Canada and the Pacific Challenge

MR. DERRY:

Distinguished Past Presidents, members, and guests: "A national science policy is a broad strategic plan on how best to deploy our limited scientific resources in order to make the greatest possible contribution to the cultural, economic, and social advancement of Canada. Such a broad strategic plan has not been drawn up in the past. It is broadly the job the Science Council of Canada has undertaken to do." These words may have a familiar ring for at least one person in this room, for they are the views expressed to this club in March 1968 by Dr. Omand Solandt, first Chairman of the Science Council of Canada, whom we are so pleased to have with us again today.

When reviewing current material issued by that organization, I note that the views of Dr. Solandt and the incumbent chairman correspond closely, for Dr. Smith has written that the Science Council of Canada "exists today to ensure that Canada has a strong science and technology community and that this strength is used to advance our society and our economy." The techniques used in attaining these objectives have varied, and Dr. Smith has expressed his viewpoint clearly - higher visibility and more stress on industrial strategy, along with the science and technology support needed to make that strategy work. With this broad and outward-looking role, it is not surprising that the Chairman of the Science Council of Canada is addressing us today on the very broad and relevant topic of how Canada can respond effectively to the challenge of the Pacific nations. But then, Dr. Smith has a history of confronting major issues head on and focusing clearly on viable solutions. Indeed, at the age of forty-six, Dr. Smith is well into his third career.

After graduating in 1962 from McGill with first prize in Medicine and then obtaining a specialty in Psychiatry in 1967 from that same institution, he joined the Department of Psychiatry at McMaster University; at the same time he became head of the Assessment Unit, and then head of the In-patient Service of the Department of Psychiatry at St. Joseph's Hospital in Hamilton. During the seven years of this stage of his career, he accomplished a number of things as a teacher and as a clinical and research psychiatrist. Among them, he was the first to pioneer the nurse therapist concept, whereby he trained a group of nurses to do psychiatric history-taking and family interviewing as a means of more effective use of scarce medical resources.

In 1975, Dr. Smith looked to challenges in a different direction. In his university days in Montreal, Dr. Smith was an active Liberal, and this early interest resurfaced when he entered the political arena as a member of the provincial legislature for Hamilton West. The following year, he became leader of the Liberal Party of Ontario and in 1977, leader of Her Majesty's Loyal Opposition. Dr. Smith worked long and hard, leading his party in its efforts to dislodge the "Big Blue Machine," and it was during this period that our club was twice honoured with an address from him.

It is, of course, no discredit to Dr. Smith that he was not successful in his goal of forming a government, for in this respect he was no less successful than Robert Nixon, or before him Andrew Thompson, or before him John Wintermeyer, or Farquhar Oliver over two periods, or Walter Thompson, or Mitch Hepburn when trying for a comeback, or Robert Nixon's father; Harry, or Gordon Conant - for he did make a valuable contribution in carrying out what many consider to be a thankless task, and it is widely appreciated. However, in 1982, he passed the mantle to David Peterson, and looked to his third and current career as Chairman of the Science Council of Canada.

But what better preparation could he have had than the combination of medical and research work in Psychiatry, university teaching, and an active role in public life, to give him a broad perspective of the role of the Council? He has now had two years to get settled into the job and his mark is being made.

I am pleased to welcome Dr. Stuart L. Smith, Chairman of the Science Council of Canada, to address us now on the topic "Canada and the Pacific Challenge."

DR. SMITH:

Mr. President, ladies and gentlemen: A profound change is under way in the world's economy. The new agenda is being set in Japan, a nation ironically thrust into such a prominent role by the oil shocks of the 1970s. I say "ironically" because that was the one nation that was supposed to be least able to sustain those same oil-related adjustments!

Don't get me wrong. Japan sets the agenda but it is still likely to be the United States of America who maintains the dominant position in the global economy for the foreseeable future. The directions set by Japan, however, and improved upon by the United States, have enormous implications for Canada. These challenges I propose to discuss with you today. Canada cannot afford to lag too far behind either the United States or Japan in economic performance; too large a lag will mean the loss of our best people south of the border and would reduce our will for national survival. We must, therefore, examine the new world economic order and find a place within it for a competitive Canada.

Just as a background comment, let me say something about our trading position. The United States is now, and always will be, our major trading partner. After that, however, Canada's trade with the Pacific is now much larger than our trade with the Atlantic and this trend is rapidly accelerating. Never again will Canada's Atlantic trade be even close to that which we will experience with Pacific nations. The sooner we begin to think of ourselves as a Pacific rather than an Atlantic nation, the better we are likely to do. This should guide the courses we teach in universities and in business schools, the sales agencies and trade offices we set up, the languages and customs that we learn about. The Empire Club might not be the most propitious place to say this, but I have brought along a map which centres on the Pacific; and I would recommend that such a map replace the usual Atlantic-centred one in our consciousnesses.

The oil shocks caused all countries, but especially Japan, to emphasize both products and production methods that saved energy and raw materials, these being commodities for which Japan is dependent upon other nations. Central to these savings have been a number of technologies which, although not altogether new, were brought to a very advanced state in the 1970s: namely, robotics, microelectronics, and the development of new materials. The United States, after suffering serious damage to many of its key industries, recognized the importance of innovative technology and has established leadership in additional areas, including information software, life sciences, and biotechnology.

As automation advances, it is easier to move the production of mature, mass-produced items to newly industrializing countries, where wages are still low. For the advanced nations, a greater proportion of world trade every year is represented by innovative, high-value-added, knowledge-intensive products, and related services. In these fields, the United States and Japan are predominant, with western Europe struggling to keep up.

On the other hand, raw materials are declining as a proportion of world trade. More specifically, Canada has local supply problems in some instances (forestry, fisheries), and international supply-side problems, with "unfair" competition from

the Third-World producers of metals. Beyond that, however, there are serious long-term demand limitations as a consequence of.

a) substitution of new materials (for example, fibre optics for copper, electronics for newsprint, composites for steel, ceramics for aluminum - for composite and ceramic scissors, for example;

b) increased quality and durability of products; and c) lightweight, down-sized, energy-efficient items.

To put it succinctly, for Canada, while food and energy production will continue to be a significant source of wealth, many other basic commodities may run into serious problems. As for manufactured goods, our usual products can frequently be more cheaply manufactured elsewhere; we are obliged to automate our usual industries and to enter into knowledgeintensive industries, putting out, for world markets, sophisticated, high-quality products with a high research content.

This must be emphasized as strongly as possible. It is my view that the world is now poised on the threshold of a golden era in the advance of fundamental and applied knowledge. It is a cascading effect as discoveries in one field permit new doors to open in other, seemingly unrelated, areas. Fundamental discoveries are being made week by week, so much so that I expect that historians will look back on the 1980s and 1990s as a time of the most accelerated scientific advances in human history.

All this new knowledge will have a major impact on the world's economy. New products, new materials, new machines, new cures, new methods will all be discovered, patented, and marketed. Canadians cannot simply expect to be purchasers of all these discoveries if we have none to sell. Our habit of selling off our natural resources will not be sufficient to buy our way into the status of an advanced country in the new world I am describing. We shall have to earn our way in by being competitive and successful in at least some of the more advanced industries.

I am afraid our record so far is not very encouraging. We have some real successes in telecommunications, transportation, office equipment, lasers, and space. We should be proud of these achievements since, among other things, they prove that Canadians can be successful competing with the best in the world. We are hardly represented at all, however, in fine chemicals, pharmaceuticals, advanced software, precision instrumentation, medical devices, fine ceramics, and new composites. We must set a serious national priority to have one or more successful companies in each of these fields. I am not suggesting Crown corporations. It may be necessary, however, for government to share the risk with venture capitalists in setting up some of these companies or in building upon existing small companies. Governments, including those at the provincial level, should aggregate the market wherever possible in order to give such new companies a reasonable Canadian market with which to get a start. In some instances, branches of multinationals should be singled out and a special effort should be made to acquire genuine world-product mandates in one or more of these important fields.

I would recommend two other major thrusts. In the first place, I believe there are enormous opportunities for Canada to enter into joint ventures with Japanese companies; these should be encouraged. The Canadian branch of such a joint venture might well benefit from Japanese production expertise and could logically be assigned to serve the North American market from a Canadian base. The Japanese branch might serve the rest of the world, using Canadian science and technology wherever possible. This kind of arrangement could help Canadians overcome our usual problem: that is, we have superb science in our country but we rarely turn it into successful commercial products. Japan is seriously worried about its lack of basic science discoveries so such partnerships with Canada could be very useful to both sides.

Canadian science is often used, of course, by American companies, but the industrial benefits to Canada are sometimes quite minimal. In some cases, the scientist or his or her invention is simply taken to the United States. Perhaps a Canadian branch is set up but it usually does not export. There are exceptions, of course. I am convinced that the encouragement of joint ventures with Japan would be beneficial to Canada in the long run.

Secondly, there is the very delicate matter of how to make use of intellectual property which presently resides in Canadian universities. This is delicate because universities are rightly wary of permitting their major sacred function to be undermined by the commercialization process. I would put it to you, however, that Canada has little alternative but to find a unique way to use our university resources, despite the problems. We do not have enough industrial research nor do we have the large companies from which new innovative ones might spin off, ready to go into action, as they do in the United States. Our universities, like it or not, may represent our only important asset in this vital contest.

I would like to finish with a word about Canadian business attitudes. Our most important pools of capital, including those controlled by our leading business families and institutions, are almost all invested in retailing, finance, real estate, and resources. High-value-added manufacturing and research-intensive industries are very tiny portions of the portfolios of our major capital aggregations. They are invested in conservative investments in industries which would be located here even if Canada were part of the United States. For such investors, the market seems to pay an insufficient premium to draw them into the kinds of risky products that Canada will need to compete in the future. As a result, we find government playing a larger and larger role in the higher-risk, new-technology industries. Either by ownership as in the aircraft industry, or by procurement as in the space industry, or by special financial arrangements as in the transportation industry, government is drawn more and more into filling the vacuum left by the private sector. This is not a healthy situation and stands in sharp contrast to the Japanese experience.

In Japan, there is constant dialogue among capitalists and trained business people and government concerning the longterm interest of the nation and the ways in which such interests can be maximized. Government does not tell business what to do. In fact, it is information by business people that normally forms the basis for whatever national policies are eventually adopted. Once a policy is adopted, it guides both government and the private sector. Such teamwork does not prevent fierce competition, lobbying, or even complaining. It does focus attention, however, on the strategic interests of the nation. Canada is not Japan, but we can surely learn from that process. In summary, then, our nation's wealth will have to come from new and complex sources, and this will require a change in our institutional structure and our international orientation. We must react to events in the Pacific; we can be part of a great future involving that area and, most of all, we can learn from its success. As a Pacific nation, as well as an Atlantic nation, the potential is there for us to secure our future.

The appreciation of the audience was expressed by Harry Seymour, Second Vice-President of The Empire Club of Canada.