Ian McClelland

[Standing Committee On Industry, November 14th, 1994]

My hon. colleague across asks what I am doing here. I am here to try and stop this foolishness. I am here to try to put an end to this.

[Standing Committee On Industry, November 14th, 1994]

A rocket surgeon, a brain scientist. This is Don Cherry.

You do not have to be a rocket surgeon to know that if we have an economy that has gone down the tube like the economy in Ontario we increase the amount of money that is available under the Small Businesses Loans Act that is guaranteed 90 per cent by the Government of Canada; that is taxpayers at 10 bucks a pop. What is going to happen? The banks are going to roll all of their questionable loans into the small business loans. They are all going to be guaranteed by the taxpayer-guess what, at 1.75 per cent above prime.

What entrepreneur would go into a bank and say: "I would like to borrow some money but I'm prepared to pay 2 or 2.75 or 2.5 above prime and use my own money and by the way I don't want the government to backstop it so you use your money because that is why you're in a risk business". They go in there and say: "I want a Small Businesses Loans Act loan" and the bank is quite happy to have its risk guaranteed by the government.

Is it any wonder that the use of small businesses loans skyrockets? This is not rocket science here. This is fairly basic.

Then what do we do? We say we are going to try to increase the amount of money that is made available under the Small Businesses Loans Act to small business. What is that going to do? That is going to give the banks that much more freedom to get all of their small business loan accounts guaranteed by the taxpayer.

That distorts the banking business and it distorts the responsibility of the entrepreneur going into business. When someone goes into business, it is not the responsibility of the taxpayers to hold them harmless from risk because with risk comes reward.

In the report there is one particularly good recommendation that I would hope the government would take to heart and incorporate: "The program should increase the availability of credit rather than allowing lenders to reduce the risk on loans that would be made without the guarantee".

That means the banks should be making loans to small business and the loan rate should be commensurate with risk. If the Government of Canada, that means the taxpayers of Canada, is going to be guaranteeing loans to businesses, small or medium, those loans should carry a rate of interest commensurate with the risk so that in the long term small business loans would be self-financing or self-liquidating. The losses of some would be offset by the profits of others.

Surely if a loan is going to be guaranteed by the Government of Canada, the taxpayers of Canada, that should carry a cost to the user that it would ensure that the citizens of Canada are held harmless from any risk. That rate should also be high enough that the loans may be determined and may be provided by the bank without having to go to the well of the taxpayer.

If for instance the small business loans were at a rate of 2.5 per cent and the average small business could get a loan at prime plus two or prime plus one and a half, there would be some impetus on the part of the banks and the borrower to borrow money without having to go to the public trough. That is the way it should be.

That is a particularly good recommendation in the report and I would certainly suggest that the government should take it to heart. It is not so much a question of how much within reason a small business or an entrepreneur pays for the use of someone else's money, it is whether that money is available at all.

Another consideration in the small business loans came up in discussion of just what part of the loan should be guaranteed. Should it be the first 90 per cent or the last 90 per cent? Should any loan be guaranteed the first half of it or the last? In my view it should always be, if the Government of Canada is guaranteeing anything, the last portion of the loan, not the first portion.

If I am lending money to someone, I want that person to be lying awake at night trying to figure out how they are going to pay it back. I want to make darn sure that if I lend someone money their number one objective in life is repaying that money, not repaying the last half of it. It is pretty basic but it is real.

A change in the Small Businesses Loans Act which is perhaps the most important is it should be available for working capital, not just for bricks and mortar, not just for equipment, not just for inventory.

If a venture has the strength, and now we are talking about businesses that as a nation we are going to need more of as we get into the knowledge based economy, we are going to be making decisions on working capital which will allow entrepreneurs to develop knowledge based material such as computer programs, CD-ROMs, things that require virtually no inventory, very little bricks and mortar but without working capital would never get off the ground.

The consideration of making working capital requirements of business available under the Small Businesses Loans Act is another very worthwhile objective. I would caution that we are going to have to be very vigilant to ensure that there is oversight on these loans.

We are not doing anyone a favour if we ask them to put their house up, put all of their possessions up and then do not vigorously give an objective analysis to the new venture, to say: "Wait a minute. Make sure you have all your bases covered before you risk everything you have in life".

The next subject I would like to speak about is role of the Federal Business Development Bank. I must admit that I have mixed emotions about the FBDB because it is a lender of last resort. Its purpose is to lend money when chartered banks will not lend money and my feeling is that if a chartered bank will not lend the money or the treasury branch in Alberta, we really have to wonder why on earth the taxpayers of Canada should be taking the risk.

I know that the banks in Canada have not over the last 50 years or so been particularly venturesome. There is a need for longer term patient capital. is possible that the Federal Business Development Bank may be able to fill a legitimate role in this. Frankly, I just do not know.

I would caution that if a bank using taxpayers' money is going to get into the business of lending money on a long term basis to high risk businesses, we had better make sure that it does so in an extremely prudent manner. This cannot be a shotgun approach where we are going to throw enough money at it and hope we will have enough spectacular winners that they will offset the losers.

That brings me to the next part of what I would like to speak about. It is the whole notion of governments at all levels, including the governments in the great province of Quebec that somehow consider their function, their legitimate purpose is to tax money from individuals, take it into the government and then lend it out to other people to go into business against businesses or individuals who paid the taxes in the first place.

What is it about us as politicians that when we get elected we somehow think we have the knowledge or the ability to tell the private sector what it should do? How is it that we think we somehow have the right or even the responsibility to manage an economy? Our country did not get into the hole by $535 billion federally because we in this House have proven to be such great stewards of the taxpayers' wealth.

[Standing Committee On Industry, November 14th, 1994]

Mr. Speaker, I take great pleasure in participating in this debate today. It is interesting. You can certainly identify those of us in this House who have signed a cheque in our lives because we certainly have a lot more interest and a lot more fire in our bellies when we get to talking about the banks and the banking institutions in Canada.

The relationship with the big sisters, the big banks in Canada, was very well summarized in the title of a book that was published about 10 years ago: Towers of Gold, Feet of Clay . When you think about that for a second it really brings into focus the reason for this debate in the first place and why the industry committee worked so hard on its report on small business financing.

It was interesting to me coming from western Canada that this country did not really have a recession until the late 1980s and closer to 1990 when it really hit southern Ontario. That is when we had a recession. But for business people in the west the recession started much earlier than that and it started overnight. It was exacerbated by the national energy plan but made much worse by the fact that during that time the big banks had loaned vast amounts of money all over the world and then were drawing in the loans all over Canada from the small business sector.

That was one interesting time to be in business. Banks were lending money and had loaned money and taken huge losses all over the world but they were putting the screws to small business people because they were the only ones they could put the screws to.

There is a saying in the banking business that when you are not a lender, you are a receiver, and if you owe the bank a thousand dollars you have a problem, but if you owe it a million dollars it has a problem. That is absolutely true.

Both sides of this story have learned a little over the intervening years and as in everything in life when there is competition in any industry it is good for the business. It is good for the industry. I think we are getting more competition in the banking business and that competition is good.

This report put together by the industry committee has 24 recommendations. They run the gamut of just about everything you can imagine: monitoring and approving statistics, regulating bank behaviour, leasing, federal programs to assist small and medium business, stimulating competition, using RRSPs, provincial security regulations, taxation and capital gains, labour sponsored venture capital corporations and mutual guarantee co-operatives.

I would like to restrict my comments to four separate issues: the role of the Small Businesses Loans Act; the role of the Federal Business Development Bank; whether or not to speak more generally to the role of business and government and the relationship and how much government money should be involved in business; and just a few minutes to speak about the legitimate role of an entrepreneur and just who should have the risk.

Let us start with the Small Businesses Loans Act. For the benefit of those who may not be aware of it, when an entrepreneur gets an idea they go into the bank and say they have an idea, they want to start a business. The Small Businesses Loans Act will lend government guaranteed money up to 90 per cent of the value of the loan and it is guaranteed by the government. It is set and established at a rate of 1.75 per cent over prime.

A few years ago the amount was increased dramatically. I think it went to $200,000 from $50,000. At the same time the economy was going down the tubes in Ontario.

As Don Cherry says, you don't have to be a rocket surgeon to figure it out. If the economy is going down the tube-

[Standing Committee On Industry, November 14th, 1994]

And it is irrelevant.

[Standing Committee On Industry, November 14th, 1994]

Mr. Speaker, I rise on a point of order. This is question and comment period and there are others who would like to get a question in. Perhaps he could be-

[Standing Committee On Industry, November 14th, 1994]

Mr. Speaker, I read with great interest the industry committee's report on small business. In my view there is one very glaring omission and that is the tax base on small business and businesses at large. I wonder if the member for Broadview-Greenwood would care to spend a few minutes talking about what could be done to encourage business through the tax base.

[Laurier Club, November 4th, 1994]

Mr. Speaker, my question is again for the Acting Prime Minister.

This week a private reception of members of the Laurier Club was held in Montreal organized by Senator Leo Kolber, a man closely connected with the Pearson Development Corporation, a group now locked in battle with the federal government over the closure of the Pearson airport.

Has the Deputy Prime Minister consulted with the ethics counsellor as to the propriety of such privileged access to ministers of the crown or would that consultation be done retroactively?

[Laurier Club, November 4th, 1994]

Mr. Speaker, the Deputy Prime Minister will know that the government must enjoy the moral authority to govern if it hopes to implement the very difficult but necessary decisions ahead. Part of that moral authority is derived from the certain knowledge of citizens, that we are all equal before the law and before Parliament.

Would the Deputy Prime Minister tell the House how private privileged meetings among the Prime Minister, ministers of the crown, and those willing to pay $1,000 to join the Liberal Laurier Club will help to build trust and confidence between the governed and the government?

[Esprit De Corps, November 3rd, 1994]

Mr. Speaker, would the Minister of Industry investigate in the

department to find out whether these allegations are true? That was my question.

General Motors recently pulled its advertising from the magazine Esprit de Corps . The reason given for this decision is that its representative was getting bad vibes from the Department of National Defence. Would the minister of defence in concert with the Minister of Industry issue a directive that all personnel are to cease and that this kind of action would not be tolerated in any department of the Government of Canada?

[Esprit De Corps, November 3rd, 1994]

Mr. Speaker, the Minister of Industry will know that a free and independent press is a cornerstone of democracy. The press must be free to criticize government without fear of retribution. Esprit de Corps has in its writings been critical of certain aspects of sourcing of military equipment. Following this criticism a high ranking bureaucrat from industry, seconded to the Department of National Defence, is alleged to have suggested to advertisers that they should boycott advertising in the magazine Esprit de Corps .

Will the minister launch an investigation to determine the scope of the involvement of personnel from the Department of Industry in attempting to destroy this Canadian publication?