Industry Committee on May 3rd, 2022

[Mark Agnew]

If you look at what's driving inflationary pressures right now, we think it's driven by a couple of factors, but certainly supply chain disruptions come to the top of the in-tray, as well as labour shortages. I think that on both of those issues, there was not a whole ton in the budget that we think will directly address inflationary pressures. Some of these things are due to market forces, but we would like to have seen a bit more infrastructure funding around things like the national trade corridors fund, as an example.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Thank you.

I note that the chamber, in the past, said, “SMEs are still struggling with short-term debt servicing that will hold back their ability to grow.”

I wonder if you could touch on how inflation is leading to making it more difficult to pay down debt for small businesses, especially at this time when, as part of this study, we're looking at competitiveness as well.

[Mark Agnew]

Not to be too flippant about it, but certainly cash is king, and businesses need to have a cash flow to pay to pay payroll, their suppliers, the taxman and the landlord, so the more you have inflationary pressures, the more you see those input costs go up. It means that there is less cash to go around to pay these expenses.

Relief on interest payments on the COVID support programs is something we think could demonstrably reduce those cash flow constraints on businesses.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Thank you.

I'll ask you a question similar to one I asked another witness with regard to interprovincial trade, specifically around red tape reduction. I'm wondering if you can speak to what you're hearing with lost opportunities of interprovincial trade and how that needs to be a priority moving forward.

[Mark Agnew]

Again, not to be too tongue-in-cheek about it, I feel we have a loss of direction at the moment, to be frank. We have this Canada free trade agreement that doesn't seem to be going anywhere fast. A litany of exemptions exist in there.

I know, Mrs. Gray, that you previously helped create a portfolio, so you know all about trade exemptions, and it's a shame that we have to have trade room internally so that goods, products and people can move across the border. Progress has been glacially slow. I admit the pandemic, perhaps, has put a dent in that, but this is a problem we faced well before the pandemic, and unfortunately it shows no signs of abating any time soon coming out of the pandemic.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Thank you.

I want to ask you about the previous one-for-one rule, which seemed to be focused on in the past. What are your thoughts on that, and are you seeing a lot of activity around that or hearing about that from your members? Are there suggestions you're making, or are you getting feedback that this is working? Do you have any suggestions on reducing some of those other regulations that might be helpful?

[Mark Agnew]

We haven't heard a whole lot on the one-for-one rule itself as of late. Certainly no business is going to complain about the administrative burden being reduced.

The one thing we have heard about consistently that we can advocate is that federal regulators need to have an economic competitiveness mandate. To the point that Corinne made earlier, it's not about excluding environmental, social or public safety concerns; it's about ensuring that they think about economic competitiveness.

I can think of one conversation I had with someone who is in a regulatory agency, and I made a comment about the need to think about business impacts. They said that it's just not in their mandate to think about those things.

We need to make sure that regulators are told to do that. Admittedly, they're following the rule book that is set by their political masters, so having an economic competitiveness consideration is quite important to the regulatory process here in Canada.

[The Chair, Liberal, Joël Lightbound]

That's about it, Madam Gray.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chair.

[The Chair, Liberal, Joël Lightbound]

Thank you.

We'll move to Mr. Fillmore for our last round of questions.

[Andy Fillmore, Liberal, Halifax, NS]

Thank you, Mr. Chair; and thanks to the witnesses who are here in person and joining us online.

I'll start with a very brief parenthetical comment on energy, and then I'll crack into another thing.

I want to just agree with Nathaniel Erskine-Smith. The carbon price is here to stay. The whole point of a carbon price is that it is a price signal to change behaviours. People or organizations and businesses that are creating carbon pollution need to pay for that. Ultimately they don't want to pay for it, but that's what changes behaviour, so if we rebate them everything they've paid for the pollution price, it defeats the whole purpose. There needs to be a bit of pain there. That's the point of it.

It's the families and individuals who get the rebate, and that makes things better at home. I would add that the Canadian Climate Institute said, on the release of our 2030 emissions reduction plan, that in every post-2030 scenario they ran, energy prices were reduced from what they are today. Therefore, I want to separate energy from the other hardships that businesses are facing, separate energy and carbon pricing, because I think they're very different.

Now I'll turn to my actual point, which is that the world has changed. We heard from the CFIB that 90% of your members are experiencing increased costs, and 75% think they're here to stay. There's wage inflation, which arguably could be a good thing. There's the cost of interprovincial trade in dealing with very powerful subnational governments.

There are some things that the federal government might be able to help with, such as bank and insurance fees. However, the business case fundamentals have shifted for SMEs in Canada as a result of the different world that we live in now, and there's a cohort right now that's stuck in this inflection.

I invite the chamber to jump in on this, as we haven't heard from you, as well as any of the other panellists. Is there something here about the nature of capitalism that means you have to adapt to the conditions that are before you? For example, Robin, you said Canada is different from other countries when it comes to competition. We're also a bit different when it comes to what some people call “zombie companies”. We're keeping companies alive whose business case fundamentals have changed substantially, and maybe it's really not their time to survive. Do you know what I mean? Fail fast, fail cheap, and move on to the next thing and survive.

I just want to invite people into a journey of the imagination on the changed world we live in and how government might help businesses adapt to accommodate that. It's a big question, but I open it right up there.

[Corinne Pohlmann]

I'll go first.

It is a big question in many ways, and a very philosophical question. I think most people would agree that this is the churn, right? Small businesses are created and lost every single day, and every year businesses come and go.

The difference right now that we have to recognize is that a lot of businesses might be struggling and near the end of their lives, but it's not because of something they did as a company. They did everything right, but they then had to shut down. They had to do things to help society at large, and as a result, they have incurred lots of debt. They have incurred lots of stress. They have lost their employees and have to figure out how to build back. I think that's the difference.

I would completely agree with you that you have to adapt, because society has changed and the competition changes. That's just the nature of things, and businesses are fine with that. However, when you go through a pandemic in which changes were pushed onto you that created circumstances that you couldn't control, that's where I think it's a bit different, and we have to think a bit more about how to help businesses that might still be very viable, might still have opportunities in the future and are willing to shift and change. Thousands and thousands of businesses did. Many pivoted and shifted and did things differently throughout the pandemic. Now they're at a point of deciding. Do they go back to their old ways, do they stick with where they are or do they go in a different direction?

A lot of businesses are doing that every single day. We're fortunate that we have people who are willing to do that, but we still need to recognize that there are businesses that are struggling still because of debt. We need to be empathetic to that and think about how we can still help them get out of that, to a point. I agree that there's a point where you're going to have to say, “No more.”

[Andy Fillmore, Liberal, Halifax, NS]

I agree with you.

I'm interested in the other part of it, which is what do we do differently? Yes, we have to help people in that cohort, but what else?

Does anyone else want to jump in?

[Robin Shaban]

I'd love to.

Here's another little plug on work that I've been doing. Vivic Research did some work with Policy Horizons, which is the foresight think tank in the federal government looking at how key technological changes may change the competition landscape.

The question you're raising points to some of the preliminary thinking we're doing on this, because with the rise of certain technologies—in particular, AI—there's inevitably going to be displacement. It's an unfortunate reality of competition that some businesses will go extinct. That churn is part of a healthy competitive environment. What we need to watch out for—and it's something that kept coming up again in our work—is that these technological advancements tend to have a lot of the same dynamics as the business models we're seeing today, like social media platforms and the rise of big data, where you get a snowballing effect that naturally leads to dominant firms.

The big question that policy-makers are going to have to grapple with is not only what we're going to do with folks that are competed out of the market, but also how we grapple with the displacement of economic value as a result. That includes not only small and medium-sized businesses, but also workers.

It's a bit easier to think it through with workers. If AI is going to replace my job, where am I going to go? How am I going to make a living if the economic value that I used to gain from doing that job is now being captured by an AI program owned by Google?

There is this shift in who is capturing the economic value of different activities in the market. There is a very real reality that this economic value is going to continue to be amalgamated by large, dominant digital players in our economy.

The churn is one part of the story. I think the flip side of that dynamic is where the value is that the company was generating. Where has that value gone? Who is getting that value, and how are we ensuring that the value is being shared within the economy in a way that is allowing us to meet all our needs and allowing all of us to participate in the economy in an autonomous, self-directed way?

[The Chair, Liberal, Joël Lightbound]

Mr. Fillmore, that is all the time you had. You even had a little more.

[Andy Fillmore, Liberal, Halifax, NS]

Please, Mr. Chair, give me 10 more minutes.

[The Chair, Liberal, Joël Lightbound]

I am sorry, Mr. Agnew, but we have already exceeded the time allotted to us.

I want to thank our witnesses for this extremely interesting discussion. I think I speak for all members of the committee when I say that.

Thank you colleagues for co-operation. We're finishing more or less on time, which is great tonight, because Mr. Chapman has given many of us a thirst for a good Canadian beer, and certainly Mr. Blackburn and myself included.

Thank you very much. Have a great evening. Take care, everyone.

The meeting is adjourned.