Challenges for Canada's Competitiveness. Images of Japan

Introduction:

Honoured guests, members of the Head Table, members of The Empire Club.

Empire Club traditions mostly spring from roots in mother countries across the Atlantic. Today we have a speaker native to England, educated there and in America, to talk to us about countries on the Pacific Rim. To say our interests are broadly based may be an understatement.

Our speaker today, Doctor Geraldine Kenney-Wallace, was educated in Oxford, London and Vancouver. She has been on the faculty of Yale and the University of Toronto. She has held doctoral fellowships at the Universities of British Columbia and Notre Dame. She has six honourary degrees in law and the sciences. She is going to take us into the world of science and technology today, to help us understand Canada's place in world trade. These interests are hers as the Chairman of the Science Council of Canada.

But before any here are intimidated by such a renowned scientist, let me quote the irreverent golden rule of science written by Peter MacArthur some 80 years ago. Science is, he said, "To make sure of your facts and then to lie strenuously about your modesty".

Please welcome Doctor Geraldine Kenney-Wallace.

Prime Minister of Japan to identify areas of science and technology and mechanisms for an enhanced and complementary activity in R and D between our two countries. I chaired the binational committee established on behalf of both countries, and led the project with the able assistance of the seven distinguished internationally known scientific and engineering colleagues from academe and the private sector from Canada and Japan, helped invaluably by the expert advice of some several hundred scientists and engineers in universities, industry, private sector labs, and government agencies in both countries, and many diplomats, senior government leaders, members of the bureaucracies, educators and students, bankers and lawyers, doctors, and even performing artists in both countries. It has been a fascinating, complex, intriguing, breath-taking, myth-breaking exercise (and at times exhausting in our commutes from Tokyo to Toronto, and criss-cross Canada and Japan) to seek a grassroots answer "How do we do business together in the future of science and technology?"

Perhaps the answer can be briefly stated as follows: to do business together you need to understand a little of the culture and history of that country. Science, being intrinsically an international activity, has a degree of culture and history built into its laws and applications. Scientists and engineers offer an enormous international network which can join forces with the business world in a series of strategic international alliances. It is in this context that I will now summarize the goals of the Canada-Japan Complementarity Study (CJC). (A fuller Executive Summary of CJC is available upon request, and I merely repeat highlights here).

"As a result of our assessment of past and current science and technology cooperation between Canada and Japan, and of our extensive consultations with scientists and engineers in both countries, and of our own deliberations, we respectfully submit for your consideration the following main recommendations bearing on the principal areas and effective mechanisms for future S and T cooperation between

Canada and Japan. We recommend: 1.that the governments of Canada and Japan publicly and quickly commit themselves to a new, imaginative, and enhanced program of bilateral R and D activities which builds upon the existing bilateral S and T agreement. The key characteristics of the program that we urge you to support are:

-dedication to excellence

-emphasis on young researchers

-concentration on creative ideas and "frontier" science and technology

2.that Canada and Japan immediately pursue a program of enhanced cooperation in the following six broad "umbrella" areas of science and technology. These areas of equal importance are:

-advanced materials and biomaterials

-biotechnology and biosciences

-oceanography and ocean engineering

-space science, technology and cosmology

- advanced manufacturing (artificial intelligence and robotics), microelectronics, communications, and photonics

- sustainable development and environmental management

In order to launch the new recommended program of S and T cooperation effectively and to capitalize on some major scientific developments, we further recommend that the following key preferred areas from within the broad "umbrella" areas be singled out for immediate attention. These are:

Advanced materials and biomaterials

-thin film superconductors, growth and characteristics; oxide superconductors

-structural advanced ceramics and ceramic coated implants

-experimental and theoretical aspects of complex interfaces and surfaces Biotechnology and biosciences -biochemical engineering -fermentation technology

-medical biotechnology

-applications of biotechnology to fisheries, forestry, and agriculture

Oceanography and ocean engineering -North Pacific Ocean

-advanced technology

Space science, technology, and cosmology -materials for space

-astronomy in space

-space plasma physics Advanced manufacturing -microstructures and their microelectronic functions -advanced processing and manufacturing technologies -lasers and photonics

Sustainable development and environmental management

-acidification processes, environmental effects of acidification, and engineering solutions

-the influence of the North Polar Region on global climatic change and global scale simulation

-atmospheric trace gases, dispersion (micro-and mesoscale), and environmental observation from space

3.that the program make a flexible and wise use of many specific generic means of cooperation. These include:--exchange of information

- bi-national post-doctoral programs and exchange of graduate students, junior and senior scientists and engineers

- bi-national topical workshops, conferences and meetings in selected "umbrella" areas

-access to major S and T facilities in both countries

-cooperative R and D projects

These should be applied according to need and circumstance. Continuing discussions on potential and future cooperation will be the most effective way of determining their utilization within each broad S and T "umbrella" area.

4. that in order to achieve enhanced cooperation in the appropriate areas and with the mechanisms we have described, the necessary financial resources should be identified in order to trigger cooperation.

5. that there be created a small, strong and prestigious science advisory board to be known as the Bi-National Advisory Board on S and T. The responsibility of the Bi National Advisory Board on S and T will be to review on a continuing basis the overall science and technology relationship between Japan and Canada and to advise the Canada-Japan Joint Committee on Scientific and Technological Cooperation on issues concerning that relationship. Some suggested specific functions of the BiNational Advisory Board on S and T are provided in the Main Report.

Should the Bi-National Advisory Board be established, it would be desirable, in order to maintain the continuity and momentum generated in Japan and Canada by "The Complementarity Study", to model it on the present Canada-Japan Committee.

In concluding my remarks, I would like to read from the postscript of the CJC report, because it reflects the spirit and tone of our future collaboration. "Serving on the Canada Japan Committee has been both a privilege and a pleasure for all of us. Canadian and Japanese Committee members, as well as the many scientists and engineers who have worked with us, have come to know each other as persons and started to appreciate, at least a little, some aspects of each other's culture. In this regard, therefore, our experience is a model for the experience that we hope an increasing number of our young scientists and engineers will enjoy in the future. It is our earnest hope that scientific and technological cooperation of mutual benefit to both countries, as well as the global community, will grow and strengthen in the future. But in addition to that, the bonds of friendship and mutual understanding, which will surely be forged in a program of strengthened cooperation between our countries, will be as important as the scientific, technological, trade, and economic benefits.

Our world is one with many problems that will never be solved by nations working alone, but only by nations working in concert. The laws of nature deem science and engineering to be intrinsically international activities. Scientists and engineers from all nations will play a crucial role in solving global problems. Their ability to work effectively together will depend greatly on their possession of mutual respect for and understanding of each other's cultures and values. Let us give excellent young Japanese and Canadian scientists and engineers the opportunity to build the bonds of respect and friendship and create the mutual understanding that is essential to the creation of a peaceful, harmonious, prosperous, sustainable global society and environment."

Ladies and gentlemen: in summary, the issue is competitiveness and the management of change. R and D is equity investment for that transition into a trade and technology era of global dimensions. And getting the timescales right for each of the two critical paths, for the evolution of science and technology and the evolution of new trade routes and markets, is the key to a smooth transition. Truly imaginative and creative activity at the competitive edge is the essence of being alive and winning with ideas. This should be the vision we share and the vision driving the strategy--and it requires leadership from every one of us to make this strategy work. Thank you.

The appreciation of the meeting was expressed by Frederic Jackman, President, Invicta Investments Incorporated, and a Director of The Empire Club of Canada.

Geraldine Kenney-Wallace:

Madame la Présidente, distinguished guests, ladies and gentlemen, mesdames et messieurs: Thank you very much for your kind invitation. I am indeed honoured to be here as the guest of The Empire Club of Canada.

My theme today is the challenge Canada faces in the light of the rapid changes in the global market place, with a particular focus on the newly emerging economies in the Pacific Rim and the enormous investments made by Japan in science and technology and research and development. The issue is economic competitiveness, not whether or not it is important, but how it can be achieved, particularly in a growing world context of sustainable development and caring for a quality of life and a quality of health and a quality of environment for all who inhabit this globe.

The equation is thus "competitiveness and caring" and it is distinctly time-dependent. Yesterday's competitiveness cannot pay the bills for today or tomorrow's caring. Competition is a dynamic reality. The solution to this equation is the answer to the trade challenge, but it is not a quick fix solution, as you all know. Science and technology are a vital and integral part of both competitiveness and caring issues and solutions and today I will try and illustrate just how pervasive S and T has become on the international trading markets, through some concrete examples of how ideas have moved from the laboratory to the market place--and moved the competitive goal-posts for us overnight. Witness the excitement and speculation surrounding warm superconductivity, the theatre of cold fusion and the future promise of the cystic fibrosis gene breakthrough.

The issue of competitiveness is, in essence, harnessing the right stuff. It is the wise management of uncertainty, the assessment of risk, the courage of action, the willingness to live on the competitive edge, of knowing the facts and the fiction of knowing when to start and knowing when to stop. Professors are famous for knowing when to start lecturing but less famous for knowing when to stop. Speakers at a lectern usually preach from a text and so identify "the text for today", be it a psalm from the Old Testament or a testimony from a House of Commons finance committee on the General Sales Tax. And executive audiences want a one-page executive summary, and no jargon, a clear link to the bottom line and the Blue Jays score.

So here, ladies and gentlemen, is my executive summary in three points.

Point 1: Competitiveness is the issue. Global trading dynamics are fluid and fast. We are facing--but not fighting--an invisible economic war fuelled by smart fuzzy logic and nanosecond fiscal transactions at the stock exchange. Competitiveness is also a reflection of the history and culture of a country. Canada seems to be in a race between the pull of our history and the push for shaping our technological future. We have no choice but to win with innovation and ideas. A good idea is the hardest currency of all in the marketplace. A good idea in action sparkles with value.

Point 2: Research and Development (R and D) is equity investment. R and D and innovation as a cultural mind-set are key investment strategies and equity positions for the future and must become an intrinsic part of your corporate strategies. The CEOs and senior management teams must be sufficiently knowledgeable regarding the technology challenge out there in order to bring commitment, expertise and a tolerance of risk inside the company so that longer-term strategies can be successfully played out for R.O.I. (return on investment). In good parts of the business cycle, longer term investments in R and D and innovation throughout the company, or institution, or agency, will give you a critically important competitive edge in products and processes for when the cycles go down and the markets get tough. Do you have that technological know-how at your fingertips or the boardroom table? Can you plug into the international network of S and T? How will you get your smart scanning tuned to future 'competition from your competitor's R and D?

During the yen-shock nearly three years ago, Japan went tough. R and D investment poured in as a parallel activity to the economic restructuring. New R and D consortia sprang up linking university, government and industry with titles like "superbug" or "Nanoelectronics".

Science fiction? No, Science in Action. And while a leaner, tougher corporate sector gradually emerged, the R and D escalated. Their timescales are not on our side. We still have to learn our R and D investment strategy lessons at home. R and D is research and development, not research and deals!

Point 3: Technology and trade are inseparable partners for the new global markets, and yet they have different timescales for return on investment and different rhythms of response to external forces. Nature hasn't heard of quarterly shareholders reports, and high quality technology takes time. We did not go from the model T to the Cadillac overnight. Exactly how are our trading partners in the Pacific Rim coping with what appear sometimes to be rapidly moving target markets in the sophisticated, technologically-based electronics, medical and optical industries, for example? What are the timescales for action by us in Canada to stimulate a climate for competitiveness in the markets we seek? What are the essentials for an action plan? Where is the leadership that understands these timescales?

I am going to address some of the questions I posed during my talk, but first let me identify the text for today's speaker at the Lectern. Today's text is drawn from the wise words printed in two headlines in the September 25 issues of "Fortune" and "Time" magazines. "Time" had a headline "Time for Some Fuzzy thinking." "Fortune" had a headline "Where Japan will Strike Next". This also sounds at first like science fiction or a transcript for Mission Impossible! But it is my text for competitiveness.

The first time I spoke about fuzzy logic was a decade ago to a university private sector joint colloquium, and it took me almost 15 minutes to override the laughter and caustic comments to get back on track--and we had been discussing the subject of excellence and quality of education and creative thinking in our students. I was chided for being comical, not serious. In fact, fuzzy logic and neural networks, another phrase appearing frequently, are the same novel approach to solving complex calculations fast. Fuzzy logic allows one to carry out a sophisticated "ball-park" calculation. We all know that 2x2 is 4, not a matter of opinion. This is a sharp, not a fuzzy result. A more complex calculation of a very important number might take immense computer time. Yet a rapid decision must be made, on the evidence of that number. Fuzzy logic speeds up calculation times at the expense of some of the sharpness of the answer, which now has a range of probable answers. For example, the temperature of boiling water is 100°C. The answer to the calculation of that temperature might be 97° to 102°, but you get that answer ten times faster. The application to a shower temperature control is obvious. Rapid control and monitoring of the temperature in fractions of a second can lead to less scalding than a clumsy guess on the dial position in the shower!

Ten years later, in a single headline, "Time" magazine has made fuzzy logic mainstream and a safe subject for cocktail parties. Can we talk now? Because what I want to tell you is that Japan is making money from an idea that is now 25 years old and was conceived in the USA. No one saw the technology potential, laughter dominated the tenets of fuzziness, and traditional mathematics and statistics prevailed. Some have said that the Japanese did not laugh because culturally their approach to thinking, logic, language, and philosophy is quite different. They invested instead. Indeed MITI has opened a $34 trillion (US) International Engineering Laboratory for Fuzzy ' Engineering Research in Yokohama.

More importantly Japanese industry made fuzzy logic work, following an R an D investment in the early 1980s that has now delivered computer software that runs subway trains, brakes, 'air conditioners and shower systems. Fuzzy logic allows computer-controlled smooth landings, smooth focusing of cameras, smooth changes in temperature in bathroom showers and elsewhere. Now other industries around the world are taking note and scrambling. NASA is now experimenting, and I heard at the major Aerospace Industries meeting held in Toronto last week that major companies such as Boeing and Rockwell are now exploring the possibilities. Undoubtedly, software and computer companies will be burning the midnight oil.

The fuzzy logic paradigm is here to stay. It has not supplanted traditional statistics and mathematics. It has given unbelievable value-added to the traditional approaches to problems--and become a strong competitor in the orthodox marketplace. The moral of this competitiveness tale is two-fold. "He who hesitates is lost". "Often a trend is as useful as a decimal point". Planning for competitiveness means planning for the unexpected. Can you put fuzzy logic to work in your businesses?--but not fuzzy thinking!

My second text for the day from Fortune, "Where Japan will Strike Next" takes me into a single, clear message: R and D is equity investment, for innovation and development of new tradeable good and services for those global markets. Where will Japan strike next?

Read the "Fortune" article to see what is expected in electronics, construction, financial services, retailing, supercomputers, and so forth, because it is expected as a result of the past one or two decades of R and D investment by the Japanese. The return on investment is now. Their capital investments are patient and help capture market share. They have been quite single-minded and persistent and spared no resources to win these existing markets. Military expenditures are capped at 1 percent of GDP but now approach $30 billion, which is invested in many technologies with important civilian applications, from aerospace to novel electronics and space.

So my answer to that question "Where will Japan strike next?" is rather different. I'll take the long term view and look at the 2010 horizons. Japan does not know. In a Japanese way of thinking, the results of today have only so much currency in the future as foreign competition will catch up, markets saturate, consumers' tastes change and age profiles shift dramatically. The fast and fluid global markets move like supersonic techtonic plates. Where will we be in 2010? I don't know. They don't know. Given worldwide geopolitical changes '. on the news every day, no one does. However, we had better be prepared to be versatile in our exchange and management ' of information in this knowledge-driven society. "

The boundaries of space and time and decision-making already are collapsing: by mid-1990's, the transatlantic TAT 9 laser fibre optical communications traffic system linking (through underwater optical fibres) USA, Canada, UK, Spain, and France will connect all North America and Europe in their market transactions. This network is already a $2 billion (US) market itself and it is estimated to grow to $5 billion (US) by 1995. The future capacity of this new TAT9 optical fibre network at 560M bits/second is already sold out! TAT8 only opened up in 1988.

At the same time, similar networks are being planned and laid across and around the countries and islands in the Pacific Rim, linking up together and to us and to Europe the area that constitutes 43 percent of the world's population and over 40 percent of the present world trade. That trade area is growing more rapidly than anywhere else. Annual growth rates of six to nine percent are to be compared to one to two and a half percent of OECD countries. Free markets and outward looking, aggressive marketing push their prosperity higher, not protectionism. Cultural internal barriers do, however, sometimes make their markets less accessible--or perceived to be so--to our western trading practices. Fifty percent of the present USA-Japan traffic on existing networks is FAX Messages, beating time zones, and illustrating the enhanced trade levels. The future will see image and voice communications; machine-machine communication, three dimensional images, moving images--imagine a global ': Medicare network where the medical diagnosis was conducted by three experts thousands of miles apart, examining images of the patient with a clarity of high definition television, on a six foot human size screen, and using machine trilingual translation for instant language communication. It is possible. We have the ideas now and the applications well in development. We will not be surprised. The research has its roots in the computers, software, optics, lasers, and materials of 1960's.

What we do not know, what Japan does not know, what is unknown, is the unexpected results of today's new research and thus tomorrow's industries.

Where will Japan strike next? She does not know but the trends are there. Japan is making sure she will have an answer by investing even more financial and human resources into basic and applied research as a futuristic competitive strategy.

R and D is equity investment. In a country like Japan and many other rapidly growing, newly industrialized countries of the Pacific Rim, where there were no abundant natural resources to harvest or mine or lumber, they had to look for equity and collateral elsewhere. It was and always will be a question of survival. And that is why Japanese value education so highly, almost obsessively, reward brains, respect professors, support 478 (approximately) universities, and that is why corporations regularly invest anywhere from a few percent to 20 percent of sales back into R and D ventures. Several corporations run world class research facilities. Some companies invest at a level which exceeds by 1/3 to 2/3 the investment of their North American counterparts, just to keep competitive in the knowledge business.

Competitiveness is a dynamic reality: where will be the next breakthrough or incremental step in technology transfer that wins a new competitive edge in the market? Eastman Kodak just opened up a new research centre in Tokyo, not as an observer, but to be a participant in the overwhelming R and D activity that is now taking place. Many other well known corporations are already there or linked in, via joint ventures.

Indeed, for new spin-off companies the new public offerings price-earning ratio in Tokyo of 40:1 is much more attractive than 15:1 in North America.

Whether you like it or not, the reality is that the centre of gravity of R and D innovation and manufacturing technology, with worldwide impact, has moved once again. Earlier this century, it moved from Europe to North America. The centre of gravity has now moved across to our major Pacific trading partner, to a country whose population of 124 million clinging to islands covering a mere 378,000 square kilometres has shown us what we once taught them:

- invest in your human resources, education--take a longer term view

- focus on excellence and quality--stick to your knitting!

While 26 million of us, dispersed across 9.9 million square kilometres of Canadian lands, debate as individuals the merits of teamwork, they act as a disciplined school of fish, becoming increasingly comfortable with individual style and tastes. Japan is in a super position of modern and feudal instincts. Japan is also rapidly changing. Do not build your views on yesterday's stereotypes.

Life in Japan can be tough. Business is tough and polite and aggressive. But Japan is in a major world play, undergoing remarkable changes in society, in creative attitudes, in opening up to foreign markets under pressure, in coping with changing ethics, in trying to foster young women, in trying to understand how to play the role of international statesmen, and to foster individual harmony or the softer side of the Japanese character, one in tune with nature.

I will now conclude my presentation with some brief remarks on my third point: technology trade and timescales, with some views from the Pacific Rim. Technology and trade are inseparable partners for the 21st century. It was from this perspective that I accepted a most unusual task and challenge in January 1988 when the Science Council of Canada was asked at the request of the Prime Minister of Canada and the