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Winning Conditions for a Prosperous Canada

September 27, 1999

Good morning, ladies and gentlemen. I am pleased to have the opportunity to speak to you today.


I know you have a very busy agenda today and tomorrow and you will be tackling some very difficult issues. As you are well aware, our country is grappling with some extremely important policy matters and the Chamber, as the largest business association in Canada, has a vital role to play in this process.


Countless businesses and associations have come and gone from the Canadian landscape since the Chamber of Commerce was formed 75 years ago. You, on the other hand, have grown and prospered, building on your mandate to create an influential voice for Canadian business, and promote policies that encourage long-term economic growth and prosperity.


The fact that you are still here, larger, more vibrant and more influential than ever, is a testimonial to the hundreds of thousands of Chamber members past and present who have devoted their time to furthering the cause of business in Canada.


Canadian Pacific has always had close links with the Chamber. We were one of the 50 founding members and our chairman and president at that time, Sir Edward Beatty, was a speaker at your first annual general meeting. Our ties today are as close as they have ever been. You don’t have to look any farther than Marcella Szel, a senior executive of the Canadian Pacific Railway, who today completes what I know has been a very busy and productive term as your Chair.


Like the Chamber, Canadian Pacific has grown and prospered over the years — 118 years in our case — and like you we are still here today fighting the good fight for a more prosperous country.


We are active in all ten Canadian provinces and around the world. In fact, it is in the global arena that our performance is being measured today. We are competing not only against other Canadian businesses but also against businesses in numerous other countries, many of them much bigger and more powerful than we are.


Globalization is reshaping the Canadian economy. International trade is growing at a tremendous rate, new trading alliances are being formed, and barriers to international commerce are disappearing. This rapidly changing and highly competitive global marketplace presents many new opportunities and just as many new challenges. The implications for Canada are profound because we are one of the world’s most trade-dependent nations.


Ladies and gentlemen, free trade with the United States was a bold and necessary step ten years ago. It put us in the game and gave us an opportunity to create significant economic wealth in Canada.


Today, ten years later, we have an even more important and urgent challenge — to make our economy and country more competitive, innovative and productive so that we can compete successfully with the United States and the other major players in the global economy.


However, as you all know, many disturbing signs have surfaced in recent years.



















1.

The Canadian dollar has declined steadily over the last decade, reflecting the weakness of our economy and masking our low productivity. In effect, the low dollar means we have taken a national pay cut vis-à-vis the United States.


2.

The brain drain has accelerated. A recent study by the Conference Board, aptly titled "Are We Losing Our Minds?" concluded that there has been a dramatic increase in emigrants to the United States in recent years and that emigration of highly skilled workers is rising at an accelerating rate. The reasons cited were the ones we have become so familiar with: lower taxes, higher earnings, better job opportunities, more exposure to leading edge technology, and warmer climate. Unfortunately, we can’t do much about the last one. But we need to address the others. We are in a global war for talent and right now we are losing the battle as many of our best and brightest are heading south.

It’s like losing all of our best hockey players. As we know, our Canadian franchises are having an increasingly difficult time retaining the best talent and our teams need those players to be competitive. It’s not that there aren’t enough hockey players to go around; it’s that you need the best if you are going to win. The same is true for Canadian business.


3.

Our standard of living — the economic wealth per capita — is more than 35 percent lower than the United States and after tax family incomes have been stagnant this decade. Over the last five years, taxes have risen twice as fast as the economy as a whole and almost 2.5 times faster than wages and salaries.


4.

Our stock market has dramatically under-performed the U.S. market during the last few years.


5.

The great Canadian fire sale is underway. Because of the low Canadian dollar, corporate Canada is easy pickings for countries with stronger currencies. MacMillan Bloedel is being purchased by Weyerhauser; Imasco is being dismantled by its major shareholder; Alcan is merging with two of its competitors and will have its executive offices in New York, and now American Airlines and its partner Onex are bidding to acquire and merge Air Canada and Canadian Airlines. Canadian icons are falling like ten pins.


In addition, the lure of the United States market is causing other Canadian companies to move their head offices to the U.S. Ipsco and Nova Chemicals are two recent examples. The relocation of head offices means the loss of the high-paying jobs that go with them. This alone is serious enough, but head offices represent much more than well-paying jobs and career opportunities. They make decisions that affect economic growth, they nurture new enterprises and help them onto the world stage, and they support vibrant communities.


Our greatest challenge today is to make our businesses and our economy more productive and therefore more competitive.


What is productivity? It is about being more efficient and effective, using assets and resources more wisely — in a word, "doing more with less." The other side of the same coin is innovation. Innovation is applying new ideas to create economic value. It is creating new products and services. The companies that do this best typically outperform their competitors.


The Conference Board of Canada has identified innovation as our top priority for the 21st century. It follows that innovation should be at the top of our national agenda but it isn’t. And this is unfortunate because Canadian businesses don’t stack up very well as innovators. We certainly don’t compare favorably with the United States; not in numbers of innovative industries, not in research and development spending, not in patent applications and not in the adoption and spread of new technology.


It is tempting to dismiss comparisons with the United States. After all, it is the most powerful economy in the world and it is ten times as big as we are.


We do this at our peril. The United States is our next door neighbour and by far our biggest trading partner and biggest competitor. We have no choice but to match its productivity and innovation standards. The fact that we are so much smaller should be an incentive not just to match them but to exceed them.


Becoming more innovative will not be easy. Innovation is not simply a matter of someone stumbling over a new idea. Peter Drucker has written that disciplined work is more important than an entrepreneurial personality in seeking innovation. Innovation, he says, takes talent, ingenuity and knowledge but it is unlikely to succeed without diligence, persistence and commitment.


Certainly the environment in the United States has been more conducive to innovation. Venture capital is more readily available to people with good ideas and the tax system rewards risk takers.


In the end, productivity and innovation are important because they drive economic growth, create wealth and are the biggest contributing factors to higher real incomes and a higher standard of living. Without higher productivity, and the higher real incomes that go with it, we won’t be able to sustain the quality of life we enjoy now, let alone improve it. This will jeopardize high quality social programs such as health care just as the baby boom generation heads for retirement.


Our challenge today is to create the "winning conditions" or "les conditions gagnantes" (to borrow a phrase) for Canada to survive and prosper in the 21st century:



















1.

The first winning condition is lower taxes. Lower taxes are not a cure-all, but they are necessary for a more creative and productive society. Our high personal income taxes are sapping the strength of our economy. Lower corporate taxes are needed to encourage investment in new machinery and equipment which in turn will drive productivity improvements. And we need more venture capital to create jobs in the new economy.


There is a quote that reinforces this point and I think you may be surprised at its source. "I do not need to indicate to you gentlemen the importance of a low basis of taxation in attracting new capital to this country, whether it be in industry or otherwise. Capital, like men, seeks the country in which its services can be utilized under fair conditions and without undue burden." So spoke my predecessor Edward Beatty 73 years ago when he addressed your predecessors in October 1926 in Saint John at the inaugural meeting of this organization. I guess there are some eternal truths but if taxation was a concern in Canada in 1926, it is an even greater concern today.


Our tax burden is simply too high and there is growing frustration in Canada over our persistently high taxes.


Jean-Baptiste Colbert, Louis XIV’s financial controller, likened the art of taxation to plucking the goose so as to obtain the largest amount of feathers with the smallest amount of hissing. I think the Canadian goose is starting to emit a giant hissing sound and governments need to pay attention.


I believe that lowering taxes in a really meaningful way will spur economic activity, promote innovation, create new job opportunities and lead to a higher standard of living.


2.

The second winning condition is a lower debt to GDP ratio. We have made great progress over the last several years in eliminating government deficits. The Federal Government and seven of the ten provinces are running surpluses. However, our debt to GDP ratio is higher than any G7 country, except Italy, and some 26 cents of every dollar of government revenue goes to pay interest on the debt.


We need to put some of our government surpluses to debt reduction. However, our first priority should be to reduce taxes as lower taxes will stimulate the economy, increase GDP and produce a significant improvement in our debt to GDP ratio.


3.

The third winning condition is improved education, training and life-long learning. In the end, it is brainpower that fuels the knowledge economy. We have to invest in our people and we have to increase the efficiency and effectiveness of our schools and post-secondary institutions.


4.

The fourth winning condition is a more open and flexible economy with less government and much less regulation. Government today accounts for too big a portion of our economy and excessive government regulation creates inefficiencies and adds to the cost of doing business. Our labour work rules in many cases impede productivity and innovation and inter-provincial trade barriers create inefficiencies within the Canadian economy.


5.

The fifth winning condition is more collaboration among business, universities and governments to enhance our R & D efforts and create stronger linkages to the marketplace. Some of the most innovative businesses spring up around great universities, such as Harvard, MIT and Stanford. But we also need more venture or risk capital to bring new ideas to market.


The winning conditions are self-reinforcing. Lower taxes will create new job opportunities and a more entrepreneurial spirit. They will help stem the brain drain — not only by reducing the disparity in after-tax income but also by opening up new job opportunities.


Lower taxes and an expanding entrepreneurial economy will strengthen and support the Canadian dollar and a rising dollar will help us expand beyond Canada and be more competitive in the global economy.


The winning conditions will set the stage for a more prosperous Canada but we will only succeed if each of us, in our own businesses, play our part. We need leadership at all levels in our companies to train our workforce for the 21st century, to redirect our enterprises to more innovative and value creating activities, and to make sure we are at the forefront in adopting new technologies.


During the next ten years the Canadian economy will go through further restructuring as economic activity moves increasingly away from natural resources and low-tech manufacturing to higher value-added activities. Even in the natural resource sector, we will use more advanced technology to find, develop and process our resources.


Canada once derived most of its strength from its natural resource base. The resources were located in Canada and so the benefits flowed to Canadians. But increasingly, the economic drivers in the 21st century will not be rooted in physical resources but rather will be knowledge based. Ideas, capital, and the people with the skills to make the best use of ideas and capital, will move freely around the world. We need to ensure that a reasonable number of these global citizens, who can live and work wherever they please, choose to apply their skills in Canada.


Time is short. We must "wake up" and create the winning conditions so that Canadian companies can expand from a strong Canadian base and prosper in the global economy. Unless we reverse the accelerating brain drain and the loss of head offices, we will continue the downward spiral.


I am not recommending a slavish adoption of the American economic model. We in Canada can remain a kinder and gentler society but we must shift the balance towards becoming more innovative, efficient and wealth-creating. If we do not, our dominant characteristic will not be kinder and gentler but simply poorer. We will be a country that has lost control of its destiny and with a past that is brighter than its future.


Globalization and the American juggernaut at our door make it all the more urgent that we enhance our ability to compete. The Canadian Chamber of Commerce has a vital role to play in preparing the Canadian people and our governments for the 21st century.


If we fail, all our citizens will lose the opportunity for a higher standard of living and more rewarding jobs but, more importantly, we will have failed the next generation of Canadians — leaving them with high debt, high taxes, a lower standard of living, an uncertain social safety net, and fewer rewarding job opportunities.


We must seize control of our destiny. The time for significant change is now.


I urge you to take up the challenge today.