Finance Committee on May 20th, 2021

[Jim Balsillie]

It does not in the slightest. It misses the foundational piece—that you need frameworks created by experts and managed by experts to make sure that you turn your dollar into 10 dollars, not 10 cents. Many of the past initiatives, such as the FDI agency or bringing Google to run Toronto, or partnering and supporting Huawei in Alberta or Facebook in Montreal, create negative returns for our economy.

Absent the marketplace frameworks and absent the expertise, we're just going to repeat past mistakes.

The great concern I have about this budget is that it does not address those problems in any form of specificity. It just helicopters money, or proposes to, but it also takes an extreme number of new measures—a former deputy clerk counted for me, I think, 270—which just massively outstrip the capacity of the government. It would be like my asking a solo homebuilder to build five homes for me in a week. Perhaps they can build one—which, in this case, we can't—but certainly not five.

No, then, it doesn't.

[Ed Fast, Conservative, Abbotsford, BC]

Beyond just the growth in the size of the budget and the growth in the size of government and the growth in the size of spending, would you consider this a true growth budget, one that will serve Canadians?

[Jim Balsillie]

No, I don't see growth strategies in it. I don't see a strategy. I don't see focus. I don't see it focusing on generating intellectual, intangible stock assets, such as IP, for the benefit of Canada. I don't see data strategies that can handle this for the data economy. I don't see research strategies that will accrue benefits to Canada. We still haven't done the frameworks for these things. I don't see the right tax measures. I don't see the right investment measures.

I'm all for redistribution and I'm all for progressiveness, and I'm all for investment, but I'm not for waste. Redistribution is fine, but we still need growth strategies. I do not see growth strategies, no.

[Ed Fast, Conservative, Abbotsford, BC]

Can you expand a little bit on your concerns about Canada's foreign direct investment strategy and policies?

[Jim Balsillie]

All leading countries in the world dramatically revisited their FDI strategies a long time ago. Whether it is Germany, Australia, the U.S., other parts of southeast Asia, the U.K., the EU or Israel, they understand what's called the economic spillovers. We have an orthodoxy that all investment is good, but in fact certain forms of foreign direct investment for the intangibles economy are designed to exfiltrate, or have negative spillovers.

The rest of the world was smiling when Canada opened up its economy and said, “Come and have at our best IP, our best small companies, our best researchers”. They couldn't believe it. No other country in the world does it the way we do. It's like putting our family jewels on a table in the front yard and saying, “Please, help yourself.” That was our prosperity strategy.

[Ed Fast, Conservative, Abbotsford, BC]

Do you have any other growth strategies you feel the budget should have addressed and didn't?

[Jim Balsillie]

The most important issue is capacity. Canada embraced extreme neo-liberalism about 30 years ago just as the rest of the world was being much more hands-on. It was like a pilot where the skies got foggy and a mountain range was imminent, but we had the strategy of taking instruments off our planes while other countries updated their instruments.

Our number one job is to build the capacity of our civil service to actually craft these programs, to challenge bad ideas. I'm deeply concerned. We saw things like superclusters done with no IP or data strategy, and now there's just more money. We created an FDI agency with no analytical framework. We have no IP strategies for the billions in research funding. We do these research funds where we fund foreign financial companies and vaccine companies and so on, but it doesn't go to Canada getting the good jobs and getting the wealth effects. These are economic and non-economic, and it's called dual use.

We put ourselves in a hole through a strange orthodoxy that no one else in the rest of the world did over the past 30 years, and the first rule of holes is to stop digging.

[The Chair, Liberal, Wayne Easter]

Okay, we are going to have to end it there. I'm sorry, Ed.

[Ed Fast, Conservative, Abbotsford, BC]

Thank you.

[The Chair, Liberal, Wayne Easter]

We're a little over, but it was an interesting discussion.

We have Ms. Koutrakis, followed by Mr. Ste-Marie.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you, Mr. Chair.

Thank you to all the witnesses for appearing before the finance committee this afternoon.

My first question is to Mr. Balsillie.

My own riding of Vimy, which is the centre of the city of Laval in Quebec, Laval being the third-largest city in Quebec, is home to a vibrant and one of the largest clusters of biotech communities in Canada. This is why I was so excited to see the budget's proposed investments in the biomanufacturing and health-tech sectors through the strategic innovation fund. I know you touched upon it a little bit, but I'm just wondering how impactful, in your opinion, is the proposed $1 billion in funding for the life sciences and biomanufacturing sector. I know we can always do better, but how do you believe this funding can be used to grow our domestic manufacturing capacity in this sector?

[Jim Balsillie]

The issue is that, if you don't own the ideas, you don't get the rents. The great mistake of our approach to economic development is that we assumed firms are homogeneous whether you're a high IP-owning firm, domestic or international, whether you're a ring-fenced, high-cap pre-existing firm, or whether you're a low-wage firm with low barriers to entry. Therefore, absent the marketplace frameworks, which are very technical and very contended, the probability that we will suboptimize those investments to 50%, 60%, 70%, 80%, 90% is very high because the game is fought to accrue the economic benefits through the marketplace frameworks of IP and data and competition—and I could go into detail. If we don't do that, we're not creating the engine to get the benefits and that's been our failed orthodoxy over the last 30 years.

Every country in the world doubled, tripled or quadrupled down on those and we went hands off. It doesn't matter whether we spend it in biotech or quantum, or any clean tech, or whether we spend a billion or $100 million or $10 billion. The issue is that we don't have the capacity to get our appropriate returns on our investments.

I'm all for investments. I'm just not for investments into an improperly structured circumstance.

[Annie Koutrakis, Liberal, Vimy, QC]

Your organization also commented on the government's investment in workforce development and retraining for transitioning workers. I'm wondering, from your perspective, what sectors or professions should training and re-skilling programs focus on in order to maximize productivity and prepare for the economy of the future.

[Jim Balsillie]

We've talked about productivity for decades, but we haven't done anything about it. The problem with our labour-skilling strategies is that I'm all for upskilling but then our economic development strategies.... I could give you numerous examples of taxpayer funds saying, come to Canada because our people are cheap, and then what happens is the best people say, I'm getting out of here because I'm not going to be sold as cheap labour. Then what happens is, in the best sectors where there's negative unemployment, these companies come and poach our best people just at critical times when companies are growing, and this is done without consultation with the tech leaders. I can happily give you 20 of the top tech CEOs in Ottawa who just met with the provinces on this, and they do all kinds of programs without talking to them.

I've never met a country in the world, except Canada, where we do major policies without talking to our economic innovators when it comes to innovation.

To answer the question, it's nuanced. It's interrelated to FDI strategies and so on, and you have to talk to the companies because that's how you find out what they need.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you, Mr. Balsillie.

Ms. Tiessen, thank you for being here.

In response to the federal budget, Mr. Dias stated, “The only proven way to lead Canada out of the COVID-19 recession is through investments, and it's clear that Minister Freeland understands that reality.”

How would you respond to criticism that the federal government is spending too much to support Canada's economic recovery from the pandemic? In your opinion, could we have afforded not to make these investments at this point in time?

[Kaylie Tiessen, National Representative, Unifor]

That's a big question. How many seconds do I have?

[The Chair, Liberal, Wayne Easter]

Go ahead and answer it, Ms. Tiessen.

[Kaylie Tiessen]

Okay.

To the second part of your question, could we have afforded not to, the answer is, no, we could not have afforded not to. Supporting people, supporting employment, supporting businesses to get through this crisis, one that we haven't faced in 100 years or potentially ever, would not have happened in a way that has been—I hesitate to use this word—as smooth.... It would have been a lot more rocky, if we had not put these investments in place, if you can imagine that.

We've seen research prior to the pandemic, and again going through the pandemic, from large multinational economic development organizations saying the time is right now to invest in public services, to invest in the care economy, to invest in our people and to make sure that no one is falling through the cracks. Equality and equity are incredibly important, if we want to move toward an even stronger economy than the one we had before.

That's where we are, and that's why we're pushing for our “build back better” plan and are supporting investments for the future.

[The Chair, Liberal, Wayne Easter]

Thank you, both. You kept it pretty well on the wire.

We will now go to Mr. Ste–Marie, followed by Mr. Julian.

Gabriel, you have six minutes.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Good afternoon, everyone.

My questions are for Mr. Littler, from the Retail Council of Canada.

Mr. Littler, thank you for your presentation.

I would like to talk to you about the fees charged to retailers when consumers pay for their purchases with a credit card. As you said, people are paying more and more by card, and that has increased during the pandemic.

Currently, what is the average percentage of fees charged to the retailer when a consumer pays for their purchases with a credit card?

[Karl Littler]

Currently, the average is 1.4%, down from 1.5%. That is system-wide, but of course it doesn't speak to the individual card in the individual setting. Some of those cards, including the newly introduced Mastercard MUSE, can range up closer to 2.5%, but on a system-wide basis it is 1.5% off the top.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

So the percentage is 1.5%, but it can be as high as 2.5% in some cases, which eats into a significant portion of the profit margin.

I think that large retailers like Walmart are able to negotiate lower rates than smaller retailers can. Is that indeed the case?

[Karl Littler]

I can't speak to Walmart's specific rates, but in the past that has been particularly true. In fact, there used to be tranches such that if you were of a certain size, you definitively got a lower rate. The networks—under some pressure from government, I might add—have actually narrowed the gap, but I think that in general, if you were of size, you might still, depending on the magnitude, be able to get slightly better rates. This has been to some degree attenuated over the last number of years.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Okay, thank you.

You told us that Canada was really lagging behind legislatively in this area.

You've already named a few countries. Can you name any countries where the percentage of fees charged to retailers is lower? What is that percentage, compared to the 1.5% to 2.5% you just mentioned?

[Karl Littler]

The easiest one for me to point to is the European Union. In the European Union, there's a hard cap of 30 basis points on any credit card. Not only is that a fifth of the average rate in Canada or thereabouts, but that's a cap, so you would anticipate that it's lower than one-fifth of the rate.

It has been 50 basis points in Australia. I haven't checked the recent numbers in Switzerland and Israel, which are obviously both outside the EU, but they were below 100 basis points, or below 1%, so it's very common.

I think there's a tendency for people to look to the U.S. example, which is ground zero, as it were, for this and the last hill to die on for the credit card networks, and I don't think that's a good comparison. I'm not sure we would always look to U.S. regulation of financial players as necessarily the paragon.

It is certainly on a very broad basis around the world—mixed economies, more command economies. Parties of left and right have gotten involved in this, because they've seen the competitive problem that was created. It has involved competition authorities and central banks. It's not just a politically driven file in a multitude of countries around the world.