Industry Committee on Dec. 13th, 2007

[Robert Vincent, Bloc, Shefford, QC]

It's not necessary to get training.

[The Chair, Conservative, James Rajotte]

We'll go to Monsieur Arthur, please.

[André Arthur, Independent, Portneuf—Jacques-Cartier, QC]

Monsieur Hodgson, when Canadian companies ship goods that have been manufactured in Canada, their product is judged by its quality and by its price and by the relation between the two. So maybe they sell, maybe they don't. But when a Canadian company tries to sell services, it's less tangible. Most of the time, initially, this company will be judged on its reputation or on the reputation of Canada.

If we are still at 13% in exports of these services, do we have a problem with our reputation in the world?

[Glen Hodgson]

That's a very interesting perspective. I would say that price and quality still matter when you look at service exports. That matters as much as it would for exports of goods or agriculture products. But you're right, at the end of the day, services are a people-to-people business. It really is a personal thing, having confidence in your chiropractor, your barber, your lawyer, or the person who's doing your books in India, because you can now outsource bookkeeping and translation services to India. So reputation does matter.

I'm not sure that Canada has lost its reputation in the world. I suspect that we haven't actually had a fair fight yet, because we've held so many of our potential service exporters back by not allowing them to get truly competitive, to get out there in the world to compete on a fair basis.

That's why I use the example of education services in Australia. The Australians came up with a plan. They decided they wanted to be a world leader. They wanted to win market share away from other countries. So they came up with an integrated plan in terms of curriculum, quality of teaching, and having the Australian brand in another country.

We don't have such a plan. You can go service sector by service sector, and it's very hard to see a Canadian brand for services. It's not that we have a bad reputation: we don't have a reputation. We're really kind of unknown in many service sectors. I would have a hard time, for example, telling you what the Canadian brand was with respect to management services or with respect to business processing.

[André Arthur, Independent, Portneuf—Jacques-Cartier, QC]

We've met a lot of people from the manufacturing sector, be they owners of companies or leaders of unions, who come here and sit at this table and tell us how much manufacturing is the real thing, how much manufacturing builds real money, real wealth. Looking at services, it's something like the bad cousin in the family--we still invite him for Christmas, but not for the real personal holidays. How do you view this kind of upstairs-downstairs view of the Canadian economy?

[Glen Hodgson]

I think that's a bit of a cartoon, frankly. I was with Export Development Canada for ten years as the deputy chief economist there before joining the Conference Board. A lot of the analysis we did was showing the inseparability of goods and services. I'll take a really prominent example. If you sell a regional jet, made by a prominent manufacturer, and you sell it to a buyer in Brazil, you're not just selling the jet. You're selling maintenance agreements. You're selling a refit if they decide to retool the airplane. You'll even help them take it back and then sell it to somebody else at the end of the lease if they want. So services are now an integral part of all our manufacturing sales.

We also rely very heavily, by the way, on imports for the things that we manufacture in Canada. About 40% of the average manufactured product in Canada is imported, so it is a bit of a cartoon. I don't see how in the modern world today you separate services from goods. Services are a stand-alone product in and of themselves, but they're hugely embedded in the manufacturing process, whether it's management services, or legal services in getting the documents written up, or the accountant who adds up the numbers at the end of the day. Those are really integral pieces, and you can't separate them.

[André Arthur, Independent, Portneuf—Jacques-Cartier, QC]

Should the Government of Canada be busy conceiving national standards in areas where we should be exporting, be it services or something else? Or should the Government of Canada try to arbitrate or be in the middle of all those provinces that have standards that are destined to stop the trade between them and their neighbour? Should the Government of Canada be very active in writing those standards, giving national standards, and letting others decide if they compare or not to the national standards that the Government of Canada should have promoted?

[Glen Hodgson]

That's a very crucial question around the process, and that's not really my area of competence, but I think it's very clear that if we had national standards in particular areas, that would give us a much better chance of being a global player when it comes to services. How much pressure the federal government wants to put on provinces or whether you want to be a facilitator, pointing to good practice, for example.... I would rather take a positive route and try to find areas in which progress is being made and push those along. But the fundamental point you're making is that having a Canadian standard could potentially allow us to create a Canadian brand that we could then sell to the world.

[André Arthur, Independent, Portneuf—Jacques-Cartier, QC]

Thank you, sir.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Ms. Nash, please.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Many of the service sector folks we've had here have talked about a labour shortage. Mr. Hodgson, what do you think Canada should be doing about the labour shortage? I know it's particularly acute in the west. What's your vision of what we should be doing?

[Glen Hodgson]

I have the joy of writing stuff all the time, and we actually covered this in a publication a year ago called Mission Possible: Stellar Canadian Performance in the Global Economy in which we talked about demographics and the emerging labour shortage. It's clear that in some provinces it's already arrived. I call it the labour crunch, because ultimately there will not be a shortage. Wages will rise, and we just won't do certain things, so you'll just shed certain functions.

We're actually doing a study right now on Quebec, identifying the demographic forces in Quebec.

We will also publish it in French in order to have the greatest possible visibility in Quebec.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Yes, that's preferable.

[Glen Hodgson]

If you have a challenge because of the demographics, first of all you need to rethink your immigration policy and ensure that the immigrants get their credentials recognized before they arrive in Canada, get help with settlement into communities, speak one or both official languages well enough to be able to work in an employment setting. So there are a lot of things to do around immigration.

We have to find ways to give positive incentives to older workers to stay longer. Mr. McCulloch made an interesting remark earlier about management consultants being very mature workers, because that's when your experience is the greatest. Right now we often incent people to leave the labour force really by giving them access to pensions. I don't want to take that away, but I do think we have to think very hard about creating positive incentives for people to stay longer. Why shouldn't older workers pay a lower rate of income tax, for example, if they're willing to stay in the workforce longer? That is actually the easiest pool of talent to access, our mature workers who are here right now, who know what Canadian standards are, who know Canadian practice, and who maybe don't want to go to the golf course four times a week.

We also looked at our education system and the fact that from our perspective we have underspent on education across the board, both at the firm level and within the public education system. We have to find a way to stop letting health care, frankly, crowd out education and infrastructure spending at the provincial level, because that's what's happened in the last few years.

[Peggy Nash, NDP, Parkdale—High Park, ON]

I'm really sorry to interrupt you, but we get such a short period of time for the questions and the answers.

I'd like to go back to the immigration piece. We've had a few people talk about the temporary foreign worker program and wanting to expand that program. I want to share with you some concerns I have about that program, because there does not appear to be adequate training for foreign workers and monitoring. The Economist, as I'm sure you know, wrote an article last month about some of the abuses in the program, people being paid quite low wages and their health and safety being put at risk.

Certainly we don't want to have an immigration policy that really ghettoizes certain people. Obviously that's not what we're about as a country. When you talk about immigration, I obviously share your concern about the lack of recognition of foreign credentials. I come from Toronto, where we have the best-educated taxi force in the world. It is a colossal waste of skills and resources at a time when Canada desperately needs them.

Do you have any specific recommendations either about the recognition of foreign credentials or about the foreign worker program, so that we're not, to solve the short-term problem, letting ourselves go down a pathway we may not want to go down?

[Glen Hodgson]

I think you're absolutely right that relying on temporary workers and that program is a second best. The right thing to do is actually re-examine the entirety of our immigration system, how three levels of government fit together, and why we don't recognize credentials, and far before people arrive in Canada, let them know whether they will be recognized as chiropractors—

[Peggy Nash, NDP, Parkdale—High Park, ON]

Do you know, offhand, whether they recognize the credentials before people actually get to Australia?

[Glen Hodgson]

I don't know that. I do know that we did a report about five years ago, in fact, calling for the formation of a national agency to recognize credentials offshore, which was announced and then withdrawn. That takes us, frankly, back to the issue of having 10 jurisdictions with 10 different standards.

It's very hard to go to someone who wants to immigrate to Canada and say, “Well, you meet the New Brunswick standard, but you don't meet the Ontario standard, so you can only go and live in....” Frankly, that's not the way to build a railway.

So the right thing to do, in fact, would be to develop a capacity to recognize credentials, understand what international standards are as well, and do it before people arrive.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you.

With respect to the temporary foreign worker program, do you have any thoughts on that? A bill that I put forward is about strengthening our family reunification program, where you have people who may not qualify under the point system but are adult brothers or sisters, or adult children, and who could certainly be active in the workforce but are short of the skilled levels that would get them the points necessary to get in today. We know that when people come from family reunification programs they have a greater likelihood of success.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Nash.

Just a brief response, please.

[Glen Hodgson]

The reason we've seen a growth from 20,000 to 150,000 a year in temporary workers is because employers feel the need for particular skill sets. But that really is a poor reflection, I would argue, on how we're managing our immigration system right now.

[The Chair, Conservative, James Rajotte]

Okay. Thank you.

Mr. Brison, please.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you.

Mr. Hodgson, you mentioned that you're working on some tax reform proposals now. You also mentioned that you believe it's more rational economically, from a competitiveness perspective, to build a tax base on the consumption side as opposed to taxing either personal or business revenue or earnings.

I'd appreciate more advice from you in terms of the kind of tax reform we ought to be undergoing in Canada. We haven't had real tax reform since 1971, with the Carter commission. Except for the advent of the GST, there hasn't really been significant tax reform.

Other countries—Ireland, Australia, New Zealand, Scandinavian countries, Sweden, and the Netherlands—have undergone massive tax reform to make their countries more attractive to capital and talent, both of which are more mobile today than they've ever been globally.

So I'd appreciate your further insight on the kind of tax reform we should be looking at, with one other consideration, which is how we should be greening our tax system. There's a global consensus among the business community that whether or not you agree with the science of climate change, whether or not you support Kyoto and its framework, there's going to be a price put on carbon by individual countries through carbon taxes and potentially imposed on other countries through carbon tariffs on imports.

So it's going to be broadly based, it's going to be felt, and it's broadly felt that if you're not environmentally ahead of the curve, you're going to be left behind economically once there is a price put on carbon.

I want your input on tax reform, but also on whether or not we ought to be greening our tax system by moving pre-emptively on putting a price on carbon.

[Glen Hodgson]

Our research is still a work in progress, but I can speak specifically to two areas and then talk more broadly. The two specific things where we have more or less coalesced....

The way the Conference Board works is that we have quality researchers in-house, but we also turn to the leading experts across the country as readers. We have reached a view around revenues for cities, for example, which is seldom mentioned on Parliament Hill, but cities are the missing partner in the Constitution.

We think the time has come to give Canadian cities access to some form of growth tax, but that's going to have to change from province to province. You'll see our further thinking around that, as well as things like uploading various services back to the provincial or even federal level, all of which was done during the 1990s as we dealt with the fiscal problem at both the federal and provincial levels. That's one element.

Secondly, I agree with your point that we have to find a way to put a price on carbon. The challenge for the next 40 to 50 years is going to be building what economists call negative externalities, putting a price on the negative things that happen as we're creating wealth. We've forgotten to put a price on the bads.

There are only two choices for doing that. You can do that either by setting limits, capping and then allowing firms to trade the permits among themselves to set the price for carbon that way, or through a carbon tax or green tax or a combination. In fact, part of the research challenge, as I read the literature, is finding the best way to do that.

I hope early in the new year we will have some thoughts on how you can link cap-and-trade, particularly for the major emitters, and green taxes across the board. Then of course, there'll be the political challenge of convincing the Canadian public that's going to be a good thing in the long term.

I talked earlier about sales tax harmonization. I think we'll have some thoughts around that and ultimately linking the economic research on productivity to the fundamental tax base, which is the balance between income taxes and consumption taxes, and throwing in corporate income tax as well.

[Scott Brison, Liberal, Kings—Hants, NS]

We have undergone significant growth in Canada as a result of our natural resources and particularly energy exports. There's a fear that when a price is put on carbon and carbon tariffs by countries like the United States, it could make our energy less competitive.

Would you agree that being ahead of the curve and building competitiveness pre-emptively in a carbon constrained economy would make good business sense? That's one thing.

Secondly, do you believe a Dutch disease impact is going on right now as a result of our growth in natural resource exports?