Industry Committee on Nov. 22nd, 2007

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

Do you think we lose some capacity for innovation and new technology when we lose the manufacturing sector that relied on that design and innovation?

[Tom Wright]

I have no way of having a comprehensive answer to that. Certainly there is design and engineering; as we were discussing earlier, it is coming in from separate companies--

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

Let me ask you a quick question.

If we're building ships, for example, and there are innovations in shipbuilding, in new communications technology, and in new production methods, and we become specialists in that area, I think you'd agree that would be a good thing. If we stop producing ships--if we no longer manufacture them and only import them--then perhaps we lose the capacity for that innovation here domestically.

[Tom Wright]

That may well be the case, yes.

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

“May well”? Can you give an example in which that would not be the case?

[Tom Wright]

As I was saying, you still have the individuals. If you're going to use them elsewhere in the economy, if this is an expertise, and if the welding you're doing with your ship is something that is going to apply to the oil and gas industry, then it may not be lost.

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

Innovation as it pertains to that specific industry--shipbuilding, for example--would be lost because we would no longer be producing in that sector.

[Tom Wright]

I'm not sure I understand what you want me to agree to.

Certainly there are skills. The people have the skills; it's intellectual property, and somebody will own the intellectual property, and it would carry on. The individuals have their skills; the intellectual property exists, and sometimes they are transferable with ease. At other times there is difficulty, and it takes time for them to transfer.

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

Your point on slide 11 says that services provide essential support to other key sectors. If we lose a major part of our manufacturing sector, do we not lose the services that support that manufacturing?

[Tom Wright]

I don't see that as necessarily a one-to-one correlation.

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

I'm not saying it's one-to-one.

[Tom Wright]

As I said earlier, the individuals will have skills; the company--or somebody--will own the intellectual property, and that is all transferable, one way or another.

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

So you're not concerned about losing innovation in a declining manufacturing sector? You're not concerned about the loss of skill and design capability or productivity capability in the manufacturing sector?

[Tom Wright]

It's always a concern when there are changes and when people lose their jobs, but with the balance of the suite of policies, one hopes the individuals will find jobs elsewhere, and that the economy will in fact provide opportunity. The skills that the individuals have with design and engineering and the intellectual property that has been developed will continue to help other parts of the economy.

[The Chair, Conservative, James Rajotte]

Okay.

Thank you.

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

Can I ask another question?

[The Chair, Conservative, James Rajotte]

You are over your time, Ms. Nash.

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

Do you mean my time is up?

[The Chair, Conservative, James Rajotte]

Your time is up.

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

It is always too short.

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Mr. McTeague is next, please.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Thank you for being here today.

I had a number of questions. They have been skilfully asked by a number of my colleagues, so I will be left to conjecture, with the permission of the committee.

Mr. Wright, you said earlier that in the last five years, services output grew by an average of 3.2%. You associated this with a healthy economy. I'm wondering if in your mind the success we've seen in the past....

I want to talk about where we're going to go in the next few months. I think this is what the committee is most concerned about--anticipation of the strength of the services sector--particularly in light of the looming credit crisis south of the border in the U.S., which threatens to drag the U.S. into a recession. As well, there is obviously the high value of the Canadian dollar and its overall impact on the challenges you have cited here, one being, from a trade dimension, our ability to export services.

I'm wondering if the lower interest rates, the robust resources economy that we've seen of late, and the U.S. economy tend to be the three areas that can account for the success in the services sector. If that is the case, are we now looking at a very different potential set of circumstances that could rapidly have a negative impact on the growth in output and the success story of the services sector in Canada?

[Tom Wright]

That's an excellent question.

I'm not sure I would want to attribute the success strictly to a currency situation. Certainly we have lots of anecdotal evidence to suggest that we do have some comparative advantage, some fundamental capability, that others do not have and want to buy, so I don't think I'd jump immediately to that conclusion.

In terms of where we go from here, certainly margins are affected by all of that, unambiguously, but I think there's a lot more to the question of where Canada can and should go, and it has to do with the fundamentals of what we are offering in these areas. As you go through each of the sub-sectors, you can start to see some opportunities for innovation. We've worked with a number of the associations on things as anodyne as logistics, which seem boring on the one hand, but become rather critical to the operations of a lot of companies, and we find people wanting to learn and to acquire that kind of knowledge and understanding.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

On pages three and six,in the GDP composition of service sector, real estate, rental, leasing are number one by a substantial amount, representing almost one in six jobs...or one in four or five jobs. Sorry, I'm looking the other way; my math is a little backwards this morning.

Again, I don't want to make it sound like the sky's falling, because it certainly isn't. But if we see a decline in the U.S. economy, particularly as it relates to the credit crisis...the subprime, affecting Canadian companies, affecting the ability of banks to lend money, with higher interest rates or interest rates that are not reflective of the propensity for people to spend, could we see a decline in that industry?

The second one, of course, is with the high value-added trade, the high cost of our Canadian dollar, the prospect of Canadians. There are comics and editorial pictures today about people running south of the border. I am wondering if we're really at a time where this could have a very serious impact on the sector, particularly, as you state, in its two leading areas, retail trade and real estate rental and leasing. If these two chickens come home to roost in the next couple of months, by the time we conclude a study here, it may look a little different in terms of outcomes.

Perhaps you could give some guidance to this committee on some of the challenges we can impose or contemplate that might help us to anticipate these problems. Because they are coming, sure as the night.

[Tom Wright]

I'm not sure I have a silver bullet for all of that. I'll let my colleague from Finance talk about the effect of real estate and the financial institutions south of the border and here in Canada, and how that may or may not overflow here.

Within the presentation of your question is the notion that if the American economy is in fact going to suffer some rough times, is that going to back up and affect us here? I think you'll find a certain consensus that, yes, indeed we will feel an element of that. So we're going to be challenged in terms of being able to carry on and find the strengths.

I'll turn to my colleague just to get to the heart of this.