment on this drift toward, essentially, political intervention in international collaborative research, which, of course, has both a material effect on research collaboration and a chilling effect on the part of researchers who may be caught in the crosshairs of national security considerations?
Mr. Bouchard: Your question focuses on national security. I would put it differently. Countries around the world, over the last 10 years at least, have increased the role of national interest, and this can include security, but it could be economic, welfare or other issues. So countries around the world have been increasing the role that national interest — this is just a statement of fact; I’m not saying it is good or bad but that it’s a trend — plays in how they view national investments in research and innovation.
For certain topics, that includes national security more prominently; in other fields, it does less so. But I would say there is a general trend beyond current events or recent policy changes for increased national interest in how we support research innovation.
I should point out that this is reflected in what countries are doing in terms of investing heavily in their own scientific enterprise. We’re realizing, and it could be for pandemic or economic reasons, that you cannot outsource your need for expertise. You cannot say, “Well, we’ll let American universities come up with great inventions and we’ll buy them later.” First of all, they’ll be expensive if you aren’t part of the relationship. Also, you need your own national expertise to be able to give you sound advice when you’re talking about pandemic preparedness or about climate adaptation and so on.
The general trend that I am more knowledgeable about is a general trend for countries seeing their research enterprise as national interest assets.
Senator Woo: Thank you for your answer, but the specific issue I am observing is the national security lens that is put by CSIS. If it were purely a national interest lens, CSIS would not have to be involved. In fact, if national interest were the criterion for approving international collaborations of funding through NSERC or SSHRC or CIHR, the outcomes of a number of proposals that have been rejected recently would not have been rejected. It is precisely the national security lens that is turning away some of these proposals.
Have you not observed this? Is this not something that has crossed your radar at all? Are you concerned about it?
Mr. Bouchard: I’m trying to think of various stakeholders who have come up with their vision of the challenges or opportunities. In terms of national security, basically, the stakeholders were asking for clarity and predictability. They wanted to make sure that we can sustain international collaborations with various instruments. But the role that security agencies play or do not play — here I’m speaking from memory — wasn’t discussed at length by the stakeholders on our panel.
[Translation]
Senator Loffreda: Welcome, Frederic and Stéphane. Thank you for being with us today. I congratulate Stéphane on all the recognition that Montréal International is getting.
[English]
Montréal International, as you mentioned, was named the top business attraction agency in the world.
[Translation]
This is well deserved. Congratulations.
[English]
During my years in the banking industry, I spent 13 years as the honorary Treasurer of the Board at Montréal International and I recall we had many record years attracting new investments in Montreal. Which policies would you attribute those successful years to?
[Translation]
Can you elaborate on what we did differently? What are the policies that made this possible?
[English]
Where should future policy priorities focus? Frédéric is welcome to elaborate on your comments, Stéphane. Once again, welcome. Nice to see you here. It brings back some great memories.
[Translation]
Mr. Paquet: Thank you for your question, senator. Thank you also for highlighting the awards. I would point out that this recognition is due to the fact that we have excellent administrators — and you were one of them.
To answer your question, I would say that the first element — what I have seen change over the last seven years and what is increasingly striking — is that investment follows talent. Mr. Bouchard talked about this: if we don’t have talent or if we’re not able to tell a company what talent pools are available, the company may come here, but it will cost us an awful lot of money in subsidies.
When we speak to people, we always mention three talent pools. There is the current pool. There is the pool that the universities are training, which is absolutely extraordinary, because we are lucky enough to have, and this is very rare, two world-class universities in Montreal that are among the most recognized. So, there is the talent that we train and there is also an immigration system, despite all the problems it may have. God knows, when it’s time to say we have problems and we need to be more efficient, I say it, but we have an immigration system that remains, all in all, quite predictable.
Investors do not feel that the immigration system is a lottery, as in some other countries. So we have three talent pools that we can put forward, and the knowledge economy is increasingly the reason people are coming here.
There is a specific element to Montréal International, and that is the fact that we have invested resources to tell the story of Montreal. It is a story that was not well known and remains so, and it is, at the very least, not well known in many markets. We realized that when representatives went to the U.S., France, Germany or the U.K., if they were able to tell the Montreal story, being face-to-face with business leaders to explain what was going on here meant that we often succeeded in getting the investment, even if Montreal was not at the top of the list.
I would hope that because of this, we would be closer to the top of the list now than we were 5, 10 or 25 years ago.
Mr. Bouchard: I’m going to expand on the talent issue. There is a real analogy with the story of the video game tax credits, which Mr. Paquet described earlier. Talent goes where it can. When I talk about having fun, I mean inventing, creating, discovering, and doing things that would be impossible elsewhere.
In artificial intelligence, I’m very happy and lucky because Yoshua Bengio is one of the professors on my faculty, but there are plenty of other colleagues who have the same level of brilliance in artificial intelligence. In the Montreal area, we are really spoiled. Basically, if you have a PhD from Carnegie Mellon or Stanford and you’re thinking of doing postdoctorate work, Montreal will be on your very, very short list. You will want to come to Montreal to do your research and innovation.
What opportunities does this open up? When the big American companies wanted to start industrial research labs, they opened them in Montreal, because there was a talent pool. Talent is not like a lottery ticket. It is the result of years of investment and trust on the part of the various governments and funding agencies that, by supporting research, have created this talent pool. We are reaping the benefits today.
Frankly, when it comes to talent, Canada’s investments have been consistent. Canada believes in science. This is not a partisan issue. We’ve seen it from one government to the next. But the global competition for research and innovation talent puts us in a race. Canada is not running fast enough. This is a problem that will have to be addressed or our attractiveness for talent will suffer.
[English]
The Chair: I’m just going to give you a little warning here. I’m going to ask you in a few minutes about a couple of specific recommendations you might make to the federal government, lessons you might have learned with your Montreal experience that might be applicable nationwide. Our job here is to give advice to the federal government about how to create the right environment. We’ll carry on with the questions, but please put that in the back of your heads.
[Translation]
Senator Bellemare: Thank you to our two witnesses, Mr. Bouchard and Mr. Paquet. What you have brought to the table is very interesting. Mr. Bouchard, I understand that you are proposing to create a Canadian national council to promote the commercialization of our inventions.
I would like you to talk a little bit more about how this institution could address some of the delays that we have in Canada in terms of our investment.
Mr. Bouchard, I understand that information flowing across borders can help explain the fact that has already been mentioned, that young people are being forced to leave the country. You say that companies follow the talent. Do you think that agencies like yours will be enough to reverse the trend that we heard about from our first witnesses, which is the drop in the standard of living that is predicted for Canada over the next few years?
Mr. Bouchard: I’m going to start by saying that we have to ask the question: In 2050 or 2070, what areas and sectors will generate Canada’s prosperity? I think that’s a fundamental question. How do we lay the foundation for prosperity, not for tomorrow morning, but for decades?
Somehow, we have to get the best and brightest who were lucky enough to be born here to want to stay and develop things here, and we have to get the best and brightest from elsewhere. We have to get them to think: “I want to build something, so I have to go to Canada.” A lot of that comes through the universities, the masters and doctoral programs, because that’s where the research programs start. In fact, a lot of international students are discovering Canada through these universities and the research and innovation programs they can be involved in there.
At this time, funding for students is not sufficient; it is not globally competitive. There are a number of other recommendations from a governance and ecosystem perspective, but there is a real urgency — and I’m not talking about 2050, I’m talking about today — because doctoral scholarships have not increased in 20 years, while other countries have increased them. This means that young people who are brilliant, whether they come from here or elsewhere, will go elsewhere to do their transformative research, just to be able to make a living.
With regard to commercialization, the organization we propose to create is a Canadian foundation for knowledge and science. In fact, the missing link is pre-commercialization. There are different players in the research and innovation ecosystem, and we don’t want to create a new player for the sake of it. We’re contacting organizations that are strictly commercialization-oriented. They have a hard time talking to universities, or organizations that fund university research, what we call basic research... It’s more complicated than that, but I’ll put it that way.
Basically, when we focus on pre-commercialization, who should do it? If you focus on basic research, that’s in addition to programming that’s designed around pure discovery, but not focused on generating intellectual property. If the focus is on the business side, it’s more about short-term benefits, not medium- to long-term wealth development.
So there needs to be a hinge point between the two, and that’s what the new foundation we’re proposing would be. This is one of the functions it would play. It would not be its only role, but it would make it possible to say that this is good and that we are going to support the pre-commercialization and technological maturation effort. When we see that this can be brought closer to the market, we are no longer the ones to take care of it, because we don’t have this expertise, so it is the agency that would inherit the file. In fact, that agency was announced in the 2022 budget; it will be launched this year and it’s called the Canadian Innovation and Investment Agency.
[English]
Senator Galvez: Very quickly, I would like to congratulate Montréal International. I’m very aware of all your success, and you are really doing fantastic. There are four universities in Montreal. I did my master’s and PhD at McGill University, so I know your institution and I know the city very well. Congratulations.
My question is to Mr. Bouchard, because about 20 years ago, I was a witness to an NSERC panel where the questions were the same. I remember them saying at the time, when a PhD scholarship — which is what I was earning — was $24,000 per year, that it was very low, so people said it was almost under the poverty level.
The other issue was that almost half of the people doing their master’s and PhDs were women and wanted to be mothers, and child care was completely unavailable. That was another problem.
Then came the story with the materials and the labs. You have talked about the prices, yes, but also the instruments. Of course, we don’t want electronic microscopes at every university, but there are some basic things that every university needs.
Then there was this famous IP support and entrepreneurship. I develop a process, and my university is asking me for $50,000 to contribute to make a patent. Where are we there? And, of course, later was the issue with work placement.
Can you tell us where we are on these aspects individually? What is missing? Thank you.
Mr. Bouchard: I’ll just start with the patent story because that will be very quick. It varies from one province to the other. Quebec has developed an agency to help with the valorization of intellectual property and with patenting issues. Other provinces have not. I would say it is not a national story; it’s many provincial stories on the IP valorization file.
In terms of the other question, before being dean, I am a professor of philosophy of science, so let me wax philosophical for 30 seconds.
I think we’re a bit complacent collectively and self-satisfied. Because our researchers are very good and because we’re very good and because life is comfortable, we’re relatively happy with how our science stands in the world. Actually, our scientists could do much more if we gave them more tools and instruments to pursue greater discovery.
Ironically, I think what has been hurting us — well, not hurting us, because our quality of life is good and we enjoy our university and so on — is that we are good enough, or we have been good enough, and, therefore, we haven’t felt the need to be more ambitious about the role that science and innovation play in Canadian society. This is not just a university issue.
One of the examples of this, and I’ll stop after this example, is that if you look at the number of researchers per 1,000 people in various countries — and those are not just in universities; it could be in industry, in government; it’s people who do research activities — and if you look at that number, basically, 20 years ago, Canada had 7.5 researchers per 1,000 people in Canada. Now, we have about 9.4, so we’re like, “Oh, this is good.”
Over the same 20 years, South Korea started below the Organisation for Economic Co-operation and Development, or OECD, average and went from having 5 researchers per 1,000 people — we had 7.5 — and now they have 16 researchers per 1,000 people. So this is a policy problem.
Over 20 years, South Korea went from being below the OECD average to being one of the best in the world because the country as a whole made it a collective ambition to put science, research and innovation first.
Canada has about 38 million people; South Korea has about 52 million people, so we’re roughly in the same tier in terms of size. South Korea has about 500,000 more researchers than Canada does. That means more IP, more industry, more companies and more policy experts in government. This is a policy question, and this is why we’re extremely hopeful about your work and other committees making this file get more attention.
Senator Yussuff: Thanks to the witnesses for being here.
Mr. Paquet, you’ve done a remarkable job in regard to the role you’ve played in attracting both investment and talent to Montreal, and I guess the bigger challenge we face in this federation called Canada is how we replicate some of the successes that you’ve been able to achieve in Montreal and develop the same approach for the rest of the country.
As you know, major big cities equal to Montreal don’t have an individual dedicated to this responsibility. Is there anything you can share in regard to your work? Equally, have there been spaces where you’re able to collaborate with other jurisdictions to talk about what you’ve been able to do and how some of the approaches might be of value to the rest of the country?
Mr. Paquet: Thank you for the question, senator. Yes, there is an organization called Consider Canada City Alliance. I’ve had the chance of being vice-chair of its board. What it does is it brings together 14 cities across Canada that have a mission to attract FDI. Some also do export, and others do talent attraction. The thing that we have in common is FDI attraction, and we do convene and share our best practices from time to time.
This is an organization that is there. Could we do more? Should we be more vocal and more seen? Maybe, but the fact is that as we speak, 80% to 85% of all FDI in Canada goes to these 14 cities. We sometimes forget it, but FDI is a city thing. Yes, there are natural resources and so on, but, overall, FDI is a city thing. Why? I come back to the answer I gave earlier: The talent is there. The best minds and the best universities are there.
We do convene. It’s called Consider Canada City Alliance. I would be more than pleased to give you more information about it if you want.
Senator Yussuff: Mr. Bouchard, thank you again for the good work you do to get the country to move in a direction that will be sufficient to the challenges we face.
Given the number of recommendations you have already made to government about what needs to be done, with a desire for this to happen much sooner, is there anything our committee could assist with in regard to bringing some emphasis to this in regard to our recommendations?
Mr. Bouchard: Frankly, it’s the urgency. You cannot just say that we agree but we’ll do it in two years. Frankly, it’s not about implementing everything now, but it’s getting the ball rolling in making Canada a major science player in the world. Right now, it’s not in that league. The individual scientists are in that league. As a country we are respected, but we’re not a priority strategic partner for other countries. This is from their own claim.
It’s more about the urgency. If we don’t change something about Canada’s ambitions relative to research and innovation, a cohort, a generation of Canadians will go elsewhere. Then it will be very difficult to get them back. So it’s more about the urgency.
The specific recommendations, some should be implemented right now; others will take more time because they’re organizational in nature. It’s more about the urgency of action. Every year, students make choices about their lives. They would love to work in our universities, but if we don’t welcome them with more than just a good feeling, they’ll go elsewhere. They will benefit and enrich other countries in doing so.
Senator C. Deacon: Research in Canada, is it an international development activity or a national development activity with global benefits? I just want to get clarity on your thinking there because we do not capture the benefit of our research in a way that increases productivity growth very strongly in Canada relative to the example just given of South Korea. If we just increase investment in basic research and in investigator-driven research without creating the structure to capture the recurring revenue and benefits that increase productivity, I worry. Would you agree with that statement?
Mr. Bouchard: There are two components. The first one is that the agency we’re proposing would facilitate partnerships between start-ups, companies and academic research. There would be some capture of IP, if you will, that would be generated. This would be a direct benefit.
The other thing is, frankly, Canadian companies don’t hire enough people with master’s degrees and PhDs. Master’s and PhDs are not just “trainees” to become professors; they have expertise that would benefit more organizations.
I don’t know if it’s like this now, but a few years ago, if you bought an airline ticket in Germany, among the polite titles of “mister” and “madam” and all that, they would add “doctor” and “professor.” It’s a matter of whether you value higher education, not just in universities but in corporations and in industries. Canadian corporations do not hire enough master’s graduates and PhDs.
Senator C. Deacon: Specifically, we need to capture the benefits of our research in Canada. Would you agree with that?
Mr. Bouchard: We need to be better so there’s something to capture.
Senator C. Deacon: Good. Thank you.
The Chair: Very quickly, Mr. Paquet.
Mr. Paquet: I think Mr. Bouchard said it all.
[Translation]
We need to value the work of academics and make connections between universities and the private sector. I would tell you that we are not perfect, not at all, but in the artificial intelligence sector, particularly in Montreal, we have been able to do that.
First, we managed the feat of getting McGill University and the Université de Montreal to work together, resulting in the Mila project. Second, we bring in foreign and local companies to make sure there are interesting projects for everyone.
[English]
The Chair: Thank you, gentlemen, very much. We have some committee business to deal with now. I want to thank you for your participation and your suggestions. I think I got an answer to my question in that as well.
Frédéric Bouchard and Stéphane Paquet, thank you for joining us.
(The committee adjourned.)