Werner Schmidt

[Small Business Loans Act, November 28th, 1995]

Madam Speaker, it is a pleasure to rise in the debate on this very interesting motion. In some ways it sounds very good in principle. In another sense, I have great difficulty with it.

I would like to review some of the provisions of the Small Business Loans Act itself and what it is doing. I noticed the hon. parliamentary secretary to the Minister of Industry alluded to the exposure of the government and the liability that is incurred on behalf of the government for the people of Canada under the Small Business Loans Act. It is rather substantial. Last spring the $4 billion ceiling was increased to $12 billion, which is a threefold increase. It is very interesting that at that time the government's liability was 90 per cent of that $4 billion, which works out to about $3.6 billion. That costs roughly $100 million a year in terms of the non-payment or the defaults on various loans.

The current amendment proposes to reduce the liability for the $12 billion ceiling to 85 per cent, which still means a liability for the government of approximately $11.2 billion or $11.3 billion. If that proportion of $100 million goes with a $4 billion ceiling, this could now go to $300 million with this new ceiling, which is pretty substantial. We have to be very careful about this.

We have to recognize that Professors Haines and Riding did a very interesting study about small business loans and what happens. The cap of the individual borrower under the Small Business Loans Act is now $250,000; it was $125,000. The ceiling or the size of the business has increased. It was limited to any business that had $2 million or less of sales on an annual basis. The new ceiling goes up to $5 million.

It is very interesting what this study of Haines-Riding showed. It showed that businesses below the $2 million ceiling had a default rate of somewhere between 7 and 8 per cent. Those with sales between $2 million and $5 million had a default rate of 14.7 per cent, which is much greater.

We can see the exposure under the new provisions, under the new ceilings, are rather interesting because they increase the risk to which the government has exposed itself.

To combat that the bill comes forward and says that there will be an administration fee. As we all know there is a 2 per cent registration fee right off the top which is added to the principal. Then there is a 1.75 per cent fee in terms of cost to make the costs of defaults and various other administrative items recoverable. It was not good enough that it resulted in a $100 million loss. That has been increased by another 1.25 per cent which means a total of 3 per cent. The 1.25 per cent can be recovered in only one way, and that is through interest rates.

The earlier situation was that the Small Business Loans Act used the prime rate that could be increased by 1.75 per cent. It went up to 6.75 per cent. Now it is 3 per cent above prime, which means that we will probably run the new small business loans under that provision.

To give us the context of what is happening, the liability of the government is increased under the Small Business Loans Act by about 300 per cent over what it was before. It is our responsibility as elected representatives of our constituents to protect their interests. If we are exposing their risk from $4 billion to $12 billion, it should not be delegated to the executive council of the government. It should be the responsibility of parliamentarians in the House of Commons.

The bill had the provision that it should be delegated to the executive council. We proposed an amendment. The hon. parliamentary secretary referred to the amendment in his presentation a few moments ago. It was accepted by the committee. It has now been taken out of the bill so that parliamentarians have control over fixing whether it will be 90 per cent or any other percentage. It is a real positive move for democracy.

When I look at the amendment before us I notice that it has been adulterated because it is neither fish nor fowl at this point. It is being proposed that parliamentarians in the House of Commons should not have control but the committee should have control. Admittedly the committee is made up of parliamentarians elected from all parties represented in the House. They are elected representatives of the constituents.

However when we are talking about $12 billion it is a lot of money. I do not think a committee should have the authority to make those kinds of decisions on behalf of Parliament. If we thought the executive council should not have that kind of power, it is much less that a committee of the House should have the authority.

While the direction of giving authority to the people is a good one and while the intent is noble, the way it is being proposed will not achieve what we really need. We need to recognize that as representatives who have been elected by the people we represent them in a threefold way. First, we represent them because of the party we are a member of that presented the candidates to the people. They knew we were to present certain things. I appreciate the parliamentary secretary's statement that gave us credit for the fact that the Reform Party is here to bring about an awareness of the fiscal responsibility and the need to get our house in order financially. That is absolutely superb. We need to do that.

The difference I have with the hon. member opposite is that it is not an obsession. That is a reality. That is something we have to come to grips with. It is high time that we do it just as soon as we can. If truth is an obsession it is time we were all obsessed because truth is what we need. That is the first point.

As we represent our people we have another responsibility to detect very clearly what they feel about certain kinds of issues. They want a voice and they have told us clearly that we have to get our financial house in order. That was not a mandate that we in the Reform Party said we would have, but the people told us quite independent of it being a Reform platform that it was what they wanted us to do.

Second, as representatives we actually go out and represent the people in what they think. Finally, we apply our best judgment to ordinary everyday housekeeping items where we do the things that have to be looked after.

This is a very critical and important issue. To put this into the context of only a one-industry committee is not enough. The whole House of Commons is involved in financial issues of major import affecting small business, the engine that generates about 85 per cent of new employment in Canada. It is the issue.

Also that group, especially the high tech group, is bringing about innovations to make our economy grow. There is no question that today we will move faster and faster not because we are so smart but because we bring about new innovations, new applications of new knowledge. That is what we need to do. The small business component is the absolute number one component in the economy that will help Canada grow to where it becomes a truly competitive industrial nation in the world. That is where we need to move.

I appreciate the opportunity the motion has given me to express some ideas although I oppose the motion not because we do not need to deal with small business and not because we do not need representatives of the people but because the method is wrong.

[Bank Act, November 27th, 1995]

Mr. Speaker, I commend the parliamentary secretary to the Minister of Industry for raising the issue of what is happening to small business. I do not believe he is taking enough credit for some of the things that have happened and have changed the attitude of the banks.

On the one hand, it seems to me that the committee succeeded in saying we have to get more numbers together to ensure that we know for a fact they are not giving money to small business. That is important. The committee was sensitive not only to small business, but to the banks and to the House.

The banks will never be able to escape from the investigation that took place. Each of the chartered banks has appointed an ombudsman and they are now looking for a national ombudsman.

I know that the parliamentary secretary feels the national ombudsman will probably not be very effective because he will be appointed by a board of directors that is made up of representatives from the banks. We will see whether that is the case.

With all of this, the parliamentary secretary has demonstrated one word, although he has never said it: transparency. It is about transparency, being open, telling the story the way it is and making sure the banks come up with their numbers.

I ask the parliamentary secretary whether he agrees with the provision that the premiums paid by the financial institutions to the CDIC should be left secret. Should that not become transparent?

[Bank Act, November 27th, 1995]

Mr. Speaker, how would the hon. member explain the increased riskiness that apparently is to be expected by the financial institutions in Quebec relative to the financial institutions in other parts of Canada? In particular, I would like him to address the failure of Confederation Life, which was not exactly a small financial institution. I would like him to compare the risks Confederation Life had vis-à-vis some of the institutions which exist in Quebec.

I would like the hon. member to relate the small institutions that operate in Quebec vis-à-vis those that operate in other provinces, for example the Atlantic provinces, British Columbia, Alberta and Saskatchewan and some very small institutions that are covered by the CDIC. Is it the same kind of problem he is alluding to in Quebec, that in fact there are riskier situations? Exactly what point is the hon. member trying to make?

[Bank Act, November 27th, 1995]

Mr. Speaker, that is an excellent question. I would like to divide my answer into three parts.

The first part has to do with whether the businessman is going to feel coerced into buying the product the banker is shoving down his throat. The question then becomes is the bank in this instance acting as a broker for a variety of insurance companies or is it going to be presenting its own insurance company which it owns? Talk about a conflict of interest; there it is.

The second part concerns whether the individual gets the best possible premium rate. The individual, in order to get the loan through, will buy the insurance as well at the same time.

The third point is that recently the banking community had a study done on its branch network. It seems to me that both in the United States and here in Canada the conclusion was and the recommendation was to reduce the number of branches. That network, which is supposed to be this great fanning out, is actually going to go the other way.

I do not think that businessmen or individuals are going to be served as well as they are today.

[Bank Act, November 27th, 1995]

Mr. Speaker, it is a pleasure to enter the debate on Bill C-100. This bill is designed to bring about certain changes and make some amendments to the Trust Companies Act, the Interest Act and so on. I want to address this in the context of what is happening in the financial world in Canada today.

About 10 years ago legislation was passed in the House which actually eliminated the four pillars of Canada's financial institutions. I will review briefly what that was all about. We know that the four pillars which existed were the banks, the trust companies, the insurance companies and the investment companies, or investment dealers as they are more commonly known today.

The provisions in the past were that the banks took deposits, made loans and had financial interaction with their customers. The ownership of the banks was restricted to 10 per cent. No one person or group could own more than 10 per cent of a bank.

The trust companies were another pillar. They were allowed to hold property in trust for others. They could hold shares, bonds and real estate. Often they exercised the prerogative and in fact did take the fiduciary responsibility to manage the portfolios of individuals, particularly widows, children, orphans, and other people who did not want to look after their own portfolios. It restricted very much the kinds of things the trust companies could do. For example, the trust companies could not lend out more money than they actually had on deposit. They also were limited in the kinds of loans they could give. For instance, they were excluded for many years from lending out under the Small Business Loans Act.

The insurance companies, the third pillar, were divided into two sections: the life insurance section, and the property and casualty section. The life insurance companies were there to provide life insurance policies and annuities for people who wanted payment in perpetuity. The property and casualty insurance companies dealt with the liabilities that might be incurred toward individuals. They also insured the physical properties, buildings in most cases and vehicles and other equipment.

The fourth pillar was the investment companies. The investment companies were the underwriters of equity shares. They also helped to distribute those particular shares once they were issued. They also underwrote debentures and limited partnerships and made a market for these particular securities. They acted nationally and internationally so that individuals who wanted to sell shares internationally could do that.

In 1987 these pillars came apart. They were changed. The legislation allowed the banks to own trust companies, the banks to own insurance companies and the banks to own investment dealers. The independence which was guaranteed before was now amalgamated under one piece of legislation. The insurance companies also took advantage of those changes. They bought trust companies and in some cases the established banks. They also got into the mutual fund distribution business.

Why did it happen? It happened because the insurance companies and banks are the two big giants in the financial institutions. They command the largest proportion of the money that is managed in our financial world. The banks wanted access to the huge funds of money the insurance companies had and of course the insurance companies wanted to keep them out.

There was a real conflict going on at that time. The insurance companies finally agreed to let the banks buy insurance companies. That made it possible for the banks to actually own an insurance company, but they could not distribute the insurance through their branches.

Actually, the very thing the insurance companies wanted to prevent they ended up not preventing. Now the only difference is the bank cannot really distribute it through their branch network. I will talk about that in more detail later.

I will briefly focus on the concentration of the financial interests that has come into an increasingly small group. Fewer and fewer companies actually manage more and more of the financial assets in Canada. That is really what has happened here. I want to bring this into a more detailed focus as I get toward the end of my speech.

The policy paper was presented by the Secretary of State for Financial Institutions when he appeared before the Senate committee in August. He said he intended to release a policy paper sometime early in 1996 which would deal with these four financial institutions under the Trust Companies Act, the Loans Act, the Investment Companies Act and the Bank Act.

The secretary of state wants to release that in the early part of 1996. That policy paper would then be followed by further consultation before we table legislation for passage early in 1997 which has to do with a total review of the Financial Institutions Act. He said: "I want to act now on the issues included in Bill C-100 because the legislation enhances the safety and soundness of the system. When steps can be taken to improve on it to diminish risk, I believe it is important to get on with those changes right away".

It is pretty hard to argue against that, except that we are now at the end of November. This statement was made in August. The bill is before the House. In the early part of 1996 there is to be this

policy paper, yet we have something that is supposed to be acted on right now.

I warn the secretary of state and the government that to make the kinds of changes that are being proposed in this legislation will affect other legislation. I am convinced it will affect the overall review that will take place in 1997.

What is the big hurry now? We are not even seven weeks away from 1996 and we are faced with supposedly some kind of an emergency. I submit there is no emergency. There is no urgency to get this done right now.

Some people will say that this is actually to come to grips with a big problem we had last year when Confederation Life went down. What is really involved here is that this is a very subtle way to get us ready for that continued erosion of the distinction between the financial pillars. It will have the effect of drawing more and more power into the hands of fewer and fewer financial institutions, namely the banks.

I will get into the Confederation Life matter in greater detail because it is this concentration of power that creates some difficulties. For example, the Confederation Life people bought trust companies and through that trust company they developed what would easily be characterized as an imprudent portfolio. It was imprudent from the point of view that it was overextended in a particular sector.

My understanding is that the former Superintendent of Financial Institutions did tell the Standing Committee on Industry that he had warned that particular institution that it was over extended in the real estate market. But what did he do? Nothing. What did the company do? Nothing.

Some people would argue it is more poor management than an imprudent portfolio. Imprudent portfolio, poor management, whatever the case, the issue is there was legislative provision that allowed a concentration and overextension that was never the intention of the original legislation but nevertheless was the effect of it. That is precisely the danger we are running into here.

Suppose one of our chartered banks today were to go down. Imagine the implications that would have across the country. Within that context let us now look at the provisions in Bill C-100. In particular, I want to look at the Office of the Superintendent of Financial Institutions.

In this context I would refer to exactly what the purpose of the bill is. It is to amend the Bank Act, the Co-operative Credit Associations Act, the Insurance Act, and the Trust and Loan Companies Act, dealing with the disclosure of information, the elimination of appeals in relation to certain matters, the disqualification of persons from becoming office holders of an institution, the taking of control of an institution by the Superintendent of Financial Institutions, and changes to the duties of the superintendent.

Then there are amendments to the Winding-up Act respecting the circumstances and procedures for winding up an institution and the revised part III dealing with the restructuring of insurance companies and amendments to the Canada Deposit Insurance Corporations Act concerning the business affairs of the corporation, the restructuring of the institutions by means of divesting of shares and the corporation becoming a receiver, the assessment and collection of deposit insurance premiums, and the enforcement of the act.

What are some of these details? I refer to clause 81:

(2) The Governor in Council may make regulations and the Superintendent may make guidelines respecting the maintenance by life companies and societies of adequate capital-

Okay, let us keep that in mind.

(3) Notwithstanding that a life company or society is complying with regulations or guidelines made under subsection (2), the Superintendent may, by order, direct the company or society

(a) to increase its capital; or

(b) to provide additional liquidity in such forms and amounts as the Superintendent may require.

Does anybody need any more authority than that to run a company? The whole company could be run with those two phrases.

Then the bill goes on to state:

The Governor in Council may make regulations and the Superintendent may make guidelines respecting the maintenance by property and casualty companies of assets of a particular value.

This is again a direct imposition. In fact the Superintendent of Financial Institutions can get into the exact management now of the company itself:

Notwithstanding that a property and casualty company is complying with regulations or guidelines made under subsection (2), the Superintendent may, by order, direct the company to increase its assets.

Furthermore:

A company may then enter into a transaction with a related party of a company if the Superintendent, by order, has exempted the transaction from the provisions of section 521.

We want to put this into the context of clause 93, because we recognize how significant the powers of the superintendent are in determining the assets of a company, to increase its financial situation, to look at the ownership of property of the company. Now let us get a good view of what else happens here:

The Superintendent shall disclose, at such times and in such manner as the Minister may determine, such information obtained by the Superintendent under this Act as the

Minister considers ought to be disclosed for the purposes of the analysis of the financial condition of a company, society, foreign company or provincial company-

Good, we will say, that is fine; there is nothing wrong with that. I agree. It goes on:

-and that

(a) is contained in returns filed pursuant to the Superintendent's financial regulatory reporting requirements in respect of companies, societies, foreign companies or provincial companies; or

(b) has been obtained as a result of an industry-wide or sectoral survey conducted by the Superintendent in relation to an issue or circumstances that could have an impact on the financial condition of companies, societies, foreign companies or provincial companies.

Now comes the key part. We notice that the superintendent can do these things but subject to the minister's approval. The second clause states:

The Minister shall consult with the Superintendent before making any determination under subsection (1).

What has happened here? We have the minister deciding in the first instance what the superintendent should do and what kinds of information can be collected, and then before he can have any discussions or make any public pronouncements he has to go back and consult with the superintendent before he can do that. Who is in charge here?

The person in charge here is the Superintendent of Financial Institutions. The Minister of Finance, who is to be looking after the financial affairs of this country on behalf of the people and who the Prime Minister has entrusted with this particular portfolio, is now having his hands virtually tied by the Superintendent of Financial Institutions, a bureaucrat who has been appointed by the minister.

These kinds of provisions are not for the health of this country.

I draw the attention of the House to the exact powers and objects of the Office of the Superintendent of Financial Institutions. The objects are to supervise financial institutions in order to determine whether they are in a sound financial condition and are complying with their governing statute law and supervisory requirements under that law; to promptly advise the management and board of directors of a financial institution in the event that the institution is not in sound financial condition or is not complying with its governing statute law or supervisory requirements under that law and in such a case to take or require the management or board to take the necessary corrective measures or series of measures to deal with the situation in an expeditious manner; and to promote the adoption of management and boards of directors of financial institutions of policies and procedures designed to control and manage risk.

That is good. A further object is to monitor and evaluate system-wide or electoral events and issues that may have a negative impact on the financial condition of financial institutions. That is good. Further, in pursuing its objectives the office shall strive to protect the rights and interests of depositors, policy holders, and creditors of financial institutions, having due regard to the need to allow financial institutions to compete effectively and take reasonable risks. We would say that is just great, and I agree.

Notwithstanding that the regulations and supervision of financial institutions by the Office of the Superintendent of Financial Institutions can reduce the risk that financial institutions will fail, regulation and supervision must be carried out having regard for the fact that boards of directors are responsible for the management of financial institutions. Financial institutions carry on business in a competitive environment that necessitates the management of risk, and financial institutions can experience financial difficulties that can lead to their failure.

He is supposed to do all these wonderful things and then in the final analysis he is given the power to intervene, to get involved in the actual management of a company. Then in the final section it says that if things go wrong it is not his fault. I think the bureaucrat wrote this, because he is totally absolved on these things.

We are dealing with the trust and the faith that individuals have in financial institutions. I have no difficulty in recognizing that the Office of the Superintendent of Financial Institutions is a very important office. It has been given extensive powers. But in the final analysis, who is accountable?

We have to come to grips with this. We need to know all the secrets. In all the texts I read there is no obligation to make those kinds of things public. I want to get into the Canada Deposit Insurance Corporation, because it is here that it becomes even more significant.

The Canada Deposit Insurance Corporation guarantees the first $60,000 deposited in a financial institution that is covered under that particular act. This is a great provision, but I want to take a look at some of the experiences.

This particular corporation was set up in 1967. There were no bank failures prior to 1967. Since 1967 there have been 30 failures of financial institutions, 20 of them in the last 10 years. The CDIC has now paid out a total of about $5 billion and owes the federal treasury $1.7 billion as of March 1994. It may be a little more than that, about $1.745 billion if my memory serves me correctly.

The provisions of this act are very noble. People want to know that their deposits are insured. However, it has had some very interesting effects. Financial institutions did not fail before but have failed since. Why? There are pretty obvious things, but

nobody can prove them. It reduces the incentive of a financial institution to look after the deposits up to $60,000. They can be reckless or risky because that money is not going to come out of their pockets. The first $60,000 will be paid by the Canada Deposit Insurance Corporation.

There is also no incentive on the part of the depositor to look around to find which of the financial institutions is the soundest. They look to see which institution is to pay the best return on their money after it is deposited. That becomes the issue, and not the soundness of the financial institution.

There are some interesting things that can be looked at here. The insurance premium the institution pays to the Canada Deposit Insurance Company should be commensurate with the risk incurred by placing these deposits in certain kinds of ways. The act does go that way up to a point. It states, for instance, that financial institutions will pay $5,000 as a base and after that I believe it is a fraction of a percentage, based on the total of the money that is on deposit. That is great, except that the minister, without telling anyone, has the right to reduce that rate.

The other part of this is that the rate the institution has to pay for its premium to be insured by this company is secret. This means that on the one hand we have the financial institution paying a premium that is somewhat commensurate with the risk involved, but the person who deposits does not know what it is. So he has no way of telling whether this financial institution is a sounder one than the other one.

I believe there are some very serious shortcomings in this act. If we really wanted to get serious about this act we should think about such a thing as a co-insurance plan of some kind. An individual who is depositing his money into a particular institution knows it is insured up to $60,000 but with a deductible. The individual will have the responsibility to put it with an institution that will insure his or her deposit for the full $60,000. If the Canada Deposit Insurance Corporation insures it for up to $58,000, the financial institution will give the other $2,000 with no penalty.

An institution could also state it is going to be paying 12 per cent on your deposit, CDIC covers a major part of it and it will cover part of it, but because this is going to be a high return you are eligible for $1,000 or $2,000 deduction. So there is a co-insurance plan here, which will provide the incentive to the financial institution to manage the money well or to at least let the individual know where the risk is in that particular deposit.

Second, that individual will say: "If I am to get a higher rate of return from this institution, I also need to carry some of the risk". There has to be responsibility in those particular areas. There are major concerns about the proposed amendments to this legislation.

I want to move now to another part of the review of financial institutions which has to do with the concentration of power to which I alluded before. The four pillars have, to a large degree, been eroded. It is my suspicion that the review in 1997 will erode them even more.

I draw attention in particular to the big fight now being displayed in the newspapers, financial papers and other media between the insurance companies and the banks. The insurance companies are saying: "You are not going to sell our product through your network". The banks are saying: "If we can own the insurance company, we want the authority and the power to do that". The fight is on.

A lot of problems are associated with the concentration of power, one of which I want to detail. That has to do with conflict of interest. I am going to take my example not from the insurance area but from the investment business. The investment companies have the opportunity to underwrite shares for an issue. I will use as an example the privatization of CN Rail. This share issue is underwritten by a number of investment dealers. Who owns the investment dealers? The banks, with a few exceptions. They underwrite the issue. However, some people are going to borrow money to buy those shares. Who will lend them the money to buy those shares? The banks.

There is a projection that the investment dealers of Canada are going to have an extraordinary year. They will have great profits this year. Guess what the main contributing factor was on "Canada AM" report this morning. The privatization of CN Rail.

This is very interesting. It is a very cosy arrangement. A crown corporation is in the process of privatizing. The underwriters are investment dealers who are, to a large degree, owned by the banking community. The banking community will, through its subsidiaries, show a tremendous profit. The banks will earn approximately $5 billion this year and, as well, the investment dealers will realize a terrific return.

The banks are also saying they want to sell the insurance product because it will give them more money. Associated with that money comes a far more significant issue, of which I am most fearful, which is the concentration of power. When a few people can decide where the money is going to be applied and how it is going to be invested, that is too much power in the hands of too few people. That is my big concern.

Every effort should be made to balance this situation very carefully. We must not run into this situation without being very clear about the implications.

Comparisons will inevitably be made by the banking community. The banks will argue that they should have the service because to be competitive globally they have to be able to sell insurance. Let us look at this situation.

Approximately 2,000 banks operate in France, while in Germany there are 4,600 licensed banks. With such intense competition it is difficult for a European bank to cross-subsidize its entry into the insurance business. That situation cannot be compared to the one that exists in Canada. To use that argument is not only specious but misleading. We have to be very very careful not to get sucked into that kind of situation.

To suggest the banks are going to take control is rather easy to understand. In 1992 reforms gave the chartered banks unrestricted powers to own trust companies. A few years later, what portion of the trust business is now in the banks? Almost all of it. Less than three years after the 1992 financial institution reforms came into effect only two independent trust companies of any size remained in the business. The danger of banks cross-subsidizing their entry into other financial services is that it is provoking a reduction in competition for consumers.

Probably the most vicious argument is that all this entry into the marketing of insurance through the branch network is in the consumers' interests because they will have one stop shopping. That may be convenient, but will the consumer get the best advice? Will the consumer get the best price? Will the best interests of the consumer be served? That ought to be the consideration, not whether the consumer can do it all in one place. If the customer gets a bum deal in one place, it is a bum deal regardless of the fact that it was very convenient to do it in that place. That becomes our concern.

We need to make sure the power is balanced, that we have a separation so the people's best interests not only now, but in the long term, are looked after as well.

[Supply, November 21st, 1995]

Madam Speaker, it is an interesting motion that we are debating this afternoon:

That the House condemn the government for having dropped the Canadian content requirements in the contracts for the purchase of military equipment and refusing to set up a genuine program for the conversion of the military industry, thus endangering the Canadian aerospace industry located in Montreal.

Right off the top, I have to say that this motion has great difficulty with one of the realities of the economic world today. We

live in a global economy. The motion fails utterly and completely to address the question that Canada must be competitive in that world. It seems to state that looking for subsidies somehow seems to be the answer. I could not disagree more with the thrust of the motion. I might wish to condemn the government for other things but that is certainly not one of them.

I would like to take a slightly different approach to this whole business and look at it from the industrial point of view, from the development of industry and, in particular, innovation and the science and technology thrust that ought to happen in Canada. One of the first of these is that Reformers encourage investment, not subsidization.

This country needs to develop entrepreneurs, risk takers, people who understand what it means to take a new idea and make it work. It is, after all, these innovators in this new technological world that are the engine of the new economy that is developing all around us.

We need to develop a culture that rewards entrepreneurship, innovation and research and ensures that there is a level, competitive and honest marketplace in which these people can operate. That is what we need. This motion does the exact opposite. It throws the whole marketplace and the honesty of the marketplace right out the window. Therefore, we cannot approve it for that reason.

If entrepreneurs are developed with the skills to be innovative and to take the necessary risks, we will develop the kind of fibre in the people who will make Canada strong and who will get us to the competitive position that we need.

In order to do that, we need to do something else. We need to encourage investment in capital structures, in buildings. We also need to develop investment in equipment. That is obvious. The one that is not so obvious is that we need to have investment in research and development.

Let me draw members' attention to what the president of Digital Canada had to say about Research and Development Canada: "By far, the most overriding issue is the investment climate for innovation in Canada". We have all heard stories of new Canadian inventions. These are not so new. They have been around for a while but they were new at one time. One was the heart pacemaker and the other was the variable pitch propeller. Both of these inventions were exploited not in Canada but in other countries because of the reluctance of Canadians to take risks.

It is unlikely that Canadians are any more risk adverse than anyone else in the world. They will take risks. However, we have always had taxation and fiscal policies that encouraged investment in enterprises that had hard assets to back them up as opposed to enterprises that were based strictly on knowledge. That is the direction we will be moving in the future.

I am so encouraged to see that at least some of our banking community is beginning to recognize this. They are beginning to recognize that we need to recognize assets that are not hard and fixed but rather rest really in the minds, the capabilities, and the skills of individuals.

Then he goes on to an example of a particular company. Guess which company it might be? The Digital Equipment Corporation, which was founded in 1957 with only $70,000 of venture capital. That was put up by a company in Boston called American Research and Development. It took 70 per cent of the equity in the company but also showed the founders of the company how to build and manage a successful company. The result was that when that company went public on the American Stock Exchange in 1966, less than 10 years later, that $70,000 investment was worth about $30 million. That is significant.

It was the tax provision that existed in the United States at that time that made it possible for these ventures to succeed as they did. We need to learn from these successful countries and do something very similar. It has nothing to do with the kind of subsidization that is being advocated in this motion.

We need to go one step further as well. Canadian investors and Canadian entrepreneurs need to recognize that they need to have a change toward venture capitalists. They seem to have the idea, which is only human-I am certainly like that-that if something is mine, it is mine, and I want it all.

When you get into the idea of venture capital, these people who have the deep pockets with millions and sometimes billions of dollars in them, and who are prepared to underwrite the venture, do not want to just give that away. They want to say this is a good idea and they want a part. The company we just looked at took 70 per cent, but it became a $30 million investment later and gave a tremendous return to the owner.

The person who has the great idea needs to recognize that they have two options: they have all of the idea with no money to develop it, which means they will never make any money and never get rich; or they have the option of going to somebody who has a deep pocket, venture the thing out, share the major risk on the other side, and get rich in the process as well.

That attitude needs to develop in Canada. It needs to develop among academicians. It needs to develop with our entrepreneurs. It needs to develop on the part of parents of people who are seeking success in the industrial world.

We need to move into another area as well. We need to get into the area of management. When we get into high tech specialized industries and we need specialized management as well. We need

managers who understand science. We need managers who understand technology.

You can be the most brilliant scientist, the most brilliant technologist and understand all the machinations and all the intricate workings of networks and things of that sort, but if you cannot manage people it is no good. It takes a special kind of management skill to do this. We need to do that.

There are two skills I would like to draw to our attention today. The first of these is that these people need to learn how to solve problems. That becomes the key. It is not so much are you able to push the button or are you able to program the computer, but rather can you solve a problem. Then you must recognize that you probably cannot do it alone and that your skills need to be combined with those of someone else, a third party and a fourth party, so that the group together forms a team. That team then begins to solve the problem. At different times, different members of that team will become leaders. The whole concept of seniority and the other things that are traditional with us will go out the window.

This motion, on the other hand, says no, no, no, do not do that; just create a government program for this industry so that it can be diverted to peacetime operation rather than military operation. No. Government needs to encourage the development of balanced people who can do the kind of management we talked about. We need to give to the individuals who seek this kind of education an opportunity to do that.

Members in the House will remember that we proposed a voucher system of education so that the student, the researcher, or the scientist who wants to advance himself becomes a person who selects where, when, and into how much detail he will go to get that skill in development. It seems to me that is rather significant, instead of having the university decide here is your program, here are your answers, come and get them. The student says no, he needs this kind of an answer, and asks if they have this kind of expertise. He searches around until he finds it and then gives that voucher to that institution and says he wants to do this. The institution benefits, gets the money, and has the resources to give this student what he needs.

We need those kinds of things. We need new people, we need investment, we need all those kinds of things. We need to go beyond that as well. We need to develop a sound vehicle for the transfer of technology from the place where the brains are to where it is actually applied in a profitable way. Canada has a gap here. That gap is an inability to adequately, effectively, and consistently transfer technology from the research bodies, usually universities and governments in some cases, to the development industries in order to provide strategic technologies for manufacturing, service, and resource based sectors.

Usually the best way to do that is to collaborate between sectors. The centres of excellence do this to a degree, as does IRAP, but we need to do something a little more advanced than that. We need to support more industry driven networks like Innovation Place in Saskatoon. That is an example of how university, industry, and government can collaborate and bring about true advancement in technology and the application of skill and innovation to new ideas.

It is becoming rather clear that some professors, who all want seniority and who all want these great salaries, are having great difficulty getting to the level of income they aspire to. At this particular centre of innovation these professors are driving the best cars around. They are living in the biggest houses. They have the kinds of bank accounts they have always dreamed about. Why? They have the willingness to take their intellectual property and work together with an industrialist or entrepreneur and work together with certain elements of the government and say together we can build a whole new way of doing things. They have succeeded in doing that, and congratulations to them.

There is something this government has done that is not too bad. It has financed a study called "The Commercialization of Research in Canada". Get a load of what this report advocates, which is very interesting. I hope the government has the nerve to do this: "Canada's universities should radically improve their intellectual property policies and processes for transferring scientific discoveries to industry or lose eligibility for government research grants". Madam Speaker, have you ever heard of this type of thing before? This is absolutely unbelievable.

The report goes on to state: "The policy should clearly articulate a university stance on the following issues: the responsibility of researchers to identify research results with possible economic or social benefits; electronic publishing; ownership of the intellectual property; a process for reporting and recording the facts of the case; routes and options for the protection of the intellectual property; options for revenue sharing; guidelines for technology transfers and commercialization, especially with Canadian based businesses; and exceptions to the policy in particular cases where a special contract is more desirable with the terms of the policy, such as in contract research, network research, or research involving a prior intellectual property". That is some of the most forward thinking I have heard in a long time.

It goes on: "Failure to develop such policies or to hire a person responsible for identifying and disseminating intellectual property and technology transfer policies to all individual researchers within the university should preclude all of the school's researchers from eligibility for government-industry targeted funding, such as granting council strategic programs".

Is that not a refreshing sound to hear? This would be absolutely amazing. Think of what this would do to the university. This would bring together for once the community and the academician. It would bring together the industrialists and the taxpayers who fund all this stuff in the first place and show how we can build a better Canada. That is the kind of motion we should be debating today, not the kind of motion that is before the House.

They are radical suggestions. Should they happen? Yes, they should happen. The reason they should happen is because Canada is in a globally competitive environment. Competition has become the imperative. It is a sad thing to say that science is not sufficiently recognized in the House. It is high time we recognized the significance of the role science plays in our daily life. We need to become aware that it is not only competition; it is also the role science plays in our economy and in our industry. While that may raise the ire of basic researchers who are afraid of having their work hijacked by economic demands, it must be accepted.

There will be an inevitable division between the traditionalists and the innovators. They will fight with each other. While neither can be excluded, the innovators must receive attention. The marketplace will ultimately decide that. Their time has come. They are the ones who can provide Canada with a foundation of economic independence. They will provide global competitiveness. The innovators are skilled in technology and science. The traditionalists, like all of us, will benefit from the country's wealth. Their task will not be lost; it will be assured. They will have jobs. We cannot let the naysayers turn us away from what is necessary. We must support the innovators, choose the path and move forward in that direction.

These are major new directions for our country. They are not easy to develop. They will not happen overnight. They require co-operation at all levels. I am very encouraged by some of the things that have happened recently. The important thing to recognize is that industry has to get into research. Industry must form consortia to share the costs of research.

I would like to address the comments of the Auditor General of Canada with respect to science and technology in Canada. He had some pretty serious things to say. With respect to some of the comments, we should stand back and say wait a minute, is it really that bad? Yes, it is. He suggests that the lack of progress in previous attempts to produce results oriented action plans can be attributed to a lack of overall government-wide leadership, direction, and accountability for implementing dramatic changes. That is probably one of the worst indictments anybody could make about the Government of Canada.

Seven billion dollars are spent on research and development in Canada. This country has a debt of $560 billion. We spend $7 billion on research. Not one of those dollars should be taken away. We need to spend that kind of money. In fact we should probably spend more. When the Auditor General of Canada says this money has not been focussed, has been spent in a manner that does not have a general direction, I say shame.

We need a focus. We need direction. We have been waiting for over two years for a policy on science and technology. It is still not here. I hope it will come very soon. We need it desperately. If we are to be an economically viable country, if we are to be competitive globally, we must come to grips with this part of our development.

We must oppose the motion. Instead of doing what the motion proposes, we need to encourage investment. We need to encourage innovation. We need to develop a new attitude toward venture capital. We need to develop specialized management. We need a sound vehicle for technology transfer. We need to recognize the value of collaborative research. Finally, we must take seriously the Auditor General of Canada's caution to get off our butts and get a focus and a direction for the country.

[Okanagan Centre, November 20th, 1995]

Mr. Speaker, last week I spent some time knocking on the doors of constituents.

I asked people what was of concern to them now, halfway through the mandate. Three issues were stated most frequently. Several seniors said: "I'm afraid to go out on the street alone in my neighbourhood. Several years ago I felt no threat for my own safety as I walked to see my neighbour. Today I either take a cab, my car or ask someone to come with me. Can't you do something that will discourage the criminals?"

The second issue was: "When will the government get its spending under control? I am worried that when I reach retirement age there won't be any money left for me".

The third issue came from a 16-year-old. He quoted Winston Churchill: "Democracy is the worst system ever invented except for all the rest". He talked about the problems of the Quebec referendum balloting and said: "We need to tell the government to do everything it can to punish the guilty ones and to make sure that we take all possible precautions to prevent it from ever happening again".

That is what the people are saying. I challenge the Prime Minister and every MP to get on with the Canadian agenda.

[Department Of Human Resources Development Act, November 20th, 1995]

Mr. Speaker, it is with pleasure that I join the debate on Bill C-96, a bill which sets up the Department of Human Resources Development. I would certainly hope the kinds of remarks and words my hon. colleague across the way has just expressed will come to fruition, at least in part.

This bill, which is a structural kind of bill to set up a department, takes place in the environment we find ourselves in as far as Canada and the world is concerned. It deals with things such as the fact that we live in an information society. Taking place around us is a technological revolution toward a knowledge based economy. There is the globalization of politics, industry and trade. There is a move toward the devolution of power to individuals. There is a gradual recognition that the past is not a model for the future.

There is an express need now for a new federalism. We are very well aware of that having just experienced the referendum in Quebec. All of society must be involved, not just the elite. This hinges on a very major part. We need to recognize that if we are going to have real change in our country, it is going to come from the rank and file. It is not going to come from the top down. We have had enough of that. That model is not working, has not worked and will not work in the future.

What do we need? This is where the bill lacks a lot of its input for Canada's society and for the government. Canada needs the development of people. We need an innovation and technology orientation. We need to have an infrastructure in science and engineering. I will only deal with those three areas. Many more ought to be addressed but those are the three I will limit my remarks to this afternoon.

If we are going to develop people successfully, the number one requirement as we move from the old society to the new information and knowledge based society is the ability to change. Individuals will have to have the willingness and motivation inside them to learn continually and to do so in all aspects of life.

I was rather impressed with the Electrical and Electronic Manufacturers Association which has a very interesting set of requirements for people who need to be up to date in their particular industry. The association says that some of the best programs are those developed by the industry on the shop floor as the best learning takes place on the shop floor.

Those are the two elements: the ability and willingness to change and subsequently the willingness to learn and to do so on a continuing basis. It goes beyond that. We need to develop people who have the ability to handle the technological and social aspects of living and working. We are developing some very competent people in the technological area. We are not developing them as a balanced position in terms of handling their social and other situations.

Let me alert the House to the findings of Maclean's magazine which just did a poll ranking all the universities in Canada. It became pretty obvious on listening to various people that what individuals require today is the ability to do technical work very effectively and at a very high level. However at the same time they need to be able to balance their home life and their primary relationships with other people. We need this balance in people but we need more than that. We need particular technological development in areas that are not presently being developed.

It was rather interesting to listen to some of the captains of industry say that they need particular emphasis, willingness and ability in people who deal with computers and the skills required to do that successfully.

Today there is the breakdown of our families. If there was ever a need for the family to be strongly structured it is in this situation where constant learning is required. When there is a need to change there has to be a place where there is quiet, comfort and security. That comes from strong interpersonal relationships which are best found within the family. As we develop these other aspects, the high technical skills, we need to develop the reason and the basis for strong families and strong primary relationships.

In order to achieve that what is necessary? We need a balanced education system, one that encourages an entrepreneurial spirit which shows people how to be entrepreneurs. We live in a culture that encourages entrepreneurship and rewards the risk taking that is incumbent upon those who venture out in their own businesses. We then need to develop that skill and ability for people to blend economic and management awareness with science and technology.

It is so easy to become focused in a very narrow area of a particular science or technology and forget that unless we can

manage people it does not matter how good we are at running machines or computer programs. We have to learn to manage people. In the new high tech industries that seems to be the area which is most in need of development.

It goes beyond that. We need to have a balance among educational institutions. There are hundreds of universities in this country. They seem to spring up all over the place. It seems to me that parents want their kids to go to university. That is the best. The summum bonum of all education aspirations is graduating from university, preferably with a Ph.D. That is not necessarily the requirement for technological development. We need to balance our institutions so we focus on the highly academic skilled people but also develop the person who can do the actual technical stuff of putting a computer together, of writing a computer program, of recognizing the interrelationships of computer networks and things of that sort.

We need more than just university institutions. We need other post-secondary institutions. We have technical institutions such as BCIT, the Northern Alberta Institute of Technology and institutions of that nature, but we need a group that goes in between those as well, which brings a level of sophistication and understanding of a Ph.D. but that is not a Ph.D. in the academic sense, but rather in the technical and science sense, as contrasted with existing university programs.

There are two specific suggestions I now draw to members' attention. The first is it is necessary for us to examine, validate and help diffuse or reject research studies prepared by other organizations and build on valid work by undertaking or commissioning research to study the linkages between education and the economy, the forecasting of skill requirements, international comparisons, quality of education and training, gender and equity policies, student learning styles and core curriculum.

The second is to facilitate linkages between all levels of the education system: business, labour, government, the community, social services, non-governmental organizations. If we move into that kind of an environment we will do away, or at least certainly reduce, the town/gown conflict that exists now between the university professor on the one hand who rests primarily on his seniority to maintain his position rather than on new ideas. We have some wonderful professors who have great seniority and who rest on that particular thing. A lot of them need to change their lifestyle and have a new orientation.

We also need to develop a receptivity among our companies, our various industries, that they will take and integrate into their operations the best practice technologies. Then we can play the leadership role that Canada is capable of in the development, commercialisation and marketing of technology. The challenge is ours. We can do that.

Another area I draw attention to is developing the science and engineering infrastructure. We need to again emphasize the excellence required in education, the excellence in skill development and a vibrant research department.

The complexity of the relationships among research, education, skills training, innovation and competitiveness is not to be denigrated. It is extremely difficult and it is the one area where we have not done a good job. This bill should have addressed those kinds of things. It did not.

Universities, community colleges and technical institutes must re-examine their missions, establish clear goals and improve the mobilization, allocation and management of their resources to achieve these goals.

Consideration should be given to the complementarity between the program offerings of colleges and universities as well as to greater differentiation between the roles and missions of each institution. Concurrently there must be a review of post-secondary funding in view of redefined missions. This review should result in a clear definition of goals, outcomes and increased accountability.

[Small Business Loans Act, October 24th, 1995]

My worthy opponent says of course it did. He comes from one of the banks that was not represented by those other two, so I suspect he would agree.

The cost of administering the program exceeds two per cent of administration, which is another problem. At the present time the Small Business Loans Act tacks onto the loan a two per cent administration fee, which becomes part of the principal and can be amortized over the length of loan, or I suppose the individual can pay it off up front if he wishes to do so. In any event, the two per cent is not sufficient to cover the loss or the administration of the loan.

The third point is institutional loans. Under this provision it suggests the loan level is rather high in this way of doing business between financial institutions and their various lenders. I want to draw the Haines-Riding study into this a little later in my remarks, when I will get into this in more detail.

I now want to go on to the specific provisions of this act as it is before the House today. The first of these is the reduction of the government's liability from 90 per cent to 85 per cent. In other words, the loan guarantees are now no higher than 85 per cent of that loan. That is one provision.

The second provision, which we should all pay very special attention to, says that future changes to the rate of the liability of government are transferred from Parliament to cabinet. This means that in the future the liability that will be incurred by this government and will rest upon the shoulders of every Canadian who pays taxes will be decided not by the people's representatives but by the cabinet. I think that is an abrogation of democratic responsibility. I want to take very strong exception to this. In fact I want to introduce right here the notion and the statement that the Reform Party will not support this bill on the basis of that provision alone. Unless an amendment is made to withdraw that provision and that transfer of power from the Parliament to the cabinet, we will oppose this bill, even if we would agree with everything else in the bill. We do not agree with everything else, but that is sufficient in my opinion to oppose the bill in its entirety.

Why do I take such a strong view of this? This is a democratic country. This country is based on the principles of democracy, which means that the people in this House who are elected to represent the Canadian people have been elected to look after the best interests of those people who have elected us. That means we should represent them as honestly as we possibly can, and do so fairly, justly, and equitably. That is what I was elected to do.

This kind of amendment takes away the right of parliamentarians to represent their people on the floor of this House. That is wrong. It is wrong in principle. The time has come for us to take very strong exception to this kind of amendment.

We all know that within the platform, the philosophy, and the principles of the Reform Party of Canada we stand for precisely the ability to represent our people. We want more free votes in this House. We have had some examples of free votes in this House, and the government is to be commended for those few instances. However, the government is to be severely chastised for those moments when its members did exercise their free vote and were punished for doing so. That is a fault, a blemish on this government's record in terms of its democratic principles and the application of democratic decision making.

We talk about a referendum. There certain instances when every person in Canada should exercise their right directly and immediately not only at the time of exercising a ballot in favour of a particular person but also in favour of major social, ethical or moral issues on which they feel very strongly and about which the majority should decide what the issue in Canada ought to be.

One which has been well publicized is capital punishment. We go on from there as well. There is the other place, the Senate of Canada, and we believe there is also responsibility that it be democratized; that the individuals who sit in that chamber to provide and exercise sober second thought be elected and that they fairly and accurately represent the various regions of Canada so there can be fair representation not only by individuals but by the various regions of Canada as well.

Therefore within that framework of deep philosophic orientation we oppose the provision in this bill which would amend the act in such a way that the power moves from the House of Commons, the Parliament of the country, to the cabinet.

Another provision is the application of an annual fee of 1.25 per cent to the administration of a loan, the outstanding balance, paid by the lender. It is very interesting how this fee is to be administered. It is to be paid by the lender and the lender may not recover the cost of that 1.25 per cent except through an increase in interest rates.

It is interesting what the act does. The earlier limit on the interest rate was 1.75 per cent above prime. The amendment proposed says the new limit is 3 per cent above prime. It does not take a mathematical genius to add 1.75 and 1.25 and come up with 3, which now means very clearly that the bank or any lending institution may increase its interest rates 3 per cent above prime and thereby recover its full 1.25 per cent. That is what this provision is.

Another provision provides for a claims processing fee. When we ask the various department officials how much that fee will be, when will it be applied, under what conditions will it apply, will it be a standard fee across any loan, will it make any difference, they say they do not really know because they have not yet decided whether they will apply such a fee.

Why does the act have this provision in it? They might want to recover certain costs associated with claims. That is very interesting but it begs the question of what kinds of conditions must a lending institution meet in order to avoid being assessed a claims processing fee.

There is absolutely no provision in the act that would suggest the parameters, the guidelines, the details under which a claims fee would be applied. It is dangerous when we have open ended legislation of that kind when nobody knows how much, nobody knows under what conditions, nobody knows under what guidelines it will be applied.

I was absolutely astounded when I read this. When we got the briefing, it sounded very different. When I went back to the actual act I discovered that really the slant was quite different. I want to read this exactly as it is written. Section 4(1)(e.1): "The minister may prescribe the terms and conditions on which a lender may release any security, including a personal guarantee, taken for the repayment of a business improvement loan".

We were told in no uncertain terms that this dealt with guarantees, the actual phrase being personal guarantees. I can see where a small businessman getting started who becomes a little bit desperate will actually provide a personal guarantee. He will say: "Here is my house and my personal effects. I will stand good on a personal basis for this part of the loan". When half the loan is paid the lender says he will now take the personal guarantee away.

That is only one small part. It includes the release of any securities, which includes anything else. It could be a facility, a building, equipment, land, a variety of things. If there is a loan outstanding of $250,000 and half of it is repaid, that is a $125,000 liability. If at that point the lender can now release security, where is the security left for the balance of that loan? I can see the understanding that it goes to the personal guarantee because the building is probably worth the $125,000, but if the lender cannot take that off too and the act allows him to do that then I ask myself what kind of protection there is for the Government of Canada on the hook for the guarantee of 85 per cent of that loan.

So much for a review of the particular provisions. There are some issues we should be aware of. I referred earlier to the Haines-Riding study from Carleton University in Ottawa. It makes some very interesting observations. I think we should go back into history a little. The Small Business Loans Act up until this point had a ceiling of sales of $2 million; in other words, a business that

had sales of more than $2 million would not qualify for the SBLA loan. Under this act now that level is $5 million.

The Haines-Riding study shows very clearly that businesses with sales of $2 million or less have a much lower failure rate when it comes to the repayment of loans than those with sales between $2 million and $5 million. The differential between those loans is a failure rate increase of 14.7 per cent. That is pretty significant.

We need to combine that with the increase in the amount of loans outstanding as well. In the past the maximum SBLA loan one could have was $150,000. That has now increased to $250,000, which means, although we cannot say for sure, if the size of the business and maximum loan has increased we can conclude the loss rate will increase proportionately. Therefore if it costs $100 million now on an annual basis to run this program what will it be under the new provisions? I think the answer is very obvious. It will be higher than it is today.

That brings us into a very serious conundrum. On one hand we have an act that is supposed to build and encourage businesses. It will do that in a variety of cases. It should then generate more tax revenue and things of this nature which would then increase the economy of Canada and everything would roll along more smoothly than it did before.

The maximum of the SBLA loan ceiling has now moved from $4 billion to $12 billion, a threefold increase. If it now, under the $4 billion ceiling, runs at $100 billion, what will it do under the $12 billion? If the proportion remains constant it will also be a threefold increase. We cannot afford that.

The national debt is somewhere around $560 billion, growing at about $1,000 per second. About $45 billion to $60 billion is paid out in interest, much of which is foreign currency denominated. With the Canadian dollar being where it is today, can anyone imagine what this is doing to our social programs? That is why we are in trouble with the health care system. That is why we are in trouble with transfer payments. That is why we are in trouble with welfare payments. That is what makes this kind of bill questionable.

Yet people say they were told at the beginning that 80 per cent to 85 per cent of the new jobs are created by small business. Right. Should we not encourage small business? Right. Should not our government programs to the greatest degree possible be self-financing? Right. This bill is supposed to do all those things.

If it does that, then we can support that. However, we still want to go back to the earlier point I made about this democracy. That is absolutely at the heart of this issue and we cannot, we dare not allow that to get in the way of implementing this bill.

I want to address one final point, competition. I want to read a very extensive point made very effectively by our study on small business. We were told by Mr. Doug Robbins of Robbinex that financial institutions are increasingly using the Small Businesses Loans Act-get a load of this-to finance assets, for example cars and trucks, that are able to obtain financing without a government guarantee.

Data provided by the Scotia Bank on its small business lending portfolio show that SBLA lending is more heavily concentrated in areas of transportation by as much as 25 per cent than the bank's total small business lending portfolio in which transportation and communication lending represents only 6 per cent. The representatives of Newport Credit and the Canadian Financing and Leasing Association, specializing in asset based financing, told the committee they are having difficulty competing with lenders who benefit from government guarantees.

Since when has the government become that great and wonderful arbiter to determine winners and losers in the marketplace? The government has no business getting into this area. If a business cannot succeed in the marketplace it should not be there. That is the part that bothers me more than anything else in a bill of this kind, this orientation. We need to recognize this is not a simple, easy answer to our economic problems.

The committee received conflicting views on the future of the Small Businesses Loans Act as well. It was suggested the act be expanded by extending it to working capital. Neither the Small Businesses Loans Act nor this bill does that. It was also suggested that it be restricted by focusing on rapidly growing business that enhances the country's knowledge base and generates skilled employment, which we already talked about.

With increase lending comes increased taxpayer exposure. We have already dealt with that. This amendment, although it goes part of the way, does not go all the way. It should go further.

The committee suggested we reduce the percentage of government guarantee, which has been done, reduce the percentage of assets that can be financed, and reduce the maximum loan amounts, which the bill does not do. In fact it goes in the opposite direction. It doubles the exposure that would have been happening under the act as it is now.

The bill has numerous shortcomings like releasing securities, any kind of securities as well as personal guarantees. We need to be very clear and an amendment is needed in this area.

This bill also increases the liability of government even though the minister stood up in the House and said the bill, because it is a self-financing or a cost liquidating kind of a program, does not increase the liability of government. I dare suggest the experience will show that it does increase the liability of government. If it does

not increase the liability of government then I ask the minister whether there is any need for a program of this kind.

Let me emphasize once again that the most serious flaw in the bill is that it disenfranchises parliamentarians. It moves the authority to make decisions and obligations on behalf of the people of Canada from the House to the cabinet. That is wrong. Democracy must never be denied.

I reiterate that unless that provision is removed from the bill we will oppose it.

[Small Business Loans Act, October 24th, 1995]

Mr. Speaker, I stand to enter the debate on Bill C-99, a bill to amend certain sections of the Small Business Loans Act.

I want to pay particular tribute to the parliamentary secretary to the Minister of Industry for his very kind remarks and his description characterizing the industry committee that dealt with the report "Taking Care of Small Business", which was tabled about a year ago, and also some of the recommendations in the report, some of which are included and recognized in the bill.

I would like to follow up on some of the suggestions he made about the significance of small business in the economy of Canada. It is not a secret to us or anybody who follows the economy of Canada that approximately 80 per cent to 85 per cent of the new jobs created in Canada are created by small business. When it comes to the Small Business Loans Act it is precisely that sector of our economy that this act addresses. In my opinion, these amendments are not sufficient. They do not go far enough and some of them are virtually counterproductive.

We must recognize that in the new economy that is developing, the important issue and the characteristic of a business is the ability to apply knowledge in a way that will provide for new services, new products, and particularly the application of new technology and the most recent discoveries of science. It is very clear that in the globalization of the economy and in the international competition that is developing it will become increasingly significant that the science and the technology of a nation will become a determining factor in that particular competitive environment.

One critical factor in developing the ability to transfer knowledge and apply it to new products or new ways of processing and doing things will require a skilled and very knowledgeable workforce. That does not come by accident. It comes as a result not only of good technical schools and good universities, but begins in primary school, kindergarten to grade 12. It is here that we need to change our educational system so that it will become far more geared to science and technology, and particularly the science area, and that we all become sensitive and recognize that it is really science that is going to make the difference in the next century.

We also know from past experience that it is the small business that is most able to apply this new knowledge, because it is not fettered with all this bureaucracy. It is not fettered with all these regulations and things that are internal and the internal politics that stand in the way of new ideas and adapting to change. We need to develop that kind of awareness and recognize that it is the small business group that is going to be the leader in this particular area.

The whole idea of small business rests on entrepreneurship. Unfortunately, today in this country we have what is known as bureaucratic entrepreneurship. We all know what that is. That means that a bureaucrat sees how many more bureaucrats he can get under his supervision. That will mean that his salary and power will increase. Therefore, the entrepreneurship is one of developing larger and larger departments. We have a very well developed entrepreneurship orientation, ability, and skill level in that area. However, we do not have that same level of expertise, that same skill, that same fully developed attitude in the developing of entrepreneurship in business and the application of knowledge to produce new products and adapt to new processes in developing those products.

Right down into the kindergarten level, all the way up through the universities, we need to develop this attitude, this orientation toward entrepreneurship. The Small Business Loans Act is directed precisely to that area. We must recognize that the Small Business Loans Act is not a new idea. It has been around since 1961. It has

been amended many times. It was designed in the original instance to provide for innovation to our economy in Canada.

I want to hearken back to a moment ago when we talked about developing entrepreneurship, the skill and so on. We now need to recognize that it is this legislation that initially was designed to do just that. We should look at some of the provisions of this particular piece of legislation and ask ourselves whether the new amendments will facilitate or will stand in the way of that kind of development.

We all know that small business has as its major impediment to further growth and development, very often in its initial establishment, access to capital. There are two kinds of capital to which business requires access. One is equity capital, which establishes the machines, the facilities, and those kinds of things. The other is loan capital. There are two kinds of loan capital. Usually it is centred around operational capital, which allows the business to operate from one day to the next. We discovered in the last year that even though everybody says there is all kinds of capital available, we have story after story of business telling us that it is the access to capital that is its stumbling block. It is not getting the access it needs.

I want to draw to the attention of the House some of the elements that came to our attention when we studied this problem in the industry committee.

With the amendments that were implemented in 1992, the loans provided under the Small Business Loans Act increased dramatically. Between 1993 and 1994 the number of loans grew to 42,500 from 13,000 in 1992. The new lending reached almost $2.5 billion and averaged $58,500 per loan, from a previous average of $37,000 per loan.

There was a sad note in the evidence that was heard before the committee. A 1988 study concluded that two-thirds of the loans would have been made even without the government guarantee, which at that point was at 90 per cent. Since the revisions, however, Mr. Al Cotton of the Toronto Dominion Bank told the committee that 75 per cent of the bank's small business loans would not have been made in the absence of the guarantee. Shortly after his presentation, Mr. Kluge of the Canadian Imperial Bank of Commerce stated that most SBLA lending would have been granted in the absence of the program, but that in certain high risk sectors, such as new restaurants, the guarantee was important.

We were left with a dilemma. Here we had two bank officials from two of the major banks, one saying that the loans would not have been given without the guarantee of the loans act, another bank official saying that they would have been granted. It becomes a real dilemma. Did this loan act really produce the kind of result desired or did it not?