Industry Committee on Jan. 29th, 2008

[Bruce Stanton, Conservative, Simcoe North, ON]

I will carry on, Mr. Chair. This is a question to Mr. Boutziouvis.

I was intrigued by your comments in terms of the shift, in terms of the quality of job, and you cited the CIBC jobs quality index, or something of that sort.

It occurred to me--and this has actually been one of the perceptions that has existed about the service economy--that in fact if there are job losses on the manufacturing side, what will replace them will be certainly something less. Your statistics seem to counter that.

I wondered if you could comment. If that is the case, then, how would you comment on the notion that as we go through this adjustment period, as Canada adapts to a more global framework--a supply chain, if you will--that in fact some of those manufacturing job adjustments might be crucial to that change? Is this in fact the lower end of that sector that perhaps needs to go away? Is that equally true on the manufacturing side, that these in fact are just important adjustments to strengthen Canada's economy?

[Sam Boutziouvis]

Given the fact that Canada has an open economy, the manufacturing sector obviously will continue to face challenges with the current economic conditions we face. My view is that the manufacturing sector is fully capable of competing internationally, both in the United States and abroad. Adjustments will be made. They are being made right now. For example, productivity improvements in the manufacturing sector have increased dramatically. And because we have a dollar at par, and other factors have been introduced that will be of benefit to the manufacturing sector going forward, capital investments will be made and adjustments will be made so that the manufacturing sector can come out stronger.

Going forward, let's say in five or ten years, will we be in the same sub-sectors of the manufacturing sector? I think there are going to be changes. We won't be in some sectors and we will be in others. We'll be stronger in others. But that just goes to the strength of the Canadian economy. Will some of the manufacturing jobs shift over to services? That has been happening for 20 years and will continue to happen.

I firmly believe in the flexibility of the Canadian economy to adjust. As long as we provide the right policies at the federal and provincial levels to allow for the effective capital investments to make the shift over the medium term, I have faith that the manufacturing sector will live on in the Canadian context and actually be stronger.

[The Chair, Conservative, James Rajotte]

Thank you, and thank you, Mr. Stanton.

We'll go to Monsieur Vincent.

[Robert Vincent, Bloc, Shefford, QC]

Thank you, Mr. Chairman. I have three questions for all our witnesses here today.

First, have you thought about what effect any recession may have on your sectors?

Furthermore, there has been negative growth in the manufacturing sector. Many people from that sector are now employed in the services sector. Now, this meant that they took a cut in salary. Is it possible that there will be a decline in the services sector? If I were earning $15 an hour and then I had to make do with $8 an hour, I don't think I'd go on any more trips.

Now, Mr. Marchi, you referred to Doha-related negotiations. Our trade balance with the rest of the world has slipped $12 billion. If we participate in other Doha-based negotiations and if we do business with other countries you referred to—Norway, Liechtenstein, Iceland and the Dominican Republic—and I'm talking about jobs in the services sector, do you think there'll be further job losses? For example, it costs less to provide telecommunication services from other countries than it does from home.

Do you think some service sector employers will be tempted to hire offshore, thereby leading to just as many job losses in this sector as in the manufacturing sector?

I'd like to hear your answers to my three questions.

[David Stewart-Patterson]

Shall I start? Okay.

With regard to the first question, particularly if our major market in the United States goes into recession, that will affect more than just the sectors--forestry, for instance--that are bearing the brunt on the front end, because it's the housing crisis in the United States that's the leading edge of economic weakness there. Obviously there are concerns globally about the pace of economic growth. Canada will be affected just like everybody else, but it's not clear yet how difficult things may get internationally.

I think your more interesting question is the question of what happens as manufacturing jobs are lost. As my colleague was saying, the manufacturing sector as a whole has been losing jobs as a share of the economy, but production has been expanding. Manufacturers have been investing in technology. They've been getting more efficient. They can produce more with fewer people.

As individual companies get into trouble and workers are laid off, are the workers finding better jobs or are they being forced to move into lower-paying jobs? I think the conventional wisdom is that it's bad to lose manufacturing jobs because people are worse off in the service sector. I think what's important to note for this committee is that there are a lot of opportunities in the service sector that are paying better than the manufacturing jobs that are being lost. That seems to be the conclusion coming out of some of the data from CIBC, for instance.

The final point I would make, though, is that jobs in all sectors are going to pay more in future. The reason is that we're moving into an economy that is short of people. As people become more scarce, small companies and large companies alike are going to find it harder to find the people they need. When anything gets scarce, the price goes up.

The issue, it seems to me, is what kinds of work are Canadians going to be qualified to do? That will determine what kinds of work we are able to do. Whether there are better jobs or worse jobs is going to depend on how well prepared Canadians are to take advantage of the opportunities that are growing as opposed to the industries that may be shrinking.

[Carol Hunter]

I'd like to add something as well. One could argue that the cooperatives will be more sheltered in a recession because we invest internally, not on the stock markets, so we're not as interconnected globally. We're very much a local investment business enterprise model. During the Asian crisis, actually, credit unions in Asia were less impacted during that implosion because they were not as large as some of the large banks and they were very much locally invested. Also, the fact that cooperatives give back so much in the way of patronage dividends provides one other modest cushion.

[The Chair, Conservative, James Rajotte]

You have about 20 seconds, Mr. Marchi.

[Sergio Marchi]

In response to the specific question, I see a great potential upside. If you look at our trade, which is obviously indispensable to the growth of our economy, and only 13% of our exports thus far are for services and 60% of those in the United States, I see a great upside for a lot of our service providers.

If you look at Manulife, for example, which is doing extremely well in China and India, as we mentioned earlier, 75% of their work, their business, is international, and yet 50% of their job creation is here, in-country. If we can duplicate or replicate that for other companies—obviously, we have to give as well as we get because balanced and fair trade is about both sides—I think Canada, given the quality and competitiveness of our services, can do very well and in the process create the job stimulation we need certainly to compensate for some of those other sectors, coupled with the right type of training. I think our future on the services export side should be a very aggressive one.

[The Chair, Conservative, James Rajotte]

Merci, Monsieur Vincent

We'll go to Mr. Van Kesteren.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Mr. Chair.

Thank you, witnesses, for appearing before us today. It's a very fascinating study we've undertaken, and it gets more interesting I think as we go along.

I want to direct a question to David Stewart-Patterson, actually, and just very quickly. In your brief, you've suggested we have some real areas of concern--and I would agree with those. However, it appears to me that what you're suggesting is that we target certain areas of the industry. Am I correct in thinking that?

I would think that in the past the Canadian experience has been more of a wild west affair: go on out there, make a go of it; if you make it, you're going to succeed.

Mr. Marchi was saying, too, that we've done well in banking, telecommunications, life insurance. There seem to be some things that we get really good at. Should we, then, as a government, encourage those through our tax policies or should we continue to make it an even playing field, which I think our government has done?

I want your comments on that.

[David Stewart-Patterson]

If I may, I hope I didn't give the impression that we would favour targeting industrial policy to particular companies or sectors. I think the most effective approach from a policy point of view is to create the right conditions to make Canada a great place in which to do business and from which to do business globally. Frankly, I think most of the things that are going to be effective on that scale are cross-cutting and not targeted at specific sectors.

That said, I think we do have to be aware of all the economic theory around cluster effects and things like that. The fact is, like-minded people like to hang around together. We know that the Silicon Valleys of the world exist, and they're effective because there are clusters of particular kinds of expertise that group together.

I'm not sure how much governments can do to try to determine where clusters are going to form or whether we should be trying to get clusters of particular things.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Do you see the difficulties we face as a government? If there is an area that is successful, then there seems to be a rallying cry that says you're giving those people all the breaks. It's not that they're getting the breaks, but because they are successful, they seem to be getting the tax breaks and all the other things because they're making money.

What do we do? Do we continue to allow those companies to make large profits, like the banking industry, for instance? They are good at what they do. Do we discourage that--not discourage it, but do we tax them heavily so that we can help other industries that are not successful?

[David Stewart-Patterson]

Well, if I may, I think one of the problems we have is that some of the companies in our service sector are prospering despite the way our tax system works rather than because of it. As I say, we actually have much better tax treatment in manufacturing than in services when it comes to encouraging or discouraging businesses from making new investments.

Again, if there's one lesson out there in terms of the way global markets are working, it's that if we want to succeed and continue growing and to have the high-end, head-office-type jobs based in Canadian communities, we have to encourage Canadian companies to make it globally, not just make it domestically. As I say, that means doing what we can to encourage them to grow from here, rather than doing anything to discourage investment in our country.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Could I have just another quick minute?

[The Chair, Conservative, James Rajotte]

Ms. George, do you have a comment?

[Shirley-Ann George, Executive Director, Canadian Services Coalition]

Very briefly, I'd add one thing. Definitely having a basic and broad-based tax policy is preferred, but I think we also need to keep in mind that we seem to make a game out of taking our winners and making them into a national punching bag. Other countries celebrate their winners. We tend not to do that in Canada. We tend to look at them as potential areas for more taxation or as somebody who's getting government handouts and all of that kind of thing, instead of looking at what we can do to create another five of these wonderful examples. That we can do without giving them tax subsidies.

[The Chair, Conservative, James Rajotte]

You have about 40 seconds.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

You didn't get a chance to finish your recommendations. I thought they were excellent. What was that last one on WTO? Maybe you could just expand on that.

[Sergio Marchi]

To the current question, I would support the level playing field at home. What we can perhaps think of sharpening our pencils on is our overseas trade and investment strategies. That is to say, perhaps there we can focus a little more like a sharp laser, to say, for example, in China, where are we competitive? What sectors should we be pushing? What kind of investment in Canada would the Chinese be interested in, and how do we connect those dots? Maybe it's a different kind of game in India. It could be a different one in Europe. I think in terms of marketing Canada and branding Canada abroad, we might, and should, need some focus and more laser-like strategies so that we can build on the synergies and competitiveness we have.

The point I failed to make in my opening remarks, which I think I answered indirectly, is that we clearly have to try to close successfully this current Doha Round. It's not just because of what's in it for us, but I think the greatest dividend for the developing countries in terms of lifting those votes is in reforming agriculture, given that it's obviously one of their prime generators of potential economic wealth. There's a huge amount riding for developing countries--as opposed to just looking at it from a national interest perspective.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Van Kesteren.

We'll go to Ms. Nash.

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

Thank you.

I want to thank Mr. Comstock for being here. I'm very proud that the first business improvement area in our city, the Bloor west business improvement area, began in my riding, under Alex Ling a number of years back. I know first-hand the tremendous work the BIAs do in the community, and I know the good work TABIA does, not only in terms of community development but also environmental assistance and just improving the neighbourhoods with thriving businesses. I want to say that it is a real attraction for people to move into our area because of the small businesses on the main streets when they do well.

There are obviously a number of challenges for small businesses. The dollar has an impact. There have been some regulatory problems. I know some of the small butchers that have been around for 50 years are facing some provincial regulatory problems, and they impact on them as though they were large operations.

I'm wondering, first of all, are there other kinds of barriers that you see today particularly impacting on small business? You mentioned the big box stores. Are there other regulatory issues you're concerned about?

Second, what are some of the things the federal government can do to promote the kinds of small businesses you represent? People have talked to me about improving transit in the city, and that's a major boon to the small operators. Are there any other regulatory or assistance issues you'd like to see from the federal government?

[Michael Comstock]

We are so much a creature of the province, and much of the control, I'm afraid, is at that level. I've seen a lot of federal programs where, when a mill town shuts down, the federal government is quite interested in providing some help. I see that happening to a lot of retailers in towns all across Ontario, and probably the rest of Canada. This change in retail occurs on the outside of a small town. The same thing happens in that village square. The stores are empty, and I just don't think they're ever going to come back.

I think we have to address...it's not that the big box is wrong. They have a new, better model that the public likes. It's that something has been left, like the unproductive mine, and people are kind of stuck with that. I think it is a sector problem. Our particular type of service sector, small retail, is really in a bind. It would be nice to have some study work done on it.

I feel bad when a business closes because I know it's so much more devastating than in a lot of other situations when jobs are gone. Here, the investment is gone as well, and a lot of the striving and ego that the person has put into it.

There is no employment insurance available. I think that contributes to poor record keeping in terms of services. A lot of businesses that close aren't recorded because there is no filing for EI, and if they are a proprietorship or a partnership, there is no closing of a corporation, so a lot of data just doesn't occur.

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

Mr. Comstock, is that something small business owners are seeking, to be able to contribute to EI and claim benefits when the bankruptcy occurs?

[Michael Comstock]

It is certainly an inequity. I think many of them would like to avail themselves of that type of program.

The other thing is the capital gains situation that occurs with the sale of a small business or the property. I'd like to see some effort to consolidate some of these. One block could have ten owners with 15 feet of store. What are you going to do with that? Some of them are on extremely good public transit areas. They need to be built up, but we don't need a store under every condo. I don't see anyone looking at the problem. I don't see the cities looking at it, or the province, at this time.

Another thing I've been told—which I am not convinced is a serious problem—is that a lot of merchants in the day-to-day ringing of the till have a lot of problems with the GST. People are always trying to barter it away. It causes slippage, we could say. The GST in other countries is often hidden within the price, and it would be a less onerous procedure if it was hidden. We've gone through a lot of changes with the GST. I don't want to see any more myself, truthfully. It's working somewhat.

I can't think of a whole lot of federal things for our situation, except to acknowledge that all across the country this old style of retail is crumbling away and it could use some attention.

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

Thank you.

Am I out of time?