Industry Committee on May 6th, 2010

[The Chair, Conservative, Michael Chong]

Thank you, Professor Hejazi.

Thank you, Mr. Braid.

Monsieur Bouchard.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chair.

Welcome to both of you.

I feel that we can describe you as being in favour of opening Canada to the outside and wanting more foreign telecommunications companies to set up shop in Canada. I see that you are also in favour of less regulation.

There is a lot of talk about Canadian culture, but, in the Bloc Québécois, we want a CRTC for Quebec. That, of course, is in order to protect our French-speaking Quebec culture. Canada wants to protect its culture as well. Of course, there are major economic factors. You can produce columns of figures and so on, but the broader concerns, including social and cultural aspects, seem to me to be just as important.

Do you believe that your philosophy and your policies in favour of deregulation and of encouraging much greater openness to foreign companies could have adverse effects on the protection of Quebec and Canadian culture?

[The Chair, Conservative, Michael Chong]

Go ahead, Professor Hejazi.

[Prof. Walid Hejazi]

I don't see it as an either/or. I don't see allowing for foreign entry into this sector as necessarily resulting in the demise of Canadian culture. I haven't studied the Canadian cultural industry in depth, and I couldn't say we should eliminate the regulations around that. But one thing I will say is there is a general principle in economics, which is essentially that if you want to fix a problem, you fix it as directly as possible. It seems to me that by making Canada as competitive and as innovative as possible, it will result in an increase in prosperity, an increase in GDP, and an increase in tax revenue.

I would argue that the increases in tax revenue that would result from policies that drive innovation and competitiveness will allow the government to address the issue of Canadian culture directly. Regulating this entire sector and impacting every company that operates in Canada, because they need to use this sector, is an indirect way of getting that culture, and in my opinion it's far too costly. In creating optimal policy, you look at the objective and you look at the alternative ways to achieve that objective. In my opinion, I believe in achieving the objective of Canadian content and Canadian culture. I believe the government should not take its eye off that goal, but I also believe that restricting foreign entry is probably one of the most costly ways to achieve that objective.

Thank you.

[Prof. Randall Morck]

Can I answer as well?

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Yes, go ahead.

[Prof. Randall Morck]

I may not have made myself clear. I'm not against regulation. I want regulation to be sensible. I think good government is not government that has no regulation; it's government that chooses its regulation carefully and considers the effects and the costs of that regulation. So if at any time I've given anybody the impression that I'm against the government imposing regulations where they're needed, I want to correct that.

Also, as I said, I'm a big fan of Canadian culture and the cultures of distinct societies, such as Quebec and Alberta.

[Carole Lavallée, Bloc, Saint-Bruno—Saint-Hubert, QC]

The nation.

[Prof. Randall Morck]

Yes, absolutely, Alberta.

Oh, you meant Quebec.

[Carole Lavallée, Bloc, Saint-Bruno—Saint-Hubert, QC]

Quebec is a nation. We were recognized.

[Prof. Randall Morck]

There's an economist named Anne Krueger. I lost money on her because I bet that Anne Krueger would become the first female to win the Nobel prize, and she wasn't; somebody else won it last year. But I think she'll be the second. She came up with a very easy way of thinking about when regulation is doing what it's supposed to and when it isn't. Basically, you think of a company that has a million dollars. It could invest it in R and D, or innovation, or doing something creative, or the company could take the same million dollars and invest it in lobbying politicians, or lobbying civil servants, or contorting itself so that it qualifies for subsidies. All those things are expensive, and a company can do either one or the other, and it will do whichever is more profitable. If we set up a system of regulations so that lobbying for favourable regulations or twisting and contorting oneself to qualify for tax breaks or subsidies is more profitable than investing in innovation, then our companies are going to twist and contort and lobby. They're not going to innovate.

I think what government needs to do is say, okay, we want to protect the culture of our three nations. How are we going to do that in a way that doesn't cause companies to invest money in twisting and contorting and lobbying, rather than in innovation?

I worry that our Canadian content regulations and our foreign ownership regulations are encouraging companies to twist and contort and lobby, rather than innovate.

[The Chair, Conservative, Michael Chong]

Thank you, Professor Morck.

We'll now go to Mr. Van Kesteren.

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

This is fascinating stuff. We have a little bit of fun going between us, but you're absolutely right, companies will follow the money. That's the problem with governments when they amass too much of a fortune. All of a sudden companies just start vying for that. I agree with you 100%.

I quoted Adam Smith here, not quite as well as you did, but I had that same phrase. I'm not an economist, but I did read The Wealth of Nations. It's been a long time.

[Prof. Randall Morck]

I'm very impressed. The “pin factory” is very hard to get through.

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

Well, it's a beautiful quote.

It's part of the argument. I'm going to get off on a tangent here, but I really want to hear.... I'm not an economist, but I've heard of the Austrian school, and Keynes. I think Mr. Angus' dad, at that period, might have been a student of Keynes, too.

My dad wasn't an economist. He was an immigrant businessman. He told me a story about a wise king who told his sages to come with the wisdom of the ages. Maybe you heard this story. They compiled a great big 12-volume set, and he said, “Nobody will read it. Condense it.” So they came with a book, and he said, “Too much.” They came with a page, and he said, “That's too much, too. Give me one line.” So they came up with one line, which was, “There's no free lunch.” And that's really what it boils down to.

I'm concerned. We read recently in the paper that Canada's total national debt is, what, 83% of GDP, or something like that? It's just huge. We're seeing what's happening in Greece, and all these bad policies cost money.

I remember Mr. McTeague was one of the first ones in this committee—I give him credit—to alert us to the housing bubble that was happening in the States about three years ago.

Are you concerned that all these bad policies that we've adopted have laden governments with such an enormous debt? Do you see maybe that same danger on the horizon, too, that we're going to see?

I look at the reaction of the Greek people, too, that incredible attitude of entitlement.

Do you want to comment on that? I'd just like to hear something about that.

[Prof. Randall Morck]

I truly don't understand what's going on in Greece. You can demonstrate all you want in the streets, but two and two still add up to four, and if you don't have money to pay for something, it's just not there.

I do think Canada is better positioned at present than most OECD countries, because we've had, actually, fairly good government from both the Conservatives and the Liberals in terms of keeping the books relatively in balance. I think that has positioned us so that we can run a deficit now when the economy is in recession and keep our economy going. But we do have to worry about these issues. These are long-term economic issues.

Keynes certainly believed that the economy should be pushed along by government borrowing and government spending, but only during a recession, only briefly, and he thought that when the economy picked up again, the government should pay off its debts, and over time, the government should, on average, run a zero deficit.

People like to quote Keynes on how government should run a deficit. They don't like to quote him on how government should pay off the deficit as soon as it can afterwards.

I do think what you say also relates to the question that was raised by Monsieur Bouchard. What government needs to do, I think, is attend to the tax base. We need to make an economy where people make lots of money and companies make lots of money so the government can collect lots of taxes to do all the things we want the government to do. We can't impose government mandates for spending and for entitlements without worrying about where the money comes from, and that means we have to worry about having enough taxpayers out there who are making enough money that we can tax them to pay for all the things we want to do. That's where I think the Greeks kind of missed the boat.

[The Chair, Conservative, Michael Chong]

Thank you very much, Professor Morck.

Do you have another question?

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

I thought maybe if the professor—

[The Chair, Conservative, Michael Chong]

Professor Hejazi, do you have a comment on that?

[Prof. Walid Hejazi]

Yes. I think the only issue for Canada.... I agree with everything Professor Morck stated, but in terms of Canada, the issue of whether there's a structural deficit or not is something that we have to keep our eye on going forward.

It is true that Canada's finances.... In 1992-93, Canada had a horrible situation where our deficit in that one year alone was over $40 billion, almost entirely going to interest payments on the debt. What that means in real money is that in 1992 the Canadian government had to borrow $42 billion just to pay interest on the debt. So 25¢ of every dollar in tax revenue was going to finance the debt.

By 1997-98 we went into a balanced budget. We've had a balanced budget, and now that we've sort of had this global crisis and the Canadian deficit is up around $40 billion or $50 billion--I'm not sure what the last count was--I think the real issue we need to think about going forward is, once the economy does return to a normal path.... Whether the budget will be balanced or whether we'll have to make some structural changes to get us back to what we call a structural balanced budget, not a deficit, the jury is still out on that.

But I think what's very important, what's fundamentally important, is that this is an opportunity for Canada. Barack Obama said it best: “There's opportunity in every crisis.” Now is the time for Canada to look from a position of strength. We are admired globally for our fiscal responsibility and for the fact that the financial crisis essentially almost skipped Canada, had relatively little effect. We need to think about ways to make the Canadian economy more innovative and increase prosperity.

I just want to throw one number out. The prosperity gap between Canada and the U.S. is such that if we could close the prosperity gap between Canada and the U.S., raise Canadian incomes up to their U.S. levels, that would generate for the same tax rates--so leaving tax rates the same, closing the prosperity gap between Canada and the U.S.--so much additional tax revenue, it would wipe out the deficit. It would allow governments to have enough money to pursue a lot of the goals they want to pursue in a direct way, not indirectly by restricting foreign investment and so on.

Thank you.

[The Chair, Conservative, Michael Chong]

Thank you, Professor Hejazi. Thank you, Mr. Van Kesteren.

We'll now go to Mr. Angus, and let's make sure we don't use too colourful language here. It is a parliamentary committee.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Oh, certainly, sir.

[The Chair, Conservative, Michael Chong]

My five-year-old does watch his father on the Internet.

[Charlie Angus, NDP, Timmins—James Bay, ON]

For Mr. Van Kesteren's sake, I think my Dad's talk about the horse dung was more about Milton Friedman than Keynes.

[The Chair, Conservative, Michael Chong]

Just let me say that these are publicly televised, and my five-year-old does watch his father at committee on the Internet from time to time, and I don't want to have to cover his ears. Look, we all--