An address by Professor David Naylor President of the University of Toronto

to the Economic Club of Canada, Ottawa

Tuesday, May 7, 2013 Check against delivery

1

I am grateful to the Economic Club of Canada for the honour of inviting me to speak here today, and humbled to share the head table with a distinguished and interesting group of people. Ladies and gentlemen, good afternoon to all of you… With a famous former Ambassador speaking not only at the same time but in this very hotel, today was Taylor-versus-Naylor, a history-making hero versus a pointy-headed professor. In those circumstances, special thanks to everyone for being here. Of course, I recognize that time is your most precious non-renewable resource. I will not go much over 20 minutes. But I do hope to hold your interest with a rather un-Canadian proposal. In brief, here’s what I have to say. Almost everyone agrees that research performance is an important factor for any jurisdiction in attracting, training, and retaining the talent on which our capacity for innovation depends. I believe that, contrary to widespread assertions and assumptions, Canada is at increasing risk of losing ground on this crucial front. In Budget 2013 the federal government signalled a very welcome interest in reinforcing excellence in post-secondary research. So today, I will make the case, if I can, for a Canadian research excellence fund, as a practical, necessary and inclusive step in support of sustainable success for our society. What are other countries doing? Let’s start by looking at other nations. Take a little old place like the United Kingdom as an example. You may have noticed and wondered how its most famous universities, Oxford and Cambridge, remain solidly among the world’s top few institutions in so many league tables, and how it is that they keep winning Nobel prizes. Well, the UK has created two tranches of operating grants for universities. One tranche supports the teaching mission. It reflects student mix and numbers, and it has some variable components based on high-needs students and innovative programming. The other tranche supports the research mission and related graduate education and post-doctoral training, programs, and activities. It is based on the

2

results of peer review and also relies heavily on transparent research metrics. The following figure provides a good example.

Figure 1

For 2012-13, Oxford’s initial allocation for education was about £43.4M. Its research allocation was £131.5M, with an additional £2.9M for innovation. Neighbouring Oxford Brookes University, a smaller institution with a strong vocational focus, received a base grant of £23.7M for teaching, but only £3.5M for core research support with an innovation tranche of £1.6M. Project-specific funding from the UK equivalent of our granting councils comes in on top of these core funds. Each of those council grants is grossed up by 48 cents for the indirect or institutional costs of research, to ensure the full costs are covered. In fact, to avoid perverse incentives, the government even pays the institutional costs on top of major foundation grants, such as those from the Wellcome Trust.

3

And by the way, there is also a constant flow of special competitions. To cite one that’s afoot right now, through the £300M Research Partnership Investment Fund, launched a short time ago, a single initiative at Oxford has already won £20M. Small wonder then, that the UK’s great, publicly-supported research universities have sustained their place in the world, with more of the Russell Group of institutions joining Oxbridge atop the league tables. What about a big emerging nation like China? In 2011, the government allocated $11.4-billion towards achieving world-class status for 100 of the country’s more than 3,000 universities. This is part of a strategy that began in 1995 to raise the research standards of China’s strongest contenders. At the pinnacle is the C9 group of universities, which are now receiving per-faculty research funding that, with adjustment for purchasing power parity, has reached U.S. Ivy-League levels. Tsinghua, Beida and Fudan are not household University names in this part of the world. I assure you, they will be in the years to come. Why are they doing it? I could cite other examples. From up-and-comers such as Brazil, India, and Singapore, to advanced economies such as Australia, France, Germany, and Japan, governments all around the world are rethinking the mechanisms through which they fund universities, and ensuring that research performance is recognized and supported. Here’s one dramatic consequence. U of T enjoys a strong and growing relationship with the University of São Paulo or USP, the rising giant of South America. The following two figures show publication productivity.

4

Figure 2 Figure 3

I’m pleased to say that Toronto is holding onto its spot at number two in the world, after Harvard. But watch out for our friends in São Paulo. You can see where USP was in 2007 [Figure 2]. In the following figure, you can see where it was in 2011 [Figure 3]. Just as we’ve seen the rapid movement of this great Brazilian university up the ranks, we will see similar developments around the world. The bottom line is that our peers and competitors are investing selectively in a limited number of universities that can carry the flag in the global arena of advanced research and post-graduate education. They are doing it by running open merit-based competitions to spur individuals and teams; by fostering institutional differentiation using a variety of policy instruments; and by avoiding perverse incentives and mission drift across universities and colleges. Why are they doing this? I think these countries realize that efficiency and social equity are both served best by a diversified mix of universities and colleges – not a one-size-fits-all approach. And most pertinent to my argument today, these countries recognize that strong research-intensive universities are integral to attracting and developing talent, and in the process, fostering innovation, prosperity, and long-term social success.

5

What is Canada doing? What, then, is Canada doing? In terms of the international examples I just mentioned, the answer is: Some of the above; and not enough. I want to make it clear that we have made real progress. Federally, we’ve moved forward in research and innovation under both Liberal and Conservative governments. And a variety of provincial governments have also stepped up in encouraging ways. Under the federal Liberals, we saw the creation of the Canada Foundation for Innovation, the Canada Research Chairs program, Genome Canada and the Canadian Institutes for Health Research, and expanded funding for all three granting councils. Under the current Conservative federal government, we’ve seen capital funding to universities through the Knowledge Infrastructure Program and, in the latest Budget, from the Building Canada fund; continued support for the Canada Foundation for Innovation and Genome Canada; along with the Vanier graduate scholarships and the Banting post-doctoral fellowships. It’s all good. It’s just that good isn’t good enough at this point in global history and global competition. Why are we lagging? I’ve asked myself why Canada lacks a plan that mirrors the initiatives underway in so many other countries. Some of it is constitutional gridlock – but then again, China, the US, and Australia all have complex federal structures. Some of it is institutional politics, or more accurately, the politics of envy, for all the obvious reasons. But I also worry that we’ve nurtured complacency through what I might call half-truths. And in research funding, we have also institutionalized some truly perverse arrangements. Here’s a half-truth. We hear a lot about how Canada leads the G7 in spending on higher education research and development (so-called HERD spending). I don’t doubt the sincerity of this claim. But it is misleading. It doesn’t take into account the fact that, compared to other jurisdictions, an outsized portion of that spending is subsidized by universities themselves. Those subsidies are drawn from many revenue sources. The two biggest ones are inevitably provincial funds tied to the educational mission and students’ tuition fees. In many jurisdictions, government

6

research-related funding is designed exactly to prevent those types of inequitable cross-subsidies. Not here. With the best of intentions, we rub them in our hair. As to perverse incentives, about 25 universities at minimum in Canada are fighting an uphill battle to cover the indirect or, institutional costs of federal research grants. Put simply, someone has to pay to provide researchers with adequate space and with the wide variety of support services they need. Unfortunately, compared to many other countries, federal support for these costs remains low. And, believe it or not, it’s calculated at a rate inversely proportional to the amount of research an institution does. As I’ve said before1, it’s Orwell without the irony. You can see it here in all-too graphic terms.

Figure 4

1 “Thin and Thinner: Reflections on Research and Higher Education in Canada” http://www.president.utoronto.ca/speeches/thin-and-thinner

7

We’ve used total sponsored research on the Y-axis, but it would look exactly the same if we were to use federal tri-council funding. This graph simply provides a sense of scale. At UBC and U of T, the federal government contributes approximately 17 cents on the research dollar – about one-third of the audited costs of research, with two-thirds coming from students and our operating budgets. Not shown here are the very small universities that get an automatic 80 cents on the dollar – turning federal research into a profit-centre, while the strongest research performers lose their shirts. This is a formula used nowhere else on the planet. A Liberal government adopted it based on advice from the AUCC, after smaller universities threatened to scupper the entire program unless they received special treatment. Now, however, many mid-sized universities are ensnared by this unfortunate formula – and punished for their growing success in research. That reality, I think, at least opens the door to a broader consensus on a new approach. By the way, most Canadian provinces already pay 40 cents on the dollar for their research grants to make sure that the indirect costs aren’t pulled out of the undergraduate classroom. Indeed, in Ontario, it was the Conservatives, led by Ministers like Jim Flaherty, Tony Clement and John Baird, who introduced that exact policy. This government accordingly knows there is a problem with the status quo. Now, at this point, you may say: “Wait a minute. What’s wrong with the status quo? The big Canadian research universities are doing fine on the world stage. So what if students and provinces are subsidizing federal grants? It’s just a form of matching program. Who cares if we don’t have the same policy levers as other nations?” Well, ladies and gentlemen, it’s true that Canada’s most research-intensive universities are reasonably strong. And there’s quite a concentration of firepower in a host of fields. In that regard, here’s what we might call the Canadian heat-map for a variety of fields. [Figure 5]

8

Figure 5 In each field we start with the 500 most influential publications of the last decade, limited to those papers with at least one Canadian co-author. The 10 institutions with the strongest concentrations are shown here. You can see some specialization among them. The data speak for themselves, and the colours tell the story. But there’s a problem. This is the CRTC heat-map: Canadian content is mandatory; each paper represented here had to have a Canadian co-author. Now here instead is the global heat-map for the same disciplines. [Figure 6]

9

Figure 6

CanCon is optional here, and occurs based on open competition. Notice the map is suddenly mostly blue; and notice how much cooler all the Canadian universities become, including Toronto (which at least has some heat left over). For benchmarks, we’ve added either Harvard or MIT for the disciplines where they are most prominent. As this heat-map indicates, much of the international success on which we congratulate ourselves is another half-truth. We have some Fords in the race. But we need at least a few Ferraris. I know; this is Canada – and it’s Ottawa. Everyone drives a nice sensible car with snow tires, or maybe an SUV. But let’s think about the risks and consequences of the status quo. What are the consequences and long-term risks? We can track the rapid rise of institutions like the University of São Paulo…Or the increasing strength of the great Chinese universities in the C9…Or the reawakening of German universities under the new excellence funding program created by the federal government there, precisely to compete with the United

10

States and to secure Germany’s position as China rises. And we can also see that it’s getting harder for Canadian universities to stay on the ice, let alone to ascend the podium. In March, the Times Higher Education group released their rankings of university reputations. This was based on a survey of thousands of professors around the globe. Toronto managed to hold steady in 16th place world-wide for now. McGill and UBC – two outstanding Canadian universities, slipped from 25th to 31st. This is a worrisome trend. [Figure 7]

Figure 7

Phil Baty is the editor of the Times Higher Education rankings. He has been watching universities world-wide for many years. He said the decline is a direct result of Canada’s “highly egalitarian approach”. He said Canada is refusing to focus its resources on a select number of top research universities strategically, to ensure they can truly compete.

11

The Montreal Gazette paraphrased his final warning as follows: “The risk… is that Canada could end up with many mid-ranked institutions, but lack the big flagship institutions that drive investment, research and development, and the economy.” These are un-Canadian sentiments, but they are also sobering. And in case you think this is a one-off result, another major global ranking is due out very shortly, reporting on reputation by discipline. My belief is that it will add strongly to these concerns. For that matter, if you want something really sobering, have a look at this figure: [Figure 8]

Figure 8

Canada and California have the same population. Ironically, a handful of the California Nobel laureates were born and educated in Canada. But we haven’t had a homegrown Nobel laureate in Canada since the late great Michael Smith of UBC won 20 years ago. As I said, we’re not really in the game anymore, even though we think we are.

12

What can be done? Now, I have tested your patience, and I can hear the decision-makers in the audience saying with just a trace of bemusement; “What would you have us do, Professor?” Here’s the gist. Let’s accept that we have a problem with the Indirect Costs Program. That funding formula – that very unusual one, designed in a stereotypical Canadian manner – was supposed to be a temporary compromise, and yet, a dozen years later, in a manner of speaking, it haunts us still. It’s politically impossible to take funds away from those small happy campers with their very high reimbursement rates. It’s also not great retail politics to top up everyone else. For instance, what does one say on a doorstep in Woodstock, Ontario or Woodstock, New Brunswick? “Mrs Smith, did you know that each winter, our Government ensures that all Canadian universities and colleges are fully reimbursed for the costs of heating their research laboratories?” This is not a recipe for electoral success! At some point, when there is a federal government with a fat surplus, a new funding floor will be built into the program, altering the current architecture so that it makes more sense. But I would argue that we can’t wait around. The trends are clear. The right thing to do – which has the great virtue of being both simpler and more inclusive – is to focus immediately and directly on rewarding excellence. How might this work? The Advantage Canada Research Excellence Fund For now the U15 group of universities has called this the Advantage Canada Research Excellence Fund – but call it whatever you want. Funding would rest on four cornerstones. [Figure 9] The first has to be measurable excellence. The faculty unions and our friends at CAUT keep saying that we need to emphasize independent researcher-initiated research. I agree. Let’s award funding to institutions on the basis of investigators’ success in the most rigorous open research competitions – competitions adjudicated by peer-review committees at the federal granting councils. It’s a

13

straightforward metric. It ensures that funding is allocated on the basis of research excellence alone. And it also clearly distinguishes the new excellence fund from the wider-angle counting rules for the old institutional costs program.

Figure 9

Second cornerstone: Participation should be based on performance. No entitlements. Some might argue for thresholds – with some institutions coming in and some institutions going out, depending on how they do. It is certainly true that the smaller institutions already get special treatment from the thresholds and inverse funding formula of the old program. Well, two wrongs don’t make a right. And there’s a simple solution in any case to the problem created by the perverse incentives of the old fund. Why not tally the funding from the new excellence fund and the old indirect costs program, and cap the pay-out at 80 cents on the federal operating dollar? That way we would avoid nonsensical overpayments. The happy result would be that a large number of institutions – not just the usual suspects – would then be eligible for some support. And suddenly we have all boats rising – a very Canadian outcome.

14

Third cornerstone: Phase-in. The long-term target to make a really serious difference is $300M to $400M in base funding. I understand that money is tight right now; and we’re talking about a significant amount. But what a positive signal it would be if the next federal budget saw some new funding that supported this year’s welcome expression of concern about reinforcing research excellence. The fourth and final cornerstone is institution-specific accountability. The Government of Canada could negotiate a simple but meaningful agreement with each institutional participant, setting out key performance indicators that would help ensure a strategic return on this new investment. As long as those indicators focused on research activities, including the work of research-stream graduate students and trainees, there should be no constitutional reasons holding Ottawa back from that course of action – which would also have welcome implications for a national research strategy. What would this make possible for Canada? Ladies and gentlemen, I will close with a question, an example, and a quotation. The question is simple: What would this new initiative make possible for Canada? I think it would give a meaningful number of universities a sense of a national mandate. It would lift spirits across the Canadian advanced research sector. It would put more Canadian researchers in the global game with a better chance of winning. And it would allow our strongest research-intensive universities to make their full contribution to the culture of excellence and innovation – a contribution that we need, if future generations are to prosper in this nation. Now, enough of that highfalutin talk: let’s get to hockey, and a seriously Canadian example of what can be done. In 1982, after years of lacklustre international performances – including unbelievably a 17-1 drubbing at the hands of the Swedes – the Canadian Amateur Hockey Association, as it was then, created a ‘Program of Excellence’. Instead of sending Memorial Cup winners or rotating teams from major junior hockey, Canada established a national junior hockey program that was unapologetically focused on excellence. The goal was to develop and support all-star teams of the best junior hockey players. The result, as you can see in Figure 10: Gold medals in half of the tournaments played since then, with some amazing runs. Investing in excellence pays off.

15

Figure 10

Finally, a quotation. Not long after this government was first elected, it announced a plan called Advantage Canada. It was said to be a comprehensive economic framework to “make Canada a world leader for today and future generations”. And under the category, “Knowledge Advantage”, there was a policy commitment: “[to ensure] that excellence is the primary criterion for government research support”. I certainly applaud those sentiments, and would simply note that this afternoon’s proposal is entirely consistent with them. Thank you, ladies and gentlemen, for your kind attention.