Finance Committee on Feb. 15th, 2017

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

I will first of all thank you both for being here today.

I just want to make a couple of comments and observations and try to tie a number of things together and get your response.

I know this has nothing to do with you folks, but when I take a look at the council makeup, I'm a little disappointed that it's heavily weighted against the west. There are two members east of the eastern time zone on the council. That's not your issue, but I think it may feed into a couple of the other comments I want to make.

One of the government's consistent talking points is that the environment and the economy go hand in hand, yet in neither report nor in the discussion today have I heard you mention the importance of the environment, if we're going to have economic growth, or what role the environmental movement is playing or will play in economic growth.

Then I also see a complete absence of anything relating to the industry that has driven our Canadian economy for the past 20 years, and that's the natural resources industry, in which probably there has been more innovation in the last 20 years than in perhaps any other industry in the world.

The final comment I would make is that one of the greatest deterrents to foreign investment is tax structure. You haven't mentioned taxes, and I think we have a looming situation in our country such that we may be in an uncompetitive situation, if the United States decides to take some serious measures on taxation.

I'd just like some general comments on how all of those things tie together with the work that you're doing.

[Dr. Ilse Treurnicht]

I might offer a quick comment on the energy and environment. You will notice that among our sectors we specifically mentioned energy and renewables—both oil and gas as well as renewables—as one of the sectors that should be prioritized, for all of those reasons you mentioned.

To speak to Michael's earlier point, we also had a call-out box to say that we recognize, particularly for the clean tech industry, which is a fast-growing, new emerging industry, that it has specific capital needs and so on, and that some of our fund structures haven't specifically tackled the unique features of the clean tech industry.

But there has been a lot of discussion around the table on exactly this point, and I fully anticipate, as we go into our next round, that we will revisit the oil and gas sector and the natural resources sector.

Certainly in agriculture a lot of attention was paid to the forestry examples, which we could see as real opportunities for Canada globally.

In terms of taxes, there has been also a lot of discussion, as you would anticipate, in the last two to three months of the council's work on how the changing dynamics might impact some of our recommendations. We recognize that Canada has a relatively attractive tax environment today but will need to revisit its position should the U.S. make some substantial moves in that direction.

But I think there is also recognition around the table that tax is only one element of what drives inclusive growth. We certainly want to make sure that it's considered, but it's part of a package that we need to always keep in mind as we think about a more holistic strategy to drive inclusive growth.

Michael?

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Go ahead, Mr. Sabia.

[Michael Sabia]

No, I'm signed up with Ilse. I'm good.

[The Chair, Liberal, Wayne Easter]

Okay.

Mr. Liepert.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

I'm happy to hear that this is in the works, especially for the natural resources sector.

You mentioned renewables. My concern is whether your agenda will be driven by economics or by politics. Will you be making recommendations and having discussions based on the knowledge that we have a government in office that is environmentally driven rather than economically driven?

[Michael Sabia]

I'm not 100% sure how to answer that question. I'll just say that you can see in what we've done so far that the focus of what we're trying to do is on providing a menu of ideas about things that we think are pretty directly connected to economic growth.

Now, in fairness to your question, as for what the government chooses to do with those recommendations, they are going to have to take a decision as to whether they're interested in some of the things we have to say or are not. I would say that I thought the government's reaction so far to the first round of recommendations that we made was reasonably quick and that they're getting on with the job of doing some of the things they need to do.

From our perspective, when we meet as a group our focus is on what we can do to generate economic growth and what ideas we have to do so.

As to the overall complexion of the government, you should probably ask other people about that rather than us.

[The Chair, Liberal, Wayne Easter]

Thank you both, and they probably will.

[Some hon. members]

Oh, oh!

[The Chair, Liberal, Wayne Easter]

Mr. Grewal.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Mr. Chair, and thank you to the witnesses for coming today.

You spoke about the increase in immigration targets in your first report and you mentioned it again in your most recent report. I have a unique story.

I'm the son of immigrants. My parents came here in the late seventies or early eighties. They worked really hard, and lo and behold, I got a chance to go to some of the best schools in the country. Something really interesting happened when I became a member of Parliament. I heard people of my parents' generation, who are now well settled in Canada, start to complain that new immigrants were taking their children's jobs.

The irony was not lost upon me. I'm sure that somebody was complaining that my parents were taking their jobs .

You have said that immigration is good for economic growth. Can you expand upon that a little in layman's terms, so that the average, everyday Canadian could probably understand the idea?

[Michael Sabia]

Do you want me to start?

[Dr. Ilse Treurnicht]

Sure.

[Michael Sabia]

As I said before—and I'll try to break this down—economic growth is just a combination of two things: how big your labour force is and how productive labour is. It's just about labour force and productivity. Put those two things together and you get economic growth.

Taking that down a level, the bigger your labour force is and the more people you have—the bigger your domestic market—the more demand there is for products and services. That creates growth opportunities for businesses. They hire people. That creates more jobs. More jobs create a virtuous circle of more consumption, more investment, more jobs. That's how it works.

But in the idea people perceive, and it's around a lot—you can certainly see it in the current circumstances politically in the United States, and you can certainly see it in western Europe, and I'm sure that to some degree it's true here in Canada—that if someone comes in, a job is being taken from someone, what they don't see is that the person coming in creates a demand for things, which contributes to a positive cycle of growth. It creates opportunities.

That's a view that we very strongly hold in this council.

The other part of this that's really important from an immigration point of view—and this is a statement of the painfully obvious—is that the world is just filled with smart people, and the more of them we have in Canada, the better off we are, particularly in a future in which competition is going to be about knowledge and less and less about physical force and more and more about intellectual force.

I spend a lot of time in India. We do a lot of business there. I spend a lot of time in China. These countries are just filled with talented people, literally filled with talented people. And they're not just there: there are many other countries around the world in which the same thing is true.

Our view, therefore, is that if Canada can get its share or more than its share of top talent that comes from other countries, that's going to contribute to the kind of work that Ilse does. It's going to contribute to innovation, it's going to create more managerial talent, it's going to help companies scale, it's going to help create new ideas, create new businesses.

It's an old phrase that was coined a long time ago: we're in a war for talent. Immigration is a source of talent, and the more of it we have—and the more disproportionate the share we have as Canadians—the better off our economy is going to be. It's going to create opportunities for everybody.

[Dr. Ilse Treurnicht]

To add to that, sometimes there's a perception that there's nothing wrong with our just keeping our population relatively static and happy and unthreatened. I think that view, however, loses the really important nuance of our dependency ratio as our current population ages. In fact, we have a shrinking labour force as a result of it. Bringing in new talent.... You see it from the latest round of Statistics Canada data that just came out: immigration is more important than ever.

I think there is also considerable interesting data, not just in Canada but elsewhere in the world, that immigrants tend to bring a higher degree of entrepreneurial energy into the economy. You see the participation of immigrants in leading and building these new businesses. Speaking to Michael's earlier point, they're not taking jobs away; they're actually job engines. That's another really important part.

Something that we see from a MaRS perspective, which I'm so excited about, is that the diversity of our entrepreneurial talent pool gives us connectivity to markets elsewhere. In particular, as we see more and more newcomers to Canada building businesses for the Chinese market, for the Indian market, for the African market—not just for the U.S., which has been our traditional default—this activity gives us the sort of trading network that's built on immigrants who have relationships in those markets.

There are lots of benefits beyond just the simple math.

[Michael Sabia]

If you want to see the dark side of getting immigration wrong, look at Japan and the last 20 years of Japan's economic performance. Look no further; there's a living lab in front of us.

[The Chair, Liberal, Wayne Easter]

Thank you, all three.

Mr. Dusseault, you have three minutes.

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

Thank you, Mr. Chair.

I want to go back to a subject raised earlier, namely, the procurement policy.

Ms. Treurnicht, you spoke about a needs-based or value-based procurement system. You recommend a value-based system. However, have you looked at the possibility that it would be restrictive, given our trade agreements, to have procurement policies that are too strict or “Canada-centric”, if I may use this expression? If our procurement policies are too strict and if they shut out goods from other countries too much, couldn't they be challenged by our trading partners?

[Dr. Ilse Treurnicht]

Absolutely. That is a really important consideration.

Again I want to emphasize that we are talking about taking a very small percentage of the overall procurement budgets and using that small percentage to create channels for Canadian products to be tested and validated inside our public sector systems.

The recommendations that are made in our reports are also very much based on models that have been adopted elsewhere. In particular, the SBIR program in the United States is widely regarded as a global best practice standard. It uses similar percentages, taking its departments and agencies that have significant R and D budgets and allocating something in the range of 3% to 4% to those more open-ended procurement methodologies, for the system itself to learn and to create those validation approaches.

We have to stay on side with trade rules, but I think it's a well-trodden path. In fact, the SBIR program in the U.S. has been adopted and adapted in Australia and in the U.K. as well. We don't have to reinvent the wheel; this is a set of methodologies that we can adapt to Canada with relative ease.

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

I've already heard this idea. Given that their products are purchased by the government, emerging companies can obtain a sort of approval. I think it's a way for them to have a seal of quality.

Are you analyzing the option with this in mind as well? Is it to allow small emerging companies to have access to government contracts, and, by extension, to have credibility?

[Dr. Ilse Treurnicht]

Absolutely. The SBIR program in the United States is highly competitive. It is not seen as a handout at all. It has very structured rules in terms of what stage the product is to be assessed. You progress to the next stage if you generate evidence that shows performance and efficacy. When you get to the third, highly competitive stage, you then get the government as a first customer. That becomes a very important validation, particularly if it's a data-driven and high-performing system and is not seen as some kind of soft test bed.

This notion of inclusive growth also allows governments to think about ways to create opportunities for certain disadvantaged groups. You see in the United States as well that some of these procurement channels would be open to indigenous businesses, for example. So this can be used for other social purposes as well.

The thing that is really important for us, and we see it in the health care space—and here I can talk from my own experience—which I know is a more provincial jurisdiction, is that the Ontario health care system, a very large public system, procures, if you think about it, almost no medical devices originating in Canada or Ontario. It's that mindset of thinking of our health system as, like our energy system, a service taking care of sick people rather than as part of our economic engine.... This is one of those switches we can flip to begin to unlock the capacity of using our system.

If a young innovator in the health care space can't sell into the Ontario system, they go to the U.S. market or the European market, and the first question they get is, “What does Ontario think of your gadget?” If the answer is, “I can't find anybody to talk to at the Ontario health system”, that's incredibly unhelpful for getting those companies to scale.

[The Chair, Liberal, Wayne Easter]

Thank you.

Mr. Fergus.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you, Mr. Chair.

Ms. Treurnicht and Mr. Sabia, thank you for your presentations and for your contribution to the committee. You're well-known within your profession. We're pleased to have this opportunity to meet with you and benefit from your advice.

Before I entered politics, I worked in post-secondary education. In your second report, you said that, in research and development, there's a lack of collaboration among universities, the private sector and the federal government. I agree.

The report also noted that, since the early 1990s, the private sector has reduced its learning, development and training investments for employees by 20%. Also, employers say that students aren't well trained.

Do you know of a model or country where the private sector, universities and the government work well together?

[Dr. Ilse Treurnicht]

There are models that I would say we can take pieces from and look at. Certainly, the Fraunhofer models in Germany are very well regarded models of collaboration between industry and the public sector as well as post-secondary education. As you know, they have a much stronger apprenticeship system in the middle that provides some of the glue.

Singapore is a model, but it's a neat and tidy economy. You see very structured models of collaboration between those two groups.

In our case there are a number of reasons that there is a continuing challenge to bridge the gap and broker the partnerships. Our established firms spend less on R and D, so they are not as strong receptors for the breakthrough research and ideas that emerge from our academic sector. The academic sector is not necessarily resourced to build the bridges to those other markets. Then, we have a lack of risk capital to fund the collaborations.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Patient risk capital.