Evidence of meeting #4 for Industry, Science and Technology in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was dollar.

On the agenda

MPs speaking

Also speaking

David Dodge  Governor, Bank of Canada
Paul Jenkins  Senior Deputy Governor, Bank of Canada

11:30 a.m.

Governor, Bank of Canada

David Dodge

After a fairly difficult period in the 70s and 80s, we've learned that it is important to have an economy that is as flexible as possible. It is important for all governments, both provincial and federal, and for all regulatory boards to promote flexibility and labour mobility so that workers can hold different positions and to ensure that there are infrastructures fostering this flexibility. It is by no means simple, but the key is to have this level of flexibility because one can never foresee everything which may occur in the future.

11:35 a.m.

Bloc

Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

What tools should the government...

11:35 a.m.

Conservative

The Chair Conservative James Rajotte

Mr. Crête, this will be your last question.

11:35 a.m.

Bloc

Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

What tools should a government provide to enhance the economy's flexibility? Right now, we have a train going full steam ahead in the energy sector, while other people have trouble keeping up. This morning's bicycle example was very relevant. What tools would you like to see the government use more of to increase flexibility?

11:35 a.m.

Governor, Bank of Canada

David Dodge

That is a very tough question.

11:35 a.m.

Bloc

Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

I know you are capable of answering tough questions.

11:35 a.m.

Governor, Bank of Canada

David Dodge

I will begin with three points. First, we must not prevent the economy from adapting. It is extremely important to avoid preventing adjustments.

Second, there have been problems for a long time with the availability of skilled labour and the mobility of skilled labour between sectors and between Canada's provinces and regions. This is also extremely important because ultimately the key to our success will be our labour's ability to add value to what we are producing.

Third, our financial markets must be efficient in order to foster investment in key sectors, including public infrastructure.

11:35 a.m.

Bloc

Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

To be able to tell the forestry sector...

11:35 a.m.

Conservative

The Chair Conservative James Rajotte

Mr. Crête.

11:35 a.m.

Bloc

Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

...that you'll stop?

11:35 a.m.

Conservative

The Chair Conservative James Rajotte

You're over nine minutes, Monsieur Crête.

11:35 a.m.

Bloc

Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

Nine?

Time goes by quickly with you.

11:35 a.m.

Conservative

The Chair Conservative James Rajotte

I have Mr. Carrie, and then I have Mr. Masse, but I assume that's Mr. Martin after Mr. Carrie.

Mr. Carrie.

11:35 a.m.

Conservative

Colin Carrie Conservative Oshawa, ON

I'd like to ask one quick question, and then I know Mr. Van Kesteren would like to ask a question as well.

11:35 a.m.

Conservative

The Chair Conservative James Rajotte

No. We're not going to split questions any more, Mr. Carrie.

11:35 a.m.

Conservative

Colin Carrie Conservative Oshawa, ON

We're not going to do that? All right.

Thank you very much, Mr. Dodge, for coming here today. As the member of Parliament for Oshawa, I'd like to present an example of what the bigger manufacturers are facing now. There's been an unprecedented increase in the Canadian dollar, 30% over the last couple of years. We export cars, and most of that goes to the United States, and along with the higher costs of energy...it just seems that everything's happening so fast.

So here is my question. Is there anything specific that the Bank of Canada can do to slow that rise of the Canadian dollar? I know you can't do everything, but is there something you might be able to do to mitigate those enormous factors that are causing the difficulty for our manufacturing sector?

11:35 a.m.

Governor, Bank of Canada

David Dodge

Well, as I said before, we have only one tool and that is the setting of the overnight interest rate, and we've been doing that in such a way as to keep Canadian rates right across the curve. It's very important that it's not just the overnight rate, but it's right out to 10 years and even to 30 years.

We've kept reducing our rates relative to the United States over this very difficult period of adjustment, and we really started in 2004 to be very careful in that regard, but that is the only tool we have to operate with.

11:35 a.m.

Conservative

Colin Carrie Conservative Oshawa, ON

Do you think it's realistic for Canadian manufacturers to be able to compete and to become more productive? It just seems like the perfect storm for Canadian manufacturers. It troubles me. I realize we can't stop progress, but if there's something else you might be able to suggest by changing policy, that we might be able to help things out or slow down the bumps.... Do you have any ideas?

11:40 a.m.

Governor, Bank of Canada

David Dodge

Let me say one word and then I'll turn to Paul to talk about....

We have folks out there in the field who are talking to manufacturers and producers all the time.

Let me make what I think is a very important point. Compared to our rigidity and lack of adjustment in the seventies and eighties, as we faced rather similar problems with big changes in relative prices, compared to that, this economy has matured enormously. Canadian producers and Canadian workers today are making adjustments we would have thought absolutely impossible 20 years ago. They are more flexible. They are more energetic. They are making the adjustments, and compared to other countries in the world, we're making adjustments very rapidly, however difficult it is.

So I don't think we should have the impression that somehow everybody just can't do it. I continue to be enormously impressed with the flexibility of Canadian firms and Canadian workers to deal with the situation. We're talking to folks all the time.

Paul, why don't you say a couple of words?

11:40 a.m.

Senior Deputy Governor, Bank of Canada

Paul Jenkins

Yes, very quickly. This is a document that's included in what we've handed out. Our regional offices go out and talk to companies on a regular basis in terms of not only how they see the outlook, but also how they're adapting to the sorts of global pressures you've identified.

Certainly, one area that stands out is a response in terms of increasing their investment in machinery and equipment to increase productivity and regain some of that competitiveness you're talking about, in response to the appreciation of the Canadian dollar.

There are many other factors as well. Increasingly, firms and manufacturers are looking at using financial hedging as an instrument to provide some offset to exchange rate movements.

As well, you're also seeing companies beginning to look to other markets. I think this is an important point: exchange rates don't move in isolation with what is going on in the world. As we noted in response to an earlier question, the global economy has been expanding at an extraordinarily rapid rate over the last four years--quite unprecedented--and that rate of growth is expected to continue. Markets are expanding very rapidly, so what we're also seeing from the manufacturing base in Canada is looking to these markets as a future source for sales.

So it's a very complex and difficult set of issues, as you've identified, for the firms and workers in these areas. We are seeing these individuals, these firms, responding to these global developments.

11:40 a.m.

Conservative

The Chair Conservative James Rajotte

Thank you, Mr. Carrie.

We have Mr. Martin for six minutes.

11:40 a.m.

NDP

Tony Martin NDP Sault Ste. Marie, ON

Thank you very much.

I wanted to ask you a question or two about the resource-based economy, which my neck of the woods, northern Ontario, and the north in general, is immersed in. It's experiencing some real challenges at the moment. I think they're trying as best they can to adjust. I know that in terms of the labour market, a number of the unions up our way have actually taken a reduction in wages in order to help the company adapt. There's a paper mill in the Soo where the union agreed to a 20% reduction until the company could get back on its feet.

I've met with a couple of the leaders in the steel industry and they talk about energy prices and the impact this has had, and I heard you mention that, but they also talk about the dollar. Given that they both import, in some instances, raw materials to produce what they make, and at the same time have to sell back into the United States, the dollar is having a pretty negative effect on their ability to be successful. One of the gentlemen suggested that an 80¢ dollar would be ideal. We've seen it go up and down. Is there anything we could do to situate ourselves more competitively on that front?

11:45 a.m.

Governor, Bank of Canada

David Dodge

No. That's the short answer: no. The dollar is going to move around, and indeed it's sending signals as it moves around. The volatility is hard to deal with, but it is sending signals that are generally appropriate. As we look at what's been going on, the movement in the dollar largely, though not entirely, has reflected changes in demand for Canadian products.

You mentioned the forestry industry, and they face three sets of problems. One, you've got all the new production from the tropical softwood coming on, so the amount of global capacity to produce pulp and paper has been growing quite rapidly, and those trees grow very fast. So there are real pressures, just as in the consumer goods sector there are real competitive pressures coming from places like Brazil and Indonesia, and so on, on the product.

Second, as you pointed out, the mills tend to be in communities where there are not a lot of other things going on, so when a mill closes down there are few, if any, opportunities for the workers in that community, although there may be tremendous opportunities elsewhere. So there's a huge adjustment problem that is not faced, for example, in a place like Oshawa, where people can get on the 401, clogged as it is, and go 30 or 40 kilometres for another job. The adjustment in northern communities is a much more difficult problem, and we clearly recognize that.

Finally, it is also true that generally speaking our mills tend to be old. We have not made as much investment through the seventies and eighties as we really should have, and now there's a huge challenge to try to get up to date. So it is an enormous challenge, because it is--somebody used the words--a perfect storm.

11:45 a.m.

NDP

Tony Martin NDP Sault Ste. Marie, ON

I wanted to follow up on the whole issue of productivity. I mentioned that in our area workers are giving up.... We've had two restructurings of Algoma Steel, and in each of those instances the workers and the community gave up significantly in order to save that industry.

The studies we see coming out now are talking about people working more for less. There's now a growing class of working poor in the country. What impact is that going to have on the productivity of our industries and the willingness of our people to come to work and work as hard as they possibly can if they're consistently getting less wages and actually falling below the poverty line in many instances? It's actually in the thousands. There's a study that came out of Toronto this week that indicates that the growing number of the working poor is becoming a huge issue.

11:45 a.m.

Governor, Bank of Canada

David Dodge

I'm not the most competent person to comment on that.

In aggregate, of course, what we are finally experiencing is an increase in real wages of workers. It's been a long time coming. We went through an extraordinarily difficult adjustment period in the 1990s, but we are now seeing real wage increases, which is good. We have actually been a bit surprised that we haven't had real wages increase a little more from 2003-04 onwards.

I'm not very competent, I'm sorry, to talk about the issue.