Industry Committee on May 6th, 2010

[Mike Wallace, Conservative, Burlington, ON]

The other thing we've heard at this committee in our other meetings is that the telecom business is integrated—though not fully—with other organizations, including the broadcasting side. Is the integration of that industry an issue for you at all in terms of foreign investment?

[Prof. Walid Hejazi]

No, not at all, in the sense that you have to think about government regulation and where it allows entry and where it doesn't. For example, if the broadcasting and telecom industries have different sets of regulations, then obviously that's going to impact the kinds of investment you're going to see coming into Canada.

What it may also do—and again, this is something that needs to be looked at carefully—is it may drive foreign participation in some parts of the sector, but not as much in others. What's really interesting about that possibility is that you get these joint ventures or alliances between foreign and Canadian companies. They're able to work together so that the Canadian company, through its partnership with foreign companies, is able to access technology that's developed on the global stage.

So we'd have to think more carefully about that.

[Mike Wallace, Conservative, Burlington, ON]

I have a completely off-topic question for both of you.

I'm not sure if either of you has taught in other countries, but is there a difference between business students in Canada and the entrepreneurial spirit here compared to business education in the other countries you've experienced? And what difference might that be?

[The Chair, Conservative, Michael Chong]

Go ahead, Professor Morck, and then we'll go to Professor Hejazi.

[Prof. Randall Morck]

I've spent most of my career teaching at the University of Alberta. I've also taught at Harvard and Yale in the United States. I've taught at the National University of Singapore, and I've given shorter courses at various places in Europe, from time to time.

No, I'd say that the students in Alberta are very enthusiastic entrepreneurs, and the quality is actually quite high—not that much different from Yale. It may be a tad below Harvard.

[Prof. Walid Hejazi]

I've given lectures and short courses in probably a dozen countries in South America, the Middle East, and Asia. In July, I'll be in China interacting with MBA students for a couple of weeks.

There is one thing that I would say about Canadians that's different from what I see globally, and I speak here of the experience at the Rotman School. Something like 87% of our 400 or so MBA students who graduate take jobs not in Canada, but Toronto. So from my University of Toronto experience, it seems that Canadians tend to like to stay in the Toronto area, and they don't really like to go global.

At the Rotman school, we now have a new course called an international study tour, where we take students globally. We take students to China for two weeks. We take students to India. I took students to Turkey and the United Arab Emirates and Jordan. Currently, we have 15 students in Brazil. The whole idea is to give these students an international perspective.

I think our students are very good, but they're not necessarily as adventurous as those I've seen in other countries.

[The Chair, Conservative, Michael Chong]

Thank you, Professor.

Thank you, Mr. Wallace.

If you have a brief question, go ahead. We do have enough time.

[Mike Wallace, Conservative, Burlington, ON]

I have one brief question, and it's for Mr. Morck on the definition of productivity.

You talked about the value of inputs and the value of outputs. General Motors produces cars, and Mercedes-Benz produces cars. The value of a Mercedes-Benz is higher than the value of a General Motors vehicle.

Are they more productive because the value of their vehicle is higher?

[Prof. Randall Morck]

No, your output is the price of that output times the amount of output you produce. So it's your revenues from selling your output, minus the cost of all the inputs you use.

[Mike Wallace, Conservative, Burlington, ON]

So you can be highly productive but produce a low-cost item?

[Prof. Randall Morck]

Yes, as long as the revenues you get are more than your costs, you're contributing to productivity for the country.

[Mike Wallace, Conservative, Burlington, ON]

That's a clear fact. Thank you very much.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Wallace.

Mr. McTeague.

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

Thank you, Chair, and I thank the witnesses for being here.

I want to look at this question of foreign investment from a rather different perspective, not what it might mean in terms of a boon for consumers, Canadians, and investments here in Canada, but from the other perspective that perhaps there is an abundance of technology within this country that would be a prize target for some large corporations around the world who, in one fell swoop, could acquire many of those assets.

I think, Professor Hejazi, you talked a little earlier about hollowing out, and I don't quite see it that way, but perhaps as rendering the Canadian telecom industry into something of a branch plant economy for the communications sector.

Knowing that the Telecommunications Act was created many years ago to ensure such things as every Canadian receiving a telephone, for example, as a matter of public policy, the next objective under the act would be to see everybody having access to wireless. What guarantees are there that an opening up of foreign investment would not prevent the possibility of new Canadian innovations and technology simply being acquired and of course jobs being lost here?

There are concerns about the Privacy Act with respect to the U.S, including, for instance, a company like AT&T purchasing several Canadian assets and then subjecting Canadians to the Patriot Act, or at least challenging the Privacy Act under the U.S. Patriot Act. How do you see the possibility of concentration through leveraged buyouts at a time when of course optimizing profit as opposed to public policy seems to be what is behind many of the initiatives you're suggesting through the benefits of foreign direct investment?

[Prof. Randall Morck]

Who would you like to answer...?

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

Mr. Hejazi, perhaps.

[Prof. Walid Hejazi]

First of all, the issue of the Privacy Act is very important. At the University of Toronto, we do a lot of work on outsourcing, the whole idea being that when you have these U.S.-affiliated companies getting access to servers, and so on, with Canadian information on them, all of that can be transmitted to the U.S. government. There are lots of issues of privacy with that. It is something that we would need to look at very, very carefully, the idea being that an American company could buy up a Canadian company and this would compromise the Privacy Act. That would put a lot of Canadians at risk, and I think it's something that we need to think seriously about.

But the other thing I would say is that we shouldn't think about all investment coming into Canada as just being U.S. investment. It's a big world out there, and when you look at the share of investment coming into Canada, increasingly it's coming from countries other than the United States.

The other thing I would say is that when a foreign company comes into Canada, they're coming into Canada to buy an asset to maximize its value. They're not simply going to buy an asset in Canada and somehow just strip it down and then move away. Why would they do that? They're going to take that asset and operate it in the most efficient way. If the most efficient way for them is to gut it and take everything to the United States, then I don't see that happening.

What I see happening is foreign companies coming into Canada, participating in this sector, and enhancing our access to capital and technology—because foreign companies get access to technology through their networks—and as a result, the Canadian economy is going to become more competitive. I should say that industries that have more foreign participation in them are more productive than industries that do not.

Thank you.

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

Just before I go to Professor Morck, on that very point, what guarantee is there that we won't lose Canadian innovation or R and D? That is really the reason for which the investments from a foreign company would be made.

More importantly, why does a company have to have control of that new Canadian asset in this scenario of a liberalized telecom sector, when in fact they can currently own all the debt they want? Is there a problem currently with the access to capital that telecom companies are expressing? I understand that many of them have not even used up their foreign content under the current guidelines.

[Prof. Walid Hejazi]

Well, investment, for example, in broadband access in Canada lags that in other countries. That's what the World Economic Forum has demonstrated.

But I think, as was alluded to earlier, that Canadian companies adopt new technologies at a slower rate than foreign companies do. Canadian companies invest, on net, less in innovation. What the evidence clearly shows is that when a foreign company comes into Canada, that foreign company is able to deploy its technology more quickly and to a greater extent than a Canadian company does. So it is possible that when a foreign company comes to Canada, the R and D may or may not be done in Canada. I don't know what the impact will be, but one thing is very clear: the R and D the company will have access to will go up and the R and D and innovation will be more effective.

Thank you.

[The Chair, Conservative, Michael Chong]

Thank you.

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

Professor, I have a comment to make with respect to the government's position on the question of forbearance two or three years ago, when it in fact cut off at a very premature level—certainly in my opinion—the possibility for more competition. That leads us to the idea that maybe we have not explored fully and completely the possibility of greater innovations, greater competition, within Canada before casting our nets a little wider to attract foreign investment.

[Prof. Walid Hejazi]

That's a very good point.

I was at Industry Canada back in January, where we had a round table discussion on exactly this issue. There are many areas in which there can be improvement. One of them has to do with the idea of Canadian businesses having the capability to make the business case either to get funding for innovation, or, once an innovation is undertaken, to make the business case to move it to commercialization.

So your point is a good one, that allowing in foreign competition is not the silver bullet. In my opinion, that is one of many areas where we can improve the competitiveness of the Canadian economy.

[The Chair, Conservative, Michael Chong]

Thank you, Professor.

Mr. Lake.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Mr. Chair, and thank you to both witnesses for coming here today.

Mr. Morck, I think what I heard you say is that University of Alberta business students are the best and brightest in the world—

[Voices]

Oh, oh!