Andre Berard, President and CEO, National Bank of Canada
COMPETING IN THE GLOBAL VILLAGE
Chairman: Sarah Band, President
Honoured Guests, Head Table guests, members of The Empire Club, ladies and gentlemen.
Andre Berard, our speaker today, has been described as, "..an imposing presence," "relatively unknown", and "a workaholic". None of these descriptions allows much latitude for an introduction. However, Raymond Cyr calls him, " A banker par excellence". And that he deserves.
Mr. Berard has always been a banker, first as a collections clerk, and recently, the president and chief executive officer of Canada's sixth largest chartered bank. Between these two appointments there are 32 years of climbing the ladder of success through the Provincial, which gobbled the National, and became the National Bank of Canada.
Fittingly, the Canadian Historical Review said in 1923, "The tradition of Canadian banking is evolution and not revolution. " In describing himself, Mr. Berard has coined a phrase, no pun intended, which sounds strange coming from a banker. He calls himself a "banker-entrepreneur". He says this describes his bank's ability, "..to have the best response time in Canadian banking." There are probably defaulters who think that's the bad news.
He is the banker who has started allowing his customers to buy wines
and groceries and transit passes with a personal debit card. But only in Quebec you say. Pity.
His immediate goals for the bank are simple. He is aiming for more than 100 branches in Ontario before the end of the current year, and a new customer/client relationship for National employees - aims most of us can understand without difficulty. But I hope you will pardon me for mentioning the phrase you chose to express your wishes Mr. Berard. The Financial Post quotes you as saying you want your 12,000 employees, °.. to become 12,000 salesmen. Everyone to fall in love with the customer." I wonder if you have told the -spouses.
Ladies and gentlemen it is my pleasure to introduce Andre Berard, President and Chief Executive Officer of the National Bank of Canada. He will address us today on "Competing in the Global Village".
Good afternoon Ladies and Gentlemen:
I can think of no other time in the history of Canada when our future as a country, our very survival, has been more in our own hands than it is now. It is no exaggeration to say that the Canada we know today will be dead if the country does not pull itself together and learn how to compete effectively in the emerging global marketplace. If we want to build a strong Canadian identity, if we want to protect our Canadian culture, if we want to guarantee our political independence, the number one condition is the building of a strong economy. This is not an option; it is a fact of life.
Nobody has ever built a dynamic nation on a weak economic foundation. So if Canada is going to attain its aspirations, if it is going to fulfill its national dreams, it will first have to generate long-lasting economic prosperity. And here comes some really grim news. We as a nation are going about things the wrong way. Our priorities are mixed up, and our energies are being dissipated. We are the Wrong-way Corrigans of the Global Village - heading in the wrong direction. And, frankly, if we don't set things right - if we don't chart a clear and accurate course - and do it now, we'll end up on the junk pile of history, a country that couldn't cut it in the global village.
And why not? Because we're letting ourselves be
sidetracted by the wrong issues. While Europe and the Pacific Rim are getting their act together on the economic scene, while they are already in the race to compete in the global village, we in Canada have to be pushed out of the starting gate.
Here's what I mean. Let's take the Free-Trade Agreement with the United States. We're still haggling about that deal - still threatening to tear it up. What a foolish waste of time! The Free Trade Agreement with the U.S. is a reality. And it's a good reality. How in heaven's name is Canada - a country of only 25 million people - going to develop viable manufacturing and service industries without ready and secure access to larger markets? The Free Trade Agreement is merely another step - a necessary step - in the march towards trade liberalization.
The ink on our agreement wasn't dry when Western Europe followed with its project for Europe '92. Trade barriers are now falling in Eastern Europe, Germany contemplates unification and Mexico wants to join into a North American Free Trade Zone. In that environment, it is nonsense to go back - way back - and isolate Canada from competition. It's time to work with the agreement - to concentrate our energies on making Canada competitive within this new free-trade area - and then to use the advantage that this gives us to exploit the opportunities of free trade with the rest of the world as well. Unless we do, we will forever be at the starting gate - long after the race is over.
And then there's Meech Lake. I don't mean to belittle the role that the Constitution plays in the life of Canada. The Constitution gives us an ethical and institutional framework within which to conduct the political business of the nation. Meech Lake is not a perfect document. Like all things human, it is flawed. But no one can really argue with the basic premise of Meech Lake; Quebec is and will always remain a distinct society within Canada. So let's accept the Meech Lake accord for what it really is: a guideline that states the obvious - a guideline whose final shape and whose influence on Confederation will be determined over time through experience.
One thing is certain, however. We must break the constitutional stalemate that now engulfs us. If for no other reason, we must do this in order to present Canada as a unified, mature and dynamic nation to the rest of the world. We must break the stalemate to concentrate on our ability to compete effectively on a world-wide scale. But before we can successfully tackle global competition, we must establish a free-trade environment here at home.
And we have begun to move in the right direction. Indeed, with the Free-Trade Agreement with the United States, interprovincial trade barriers are crumbling. Paradoxically, free trade with the U.S. will eventually bring free trade within Canada. But we have a long, long way to go. Each province still maintains a different tangle of regulations governing virtually every type of business activity. Doing business between provinces can be a nightmare of bureaucracy, duplication and waste. This makes businesses more costly to operate and less responsive to consumer wants. Many provinces still engage in preferential treatment in awarding government contracts - again, further driving up the cost of doing business in Canada.
Unless we eliminate barriers to trade within Canada, we, in Canada, will never become successful competitors on the world stage. If we choose not to compete in the expanding markets of the '90s, we'll lose all around. Our relative size and strength will diminish, and we will fall easy prey to newly emerging giants. The one truth that we must face up to - the single most important reality of the 1990s - is that we will be competing against the best in the entire world, throughout the entire world. It's a brand new game, and each sector of the economy has to find out how this new game has changed the business they are in.
Let's take my business, the banking industry. We are facing three pressing challenges. The first is financial market integration on a global scale. Technology has changed the way we do business. Instantaneous global communications keep markets operating 24 hours a day, and each market offers a growing list of products. This around-the-clock shopping is
more than a mere convenience. It is vital for companies that want to protect themselves against interest and exchange rate fluctuations. It is essential for any business that competes on an international scale. And in the world of the 1990s, that means just about every business there is.
It certainly affects the banks and the banking industry. Everyone, no matter how big or powerful, faces the same stiff competition. Let's face it, our customers can go anywhere in the world for financial services. So we in the banking business must also be able to go anywhere, anytime, just to keep up with our customers.
International competition has created the second major challenge facing the banking industry. Our margins have narrowed, which means to keep our customers we must become more productive. We are confident that we can do this, but we also recognize the difficulty of our task. To Canadians, our banks may seem large and powerful, but when viewed in a global perspective, Canada's banks are small. We simply cannot compare in size to the giant financial institutions of the United States, England, France, Germany or Japan, and this makes our challenge to compete in the Global Village all the more difficult.
So we must diversify our activities. We must optimize the use of our resources. We must maximize the efficiency of our distribution networks, which are becoming more and more costly to set up and maintain.
This brings the third challenge, eliminating barriers to trade within the Canadian financial industry. What is true for banking is also true for the insurance and trust industries. We are all very small players who try to compete in the world market. And once more, we are stuck with a legislative stalemate. Rather than moving swiftly to insure global competitiveness, governments are holding out as if turf wars will disappear by magic. More than ever, we need their leadership. Members of the industry are united in requiring new legislation. We are still waiting.
You know, years ago, when he was mayor of New York City,
John Lindsay was accosted by an irate citizen about the city's air pollution problem. Well, replied the suave and unflappable mayor, I never did trust air I couldn't see.
Neither, it seems, do our policy-makers in Ottawa. Not content with a pollution-free business environment, they have clouded the environment with a host of quite visible regula'1ions and restrictions. Canada's chartered banks, for example, are prevented from owning other banking-related businesses and they are prevented from providing a wide range of vital financial services, such as insurance and real estate brokerage. What's worse, the federally chartered banks and trust companies do not have the same freedom, the same opportunity, to serve their customers as do provincially chartered financial institutions. It's no wonder that Royal Trust is threatening to give up its federal charter and see': a provincial one instead.
I don't object to the freer regulatory environment that exists in the provinces. Quite the contrary, 1 applaud it. I only wish that all players could play by the same rules. You may think, this is a problem for us, the federally chartered banks. But it is also a problem for you, the business people of Canada. For if we cannot compete effectively within Canada, we will never develop the capability of competing world-wide. If we can't do that, then we will not be able to provide you - Canadian business - with a wide range of competitively priced banking and financial services. And without that your businesses will lose some of their competitive edge. So one of our top priorities, as we prepare to compete in the Global Village, is to eliminate cumbersome and unfair federal restrictions. Cumbersome, because they make it more difficult for consumers to buy related services under one roof. Unfair, because these restrictions do not apply to other financial institutions, such as trust companies and Caisse Populaires.
As vital as they are, however, these reforms are only part of the solution. We must do much more to bolster Canada's economic strength. Other industries and governments at both the federal and provincial levels, must also do their part to
reduce the cost of doing business - to make us more competitive. In many ways, Canada is a competitive country, and we've got the statistics to prove it. However, according to recent reports, we have been slipping in the charts. For example, the Canadian Labour Market and Productivity centre noted that Canada's manufacturing productivity growth over the 1981-88 period was by far the worst of the seven major OECD countries.
As for innovation in product and services, a recent University of Toronto study shows that Canada's ranking dropped from a mediocre nine in 1986 to a positively dismal 15 in 1989. Well, 1 have a suggestion. Let's borrow the new technology that others are developing. Let us profit from the innovation of others. The Japanese have built their industrial empire on this strategy. It's a fast and relatively inexpensive way to push yourself to the top. However, staying there is another matter. You can't be a copy-cat forever. So sooner or later, Canada will have to beef up its own R and D activities. That means industry will have to allocate a higher percentage of its capital to developing new technologies, new processes and new products.
It also means that Canada will have to pay more attention to', its most vital resource - its young people. Young Canadians are simply not being educated to function effectively in the modern world. In Japan, 94 percent of the 17 year olds are still in school. In Germany, it's 89 percent. In the United States, 87 percent. In Canada, we lag far beyond with a paltry 72 percent. And what is the consequence? A recent survey by the Southam Newspaper Group showed that five million, Canadians - that's more than one in five - cannot read, write or' compute well enough to cope with life in the moderm workforce. In another study, the consulting firm Woods Gordon estimated that illiteracy costs business at least $4 billion a year in accidents, errors and lost productivity. It is obvious that we have a long way to go in education. And I'm afraid that, once again, we will end up in a stalemate - that we will spend a lot of energy talking about the issue without solv-
ing anything. Our problem in Canada is that we talk a lot about the rules of the competitive game, but we are afraid to get down and play.
I cannot leave you this afternoon without a few words on what may be the most pressing issue of all. The world competitiveness report calls it Financial Dynamism. This term is used to describe the quality of the financial environment within which firms operate, and, boy, have we ever lost points, falling from seventh to 11th place during the past three years. And one of the main reasons for this is our public debt. This debt represents a mortgage on our future. This may be a cliché, but that does not change its fundamental truth. Interest on the national debt, which now hovers at about $350 billion, will come to $39 billion this year. That means 35 cents of every tax dollar paid by Canadians goes to paying that interest. These payments are the largest single item in the federal budget - bigger than social services - bigger than defence - bigger than transfer payments to the provinces. And they're growing every year.
To make matters even worse, our net debt - that is, debt that -goes to pay for interest expense and other operating activities of the government and thus does not add to public assets - has grown to an alarming $200 billion. Unless we put a lid on this debt, we are going to leave an unforgivable financial burden on future generations of Canadians. Basically, we're having a good time at the expense of our children and our grandchildren; we're simply blowing their future.
I should add that public debt may also be blowing our present. The fact is, the Canadian dollar has been reaching new heights because of our skyrocketing interest rates, and this development can be traced to the federal deficits. They are the major catalysts of the economic stimulation that produced the current wave of inflation. And, as we all know, the Bank of Canada is forced to fight this deficit-induced inflation by raising interest rates. But it's not too late to stop. The government of Canada can change its spending habits. However, this will happen only if we, the people of Canada,
have the gumption, the will and strength of character to make sacrifices. The federal government has made a start in the right direction - excluding interest payments, the deficit is much tamer today than it was a decade ago. But it must be slashed even more, and every sector of Canadian society must be prepared to tighten its belt.
To wrap it all up, we have been stalling for too long. We're stuck with the constitutional debate, stuck with financial legislation, stuck with economic deregulation. We still argue about free trade, education programs and how to improve productivity. We blame high interest rates on the Bank of Canada while we should review government spending programs. Either we take the path of least resistance and let Canada become a backwater of economic stagnation, where we will lack even the means to provide ourselves with a decent standard of living - let alone protect our cultural and political independence - or we bite the bullet, change our priorities and get into the race to make Canada a major player on the world economic scene.
If you find this prospect daunting, I'd like to remind you of Yogi Berra, a baseball legend known as much for his ability to turn a phrase as for his prowess on the field. When asked at the beginning of a tough campaign about his chances against another club, Yogi replied: "We couldn't beat them when they had a bad team, how are we going to beat them when they have a good team?" To Yogi, and to you, I would reply: You do it by building a better team, by building a better economy, by building a better Canada - one that can compete with the best in the world. Let's stop arguing about how the game should be played at home. Let's play by the rules of world markets; play it over and over again; play it until we are the best. l know we can do it, and there is no doubt in my mind, we will do it.
The appreciation of the meeting was expressed by John Bankes, Executive Vice President, Richardson Greenshields of Canada Ltd. and Second Vice President of The Empire Club of Canada.