Finance Committee on Feb. 15th, 2017

[Michael Sabia]

Yes, but—

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Could we afford it?

[Michael Sabia]

Yes, but in principle, our goal isn't to recommend a way to solve the issue of inclusion within the Canadian workforce. Our goal is simply to raise the issue, identify the four groups for which we think we could do something and help the members of each of those groups. This would increase growth in Canada.

What's the best way to answer these questions? We've decided to leave the ball in the government's court because the government is much more capable than the committee, of which I'm a member, with regard to this type of issue.

We've made the decision to raise the issue and to ask the government to take this important issue of participation rates into consideration because it's a significant way to increase inclusion and economic growth.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Let's spend some time on another subject, namely, the increase in the labour market participation of seniors. You proposed that the age of eligibility for old age security be raised, or rather, you proposed that the government study this possibility.

However, I didn't see any facts or figures in the report indicating that the old age security program isn't sustainable. You said the program isn't sustainable in the long term, although I don't see any facts or data on the subject. The previous government also didn't have very reliable data, but still said the program wasn't sustainable.

Do you have figures that show the program isn't sustainable?

[Michael Sabia]

No, but I'll go back to the comment I just made. Participation is an important issue. Our goal is simply to emphasize the importance of this issue. We haven't had time yet to address this issue as thoroughly as other issues, such as innovation or the strategic sectors.

I'm sorry for repeating myself, but we're asking the government to take this issue into consideration because it's essential. We haven't conducted all the necessary research, and I'm not able to respond directly to your question because we still have work to do in this area.

[The Chair, Liberal, Wayne Easter]

Thank you both.

Ms. O'Connell.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you, Mr. Chair.

Thank you both for being here. I have a number of questions, mainly focused around innovation, because it seems to be very woven throughout this.

The report describes innovation as the “secret sauce”. I'm quoting it directly. “Innovation” is a word that's thrown out a lot. We recognize it, but what does it mean? What are the things we focus on? I recognize that throughout the report you have those pillars and those recommendations, but for the average Canadian, if they are saying innovation is really where this country needs to go, we need to be much better.

You provide a lot of statistics, especially in comparison to the U.S. How would you properly describe innovation, or what would be the best way for Canadians and firms to start looking at how they innovate compared to what they might be doing now? I don't know if there is a simple way to describe that.

[Dr. Ilse Treurnicht]

Yes, there's recognition by the council—and, I think, by many of us who touch this field—that the word is so widely used now that it's in danger of losing its meaning. This would really be unfortunate given how critical it is, not only to driving productivity but also in a time of accelerating technological change, globalization, and these huge demographic shifts. Innovation is the one tool we have in our tool box to stay ahead on the economic growth front.

I always think about innovation in its simplest form. It is not something that happens only in labs, where people wear white coats and do work related to technology. In fact, innovation is a mindset and an approach to improve the way we do things. It touches every sector. It touches all aspects of our lives. Out of that quest for progress, which is really at the heart of the innovation process, new industries are born and new partnerships are forged. Particularly as we think about the complexity of the challenges we deal with today, whether it's providing health care to an aging population or climate change, we also need to form new public-private sector coalitions of problem-solvers to work together.

Those are a complex set of threads. I think what we have tried to do in our recommendations is to deal with a couple of the fundamental pillars. Risk-taking capital is essential to fund the process where new ideas and new technologies become validated; those ideas convert into products and services that can then enter the marketplace and make a difference in society. You need skills that can deal with that fast-changing environment.

Moreover, we also suggested the creation and a galvanizing of public and private sector actors in the form of these innovation marketplaces. Some of that reflects the challenge of our large geography and lack of density, but it's also a recognition that we haven't had the connectivity you see in societies like Germany, and in some parts of the United States, like California, between established businesses, young emerging businesses, top-notch researchers, and students coming into the funnel.

The idea of these marketplaces is to really bring together all the actors in that innovation system around real business problems, and to provide the connective tissue and then some of the capital and talent inflows to help us tackle those problems. As a result, our established businesses can become more innovative themselves, but will also become better receptors for the ideas coming out of younger companies. On the flip side, our younger companies can find customers closer to home and use those connections and validations as a springboard into international markets.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you.

Following up on that, this leads into my next question. It might be the chicken or the egg conundrum, in that you talk about investment and say that Canadian firms “would benefit from bigger injections of expansion capital”, but then there's also the issue of finding experienced talent. For more than half of technology company founders, the biggest obstacle to growth is finding and hiring experienced business talent. If we just create these funds and inject more capital, when the people and the talent aren't there to know what to do with it, how do you grow? In having those more local customers and how to expand and get out of the niche that you talk about, or what's comfortable to them, what do we do first? How do we encourage that talent, or do we just inject capital and then they don't know what to do with it? Have you given much thought to that?

[Michael Sabia]

Yes, quite a bit. This is a very important point. As Ilse knows so well, in Canada, honestly, we don't have a problem starting businesses. I think the World Economic Forum, or somebody, rates Canada as the second-easiest place in the world to create new businesses.

Canada's problem is scaling businesses. We have too many really small businesses that don't scale, and the world today is about scale. One of the things we thought a lot about and did a lot of work on is, how do you scale businesses? That requires a few things, and you've touched on them. First, It requires not just capital, but patient capital. Second, it requires talent, and specific kinds of talent, particularly managerial and organizational talent. Third, and this is related to the second requirement, is what we would call at la Caisse in Quebec, accompagnement. I think in English that's mentorship. But people don't put enough emphasis on the last of those requirements.

In all the work we do as an investor, for instance in small and medium-sized Quebec businesses, that is always a component of what we do. We always work to connect those small businesses to a network of experienced entrepreneurs, people who have run businesses, because the biggest challenge that an entrepreneur of any age faces is learning how to scale a business. In the recommendations that we made with respect to setting up these two funds of patient capital, one of the elements that's constant and is really important is not to fund a business unless the business can demonstrate to you that it has access to this network of advisers and mentors, so it can facilitate its growth and, therefore, scale.

That issue of making accompagnement or mentorship an indispensable ingredient in one of the funds of government financing of these companies is extremely important. It won't work if you just throw capital at it.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you both very much.

We're turning to Mr. Albas for a five-minute round.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you, Mr. Chair.

Thank you to our witnesses for the work you're doing for our country.

I'd like to pick up where MP O'Connell left off. One of the things that you talked about is that governments should choose some key sectors to support. In picking those key sectors, is there a risk that government will choose sectors based more on political considerations, rather than economics? If so, how can that be prevented?

[Michael Sabia]

I have a couple of points to make here. It's very important to separate things and to clarify. Sometimes I wonder if we got it clear enough in the documents we wrote. I say that because there's this old 1970s, 1980s outmoded thinking around industrial policy and stuff like that. I think there's probably pretty much a consensus that it doesn't work very well if governments try to pick winners, individual firms, and to back them.

What we're suggesting is quite different—and this is broadly true of all the recommendations we're making—is that the role of government is not as a choice maker but a convenor, a catalyst, and sometimes an investor, but the notion is to draw on the expertise and the capabilities that exist in a lot of different organizations, whether in universities, companies, or civil society. A tremendous amount of expertise exists in the various dimensions of Canadian society. We're proposing a notion of government that draws this together, pools the best, and mobilizes it to address national issues.

On the issue about sectors, we're saying this has to be done on a collaborative basis, with a set of pretty clear criteria, which we've enumerated: things like the potential of a sector to have a significant impact on GDP growth, its capacity to create durable jobs, and what the global demand situation looks like for that sector's products and services. There needs to be some objectivity in the criteria that are used to address the concern you just raised.

Once a sector—we picked agrifood as an illustration, but it's just an illustration.... The notion is to convene a group of people from that sector and bring them together to address the issues facing that sector. Yes, maybe government has something to do with improving the way the sector is regulated or removing obstacles to growth or whatever, but the thought leadership of that work rests in the sector itself and government's role is just catalyzing that conversation.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

You've also talked about strategic procurement. Would this approach hurt Canadian taxpayers by not prioritizing the importance of cost-effective procurement?

[Dr. Ilse Treurnicht]

No, absolutely not. This is not a new concept, and we're hoping that we can finally move to action on this. I think the notion is that we would begin to think about using a very small percentage of our procurement budgets, which at the federal level are around $18 billion a year—across the country at all levels of government and public agencies, it's $100 billion a year—to think about how to bring Canadian innovations into the public systems, and to use that more strategic procurement approach to begin to retool the system. We would think not just about low cost but about value and begin to focus on challenges that need to be solved, rather than being prescriptive that the procurement needs to meet these five specs. We would say that we want this kind of problem solved and then allow the innovative community to come together to propose solutions, which may not be anticipated by a system that's focused purely on the lowest cost.

I think, as we are looking at bringing in entirely new disruptive innovations into the health care system, for example, you simply cannot evaluate their impact on the system, including their benefits to patients, and their benefits to costs in the system, by simply trying to be prescriptive. The benefit is multifold. It allows us to create opportunities for our innovators and young companies to begin to use our public systems, which are typically the buyers in regulated industries, to be a first validator and tester of those opportunities. It also allows us to begin to bring those innovations into our system and make our systems more productive and innovative.

[The Chair, Liberal, Wayne Easter]

Thank you.

Mr. Robert-Falcon Ouellette.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Thank you very much, Chair.

I have a few questions. I'd like to go back to the question about scaling and how you scale. You talk about patient capital, the use of talent, specific managerial skills, and mentorship. Perhaps the issue is how you get those good managers, and where do they come from, and can you learn that in a few years in a post-secondary training course? I was in the army for many years; I've dealt with budgets and some days I still find it difficult to manage my MP budget appropriately. These aren't things they train you to do in schools.

Is our education system adequate to meet the demands of what you're asking for, to see these increases in productivity, by increasing scaling in the long term?

[Michael Sabia]

Honestly, I'm not going to present myself as someone who's competent to judge whether or not our educational system is up to scratch. I do think Canada has the benefit of having some world-class universities that are very important to the work that Ilse does and are very important nodes in an innovation ecosystem.

I'm going to leave education to one side, because where you really get at this question of mentorship and access to managerial talent.... In the work we do in my day job, we learned about finding people—and there are tons of them—who have lived these experiences. The kind of people whom we try to match a younger entrepreneur with—an entrepreneur of any kind—are people who've been through it. They're people who've started businesses, succeeded in running businesses, or people who've worked in larger enterprises and know about the kind of managerial systems that are required to help a company grow and to govern the growth of a company.

Our approach to this is more focused on the practical education that people have because they have spent a career doing it, or they're in the process of doing it. Our focus is less on the educational system per se and more on using this enormous wealth of capability and talent that exists, that's walking around on the streets. It's more on mobilizing that to help people who want to start and scale businesses to show them how to do it and work with them as partners and as advisers. That's more the notion.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

My fear then is that if we don't have enough businesses that are scaled, there are very few people who've been very successful at it and we have a lot of people who have experience with failure. Failure is very good, as well; we always need failure in order to learn. However, one of the things I learned in the military is that no true great leaders are ever born. You can train to be a leader or a manager, and you receive that continuous training throughout your time in the military.

Are we not doing something perhaps in our post-secondary training? For instance, we often see students who do a sociology degree—I'm an anthropologist, I love anthropology, but I wouldn't profess to know how to run the Caisse de dépôt or to be able to do what is necessary to manage the Canada pension plan. I understand civilizations and societies and how they function, but maybe my skills, if I combined them with something else...? Maybe we're not using our post-secondary training. We have good elite schools—McGill, Toronto and a few others—but maybe the other ones have too many people doing too many things, which isn't going to lead to the long-term success we need in our economy.

Maybe you'd like to talk about that for a bit.

[Dr. Ilse Treurnicht]

I would say there is a growing recognition, and appetite, frankly, among students to get more exposure to startup ecosystems. You see campuses across the country, universities and colleges, now offering these kinds of immersive education programs and exposure. Frankly, to go to Michael's point, it is a bit of an apprenticeship to learn how to run a business. Joining a high-performing startup team is a fantastic learning experience, because you have to do everything from that perspective.

There are some very specific gaps that we see, and it's partly a maturing of the ecosystem. As you have more companies that are scaling, you have more of this talent recirculating. You see innovators who have built companies elsewhere returning to Canada and looking to join and support an emerging cohort of young companies.

If I take the example of life sciences and biotechnology, where we have extraordinary research expertise and talent coming out of our post-secondary educational institutions. We invest very heavily. It's highly specialized science, but we're still relatively immature in terms of scaling businesses. So what you see with some of those high-performing teams is that they have to bring managerial talent from elsewhere to join a team that may be here, which then helps to train some of that younger talent to do it next time. It is an ecosystem that we need to mature and, in some cases, where there are specific gaps, we need to fill them in real time—which has come out of our recommendations.

[Michael Sabia]

I don't want to take your time, but I just have to make one comment.

[The Chair, Liberal, Wayne Easter]

Okay. Give a quick answer.

[Michael Sabia]

There was a recent McKinsey survey of a whole bunch of global CEOs.

This is an advertisement for a liberal education.

When the CEOs of big global companies were asked, “What is the educational background that you wish you had more of in your company and that you wish you had personally had more exposure to?”, the answer was, “I wish we had more philosophy majors.”

A liberal education and broad-mindedness and a capacity to think is really what this is about.

[The Chair, Liberal, Wayne Easter]

Thank you.

Mr. Liepert.