CANADA IN THE YEAR 2000
Michael A. Cornelissen President and CEO, Royal Trustco Ltd.
Chairman: A.A. van Straubenzee President
You may recall several weeks ago, Michael Duffy indicated he felt our political leaders are to some degree our stars in Canada - replacing royalty in Great Britain and movie actors in the United States. I think he was only half right. One can hardly pick up a newspaper these days without seeing a poll of a different kind - ranking our most influential businessmen. That's one indicator of stardom, I suppose.
The list always includes someone from the Brascan empire and, if I'm not mistaken, a recent article in the Report on Business magazine listed Trevor Eyton and Jack Cockwell in the top three. Part of the reason they were there, of course, is the great success of our guest speaker.
Another indicator of stardom is the interest attracted in the book publishing world. The leaders of Canada's three political parties have all been the subject of recent books.
And lately there have been two books published dealing with the Brascan group-A Matter of Trust and The Brass Ring. What this indicates to me is Michael Cornelissen has made it. l would like to quote a passage from one of these books:
"Michael Cornelissen was perhaps the most co-operative of all group executives for this book. He sat down with a two-page list of questions from us and dictated a 13-page response that was triple checked. He also provided an addendum. But what Cornelissen was most determined to display was the human side of the group."
No one knows what hour of the day Michael Cornelissen gets to the office because no one is up early enough to see him arrive. But I finally caught up with the woman who sells muffins at the Royal Trust tower. She thought she'd seen him one morning as late as seven.
What we have seen, however, is Michael Cornelissen turning a company around, introducing the most progressive management techniques available. He is the president and CEO of one of Canada's largest trust companies, the only Canadian trust company with extensive offices overseas in Europe and Asia.
Mr. Cornelissen joined Royal Trust in 1983. Shortly thereafter, he established an ambitious five-year operating plan, including objectives such as an annual earnings growth of 15 per cent and a return on equity of 15 to 20 per cent. All these objectives have been met, or exceeded, for five consecutive years.
Michael grew up in South Africa, was educated at the University of Natal and obtained his CA. He went on to the University of Capetown where he earned his MBA. He immigrated to Canada in 1967, and joined Touche Ross.
He was identified by Jack Cockwell as an extraordinarily bright individual and soon found himself as executive vice-president and COO of Trizec Corporation, Calgary's major real estate firm.
One of the significant things that has occurred to the executive world in the past few years has been the cross fertilization of companies and their executives. It was once thought the financial industry was sacrosanct, something outsiders would be unable to grasp. Cornelissen has proven that false.
He is extremely active in the community, recently heading up the United Appeal where, applying his magnificent management skills, he took them over the top. But perhaps dearest to his heart is his position as Chairman of Force 12 North, the syndicate formed to mount Canada's next challenge for the America's Cup. fie is a keen sailor, a member of the board of Appleby College, on the campaign cabinet of Trafalgar Memorial Hospital, married with two children, and, I'm told, plays a mean piano.
It is a great honour to have him as our guest speaker today.
It is a fact that the sum total of human knowledge doubles every 12 years, but this does not necessarily mean we have become wiser. Look at the recent federal electoral process. Certainly it was an exciting and spectacular political process, but we were all robbed.
While I am an ardent supporter of free trade, the exclusive debate of this issue has kept Canadians from many equally important issues. The political process must distill itself through the constraining medium of television. We live in the age of the sound burst and the visual clip - where all information is compressed, trivialized and then communicated, reducing men and women of vision, like our leaders, to name callers and accusers. Arguments were trivialized to game show proportions.
Have you ever wondered why polling is so popular - not because it is accurate but because it fits through the key-hole medium of television. What a sad substitution for the real issues.
I am sure there are many Canadians who feel the way I do. I am fortunate; l have a platform and I have all you people here who have paid to listen to me get my feelings about this election off my chest. So today, I'm going to take this opportunity to raise some of the issues I wish I had heard discussed during the election.
We needed to take a long, hard, sober look at the long-term future of Canada.
We needed to debate where we wanted Canada to be in the year 2000. It is only 12 years away, a time during which the sum total of human knowledge will double once again.
Will we take the opportunity during that time:
To have prospered in an intensely competitive global arena?
To have surmounted the economic obstacles that threaten current prosperity?
To have kept pace with the dramatic technological and social changes around us?
When we bring in the 21st Century, will we look back at the next 12 years in anger - at opportunities missed or wasted?
Or will we look back in pride at our accomplishments? I want to cover this topic in three distinct parts. First a look back at the immediate past 12 years. Secondly the key challenges we face today.
And finally the directions I think we should take to ensure we will look back on the next 12 years with pride.
The time period until 2000 is limited, just as I'm told my time is today. So I shall confine my remarks to three areas which I believe are among the most critically important to our future. They are: economic and fiscal management, human capital management, information management.
The world is changing at an exponential rate. But in the next 12 years we will have at least three more elections, and perhaps 30 different provincial governments. Our new conservative government has an agenda and has been working on it, but that agenda must be elevated to a national vision for Canada in the year 2000. None of us can afford to sit back passively with that most exasperating of behaviors, the "wait and see" attitude. We Canadians need to share a vision for our country. We need leaders who will evangelize that vision and be accountable for their actions.
And Canadians have a role in promoting that accountability. With a shared vision, we can begin to bridge the ideological differences that exist between Canada's constituent groups. The differences between regions; languages; government jurisdictions; and labour and management. The differences may always be there, but cannot be permitted to . stand in the way of progress towards a truly great Canada. Nor can we wait around forever. We need a sense of urgency and commitment to the cause because the speed with which the environment is changing is accelerating.
We have the resources to get there; all we need is the will, the commitment, and the leadership to do so.
It's in the interest of every Canadian.
Let's review the last 12 years. Will the 21st century, only 12 years away, be that different? Well, 12 years ago the world was surprisingly different. In Russia Glasnost was not only unheard of, it was unthinkable.
In Europe the United Kingdom was admitted screaming and kicking into the Economic Community only three years earlier. European Economic Community relations were as rancid as the mountain of butter and milk caused by protectionist, nationalistic policies, a far cry from the cohesive unit they will be in three short years.
On the other side of the world, China was still ruled by Mao Tse Tung and his Red Army, none of whom had yet experienced the pleasures of Coca Cola. Yet during those 12 short years more than 1.5 billion people have assumed a new direction for their societies, 180 degrees different from the past.
Canada too, was a surprisingly different place.
Economic and Fiscal Management
In the field of economic and fiscal management we have entered a new era of political interventionism. 1976 marked the second year of Wage and Price Controls. They were formally extended to 41,000 companies compared to the 10,000 limit originally set out in the plan.
The Foreign Investment Review Agency had been in existence for three years. A cumbersome, bureaucratic process that robbed Canada of crucial foreign risk capital to develop its resources. Both of these were ideological forerunners of the National Energy Program, a program that savagely scarred the Western Provinces for years. I know, I lived there and saw it for myself - rigs abandoning the oil patch, withdrawing $11 billion of investment. We needed that investment, but our political leaders' vision reached only as far as the next election.
Fortunately for Canada, Wage and Price Controls, FIRA and the National Energy Program have since been dismantled. I use these examples of how long the shelf life for ill conceived policies can be. These are examples of policies that were administered to the Canadian public without proper debate or discussion. It took almost five years to restore Canada's credibility to international investors.
And now we have benefitted from that restored confidence. So much so that in 1987 the Organization for Economic Cooperation and Development put Canada's economic performance ahead of the other G-7 countries. But one major inheritance from the 70s is still with us - the deficit.
I for one wanted to hear full discussion about this in our political debates, l wanted to know where our leadership will take us on this issue. Excepting the recent efforts of the Conservative government, no government since the early 70s has treated the deficit with the seriousness it deserves. Instead we keep spending as if there is no tomorrow.
Our political leaders have used the good times to spend more than ever before rather than building a reserve for the inevitable rainy day. The absence of any discussion in our recent election on this very real and very pressing issue for Canada made me see red. Where was the accountability when our national debt soared to $300 billion. How could they ignore a deficit of close to $30 billion?
Is that a figure beyond the grasp of ordinary Canadians? Not if they were told that their taxes would be one-third less, without the interest burden on that mountain of debt. Canadians are entitled to hear what choices their leaders offer and what Canada can afford. We need more than the cautious, mealy-mouthed, carefully worded position papers of key business and economic research organizations, we need some good old-fashioned outrage and anger, from all responsible Canadians at elected officials spending so much more than we can afford.
Why should we care so much? Because the more money we pay out for past expenditures, the less we have to invest in our future.
Human Capital Management
That brings me to the second key component of our future, the management of our "human capital." This term was coined by Robert Solow, a Nobel Prize winner in Economics, who said that 70 per cent of all capital in North America is in human form. So if we show concern for the management of our economic capital, we should focus even greater attention on our human capital.
The human capital is formed in our schools - how have we done? Twelve years ago on the education front we were awakening to the fact that "open school" concepts simply did not work. Permissive education was a nice concept in theory, but the reality was that our children were not acquiring the basic Three R skills. Remedial English programs were being introduced `en masse' into the first year university curriculum and today we are paying the price.
But perhaps the area of greatest change in the last 12 years is information management. Technology is the key that unlocks the power of information today.
I was astounded to discover that the state of the art in desk top systems in 1976 was the IBM Selectric typewriter with a self-correcting ribbon. We have become so dependent on personal computers that it is hard to believe they did not exist in 1976. Nor did facsimile machines nor cellular telephones. So, although it didn't seem so at the time, communication was not quite as immediate and information not quite as accessible as today.
In 12 short years we have made significant progress on the three fronts of economic and fiscal management, human capital management and information management. The challenge now is to manage them for the next 12. The key challenges we face today:
Economic and Fiscal Management
On the economic and fiscal side the challenge is to compete internationally. Canada has lost some ground, putting in and taking out interventionist programs while the rest of the world has begun to reorganize into large economic blocs.
By 1992 the 12 nations of the European Economic Community will have established a single, tariff-free market. The "four tigers" - Japan, Taiwan, Korea and Hong Kong - may well be established as a unified trading bloc.
Twelve years ago at the Empire Club, broadcaster and columnist Ron Collister said: "We must give some clear indication to the United States that we are moving away from our hothouse of nationalism, indifferent to and insulated from the real world." Monday night's vote for free trade with the United States shows that we have finally accepted his advice. We need to be a world class country if we are to compete internationally.
But the global marketplace is only one challenge. Domestically, we face economic obstacles which threaten to dampen our ability to compete. Amongst them are issues we should have heard debated in the election campaign, including tax reform.
Last week a group of Russians came to Canada to look at our proposed tax reform. If we can con the Russians into adopting our tax reform proposals we can eliminate NATO and Star Wars because the Canadian tax system would bring Russia to its knees in one year, without spilling a single drop of blood! And the money we save on not building nuclear submarines will pay all our taxes for the next three years!
Seriously, though, the Russians are on the right track. They know that tax systems influence behavior, and it won't take them long to discover that Canada's tax reform package may be a superb ideological fit for their country as it is today - a system that penalizes initiative, risk taking and production while rewarding failure and passivity.
Canada is a country that needs $100 billion of investment in our energy sector alone in the next decade, but tax reform has removed the rewards of equity investment. Dividends and capital gains are taxed at virtually the same rates as interest income, motivating Canadians to take the least possible risk by investing in bonds. Unless we reward the risk involved in equity investments we will become a nation of coupon clippers, and we will also become industrially moribund.
If we are to encourage foreign investment the rates of return must be at least equal to others in North America. Canada is too small to go it alone.
We need a mountain of risk capital - the domestic supply isn't enough; nor is the domestic supply of taxes going to be sufficient to pay our way, if we continue to deficit spend.
We have borrowed from our children to pay for the social programs we think we enjoy today. That's like robbing their piggy banks. They will have enough to pay for when we all retire and they have to take care of our pensions. By the year 2000 one in eight people will be over 65 years of age, and unless we do something about the deficit soon, our children will never be off the debt treadmill.
Getting rid of the deficit is a major challenge and talk of reduction isn't enough.
British Prime Minister Margaret Thatcher also addressed the Empire Club a little over 12 years ago. "The essential task of a leader," Mrs. Thatcher said in 1975, "(is) not to follow public opinion from the back but to lead it from the front." I would point out that at that time the British inflation rate was 25 per cent; today it is just over six per cent. We need the same courage and commitment that Mrs. Thatcher has shown in her response to the United Kingdom's deficit. She has wiped it out. Now there's leadership. No matter what you think about her, she has done a remarkable job of putting Britain back on its feet.
A senior Canadian politician told me recently that the problem was not so much with the deficit but with the expectations that government had created in the public's mind. He said the political task was to change people's expectations of government. Our political leaders have to have the courage to say that government cannot underwrite everything. I think Canadians know choices must be made and they want to know what they are. One of those choices has to do with education, and it should be of national concern.
Human Capital Management
We face a challenge today in managing the human capital that is in our schools today. Let me give you some scary statistics:
In Ontario, one-third of all students drop out before Grade 12.
Only 50 per cent of those who reach Grade 12 are considered as having had a "High School Education."
• From a starting point of 100 we are now down to 33.
• And of those 33 who do go to university, 20 to 40 per cent fail in their first year!
Is that different from the rest of the world? In 1984 the Second International Mathematics Study tested the mathematical performance of Grade 12 students across 20 countries.
Hong Kong placed first across the board.
• Japan was second and England third in four categories.
• The good news is Canada placed just ahead of the United States.
• The bad news is the U.S. placed 12th.
• Ontario students had an average score of 47 compared with Hong Kong's 72.
Is it fair to assess ourselves only on a supremely quantitative discipline like Math? Well, more than 22 per cent of Canadians over the age of 15 are illiterate or functionally illiterate. What an appalling indictment of our education system.
Why was education not even mentioned in any one of the lists of a dozen key election issues by any of the three major parties? It is a provincial jurisdiction, but it has serious national consequences. Our spending on education is rising fast, but who is accountable for this obscene obsession with quantity as opposed to quality?
During the 70s we allowed the emphasis to move from achievement to experience, a laudable enough goal, but in the process it removed the incentive to do well, removed our ability to measure standards and, perhaps unwittingly, lowered our standards in world terms.
Some parents have responded by removing their children to more disciplined forms of education; enrolment in Catholic schools and private schools is increasing.
One reason might be what George Radwanski, in his report on Ontario education, described as the "spiral curriculum", a system where children do not have to show their competence in a subject before moving to the next level. The premise is that children learn at different rates and at different stages of their development. But instead of developing competence as they move through the grade system, those who did not grasp the subject in the first place simply get further and further behind. This system means that no teacher need ever bear the responsibility for a child's failure to learn.
But it is not only in the school system that we are failing to meet our children's and our country's needs. We lag far behind Japan and Germany in the percentage of our population 17 and over who are involved in formal education or apprenticeship. In West Germany, with a population of 62 million, there are 1.8 million apprentices in technological training. Canada has 65,000. If we were applying the West German ratio, we would increase that number to closer to 700,000. These people are our working capital.
In addition, while human resources theories move in and out of vogue, the fact remains that in the area of labour relations, we are still in the Stone Age. The statistics are unbelievable: From 1976 to 1987 there was an average of 840 strikes and lockouts in Canada each year. The loss of productivity is an unacceptable drain on our resources. It points to the philosophical and communications gap between management and organized labour; they are operating on different value systems, rather than working for each other's mutual interest.
We have to learn how to manage this vitally important resource both in education and in labour relations.
This brings me to another point about our election that made me see red. There was the continued pejorative description of business. Business is not a person or a thing, it is the method that this society has chosen to create and distribute wealth in this country. The one thing all Canadians have in common is that they need a job to live.
How long are we therefore going to tolerate the intellectual dishonesty that there is something inherently wrong with business. An important part of establishing a national vision lies in correcting this attitude. Or maybe to put it in more simple terms, when you are out of business you are out of a job.
The phenomenal development in technology has created a third challenge. A vast explosion of information in the world has overwhelmed most of us. It comes so fast and in such quantities we just don't have time to discriminate, impairing, rather than enhancing in most cases, our capacity for reasoned judgment. The election showed how vulnerable ignorance can make us - the general public's lack of knowledge of free trade became a weapon of near destruction in the political campaign.
There is an important lesson to be learned from this experience - every individual has a right to good, sound information on issues of national importance and politicians must stop protecting the average Canadian from knowledge.
In summary, the challenges that face us are to eradicate our deficit; create a tax system that rewards risk-taking and to establish an education system that will give us citizens educated to world class standards. And to ensure that
Canadians get the right information to assess the critical decisions that face us.
All of these challenges must be overcome if we are to look back in pride in the year 2000. And this is my third point: our future direction.
I do not believe we can leave this enormous task to the politicians alone, we are all accountable for the quality of our economic human and information management.
Economic and Fiscal Management
In managing our economic and fiscal capital we will need to ensure Canada's competitiveness internationally.
We will need a visionary approach to deficit elimination, and that means careful scrutiny of our spending.
A recent article in The Globe and Mail said that only 17 per cent of our tax dollars go to the poor. The remainder, after debt interest has been paid, goes to programs to those who are not in need. They are vote-buying investments, not visionary investments, and we need to take a stand against such behaviour. Eliminating the deficit is not going to be easy, but I'd rather take the bitter pill while we are healthy, than wait for poor economic circumstances to force it upon us. Finance Minister Michael Wilson has announced his determination to reduce the deficit. He needs the support and encouragement of all Canadians to achieve that.
I'd like to see him take the next step and look at tax reform too because economic and fiscal management also means creating a taxation system that encourages economically productive behavior in all Canadians. And it must be a system that differentiates Canada from other capital hungry nations; we can do much better than slavishly following U.S. initiatives in tax policies.
The leadership in this vital area must come from government, but unless we share a vision of a strong, healthy and prosperous Canada and make our views known, it will never happen.
Human Capital Management
I believe we will also look back in pride if we tackle our education and training systems with a vision of a world class Canada in mind. Our priorities are all wrong when a one-percent interest rate increase makes the headlines but a 10-percent increase in illiteracy is relegated to the back pages. We need to move education back to the front burner and make it an issue. I know the Government recently announced a country-wide campaign to provide educational instruction to illiterate people, but it would be more pertinent to deal with causes rather than the symptoms.
The quality of our education will have a significant bearing on our ability to compete internationally. The high school graduating Class of 2000 is already in Grade 1, and if we continue to shortchange our children's education, at least onethird of them won't make it to Grade 12.
The time to act is now, and the first step should be to hold our educators accountable for the quality of education our young people deserve. Excellence cannot come without accountability, and accountability cannot come without measurement. That's why we need measurable standards of accomplishment set on a province-wide basis - standards set not so much to identify and reward, although I believe this helps, but for diagnostic and remedial purposes - and a scrapping of the "spiral curriculum."
The problem may be that the whole educational apparatus is owned and operated within the government sector, so that decisions about education are made more along political than economic lines. The Toronto Star announced the recently achieved control of the Toronto School Board ... by the NDP! An editorial lamely speculated that this development may cause a diversion from the curriculum to world issues. Not a word about the effect on our devastated educational standards.
Political barriers prevent many things being achieved on the economic and human capital fronts. I believe we need some privatization of our human capital markets to resolve the problems we now face.
In information management we need to get the right information. A well informed community is better prepared for world class competition than an ignorant one. And we all have a role to play in that. In a complex world - to sustain effective democracy - we must have an enlightened electorate.
The capability of reasoned discussion is enormously expanded when the electorate has the facts in their possession, not mythical or ideological representations of those facts. It is a very strange indictment of our system that our leaders are so afraid of our press and media distorting their views that they don't share them with us. Leadership is abdicated and Canadians are deprived of the information and facts they need.
We need to stop rule by poll.
I would sponsor a proposal to ban all polling in the last weeks of an election campaign, it distracts the media from analysis and makes the electoral process trite.
I was also insulted by some of the political advertising in this last election. Our leaders are depicted as name callers and dishonest, which denigrates leadership and our public institutions. If we are to have a shared vision we need to celebrate leadership in thought, in politics, in culture, economically and socially.
The recurring themes which will make a difference to our world in the year 2000 are accountability and shared vision and leadership. If we do not ask for accountability we cannot expect responsibility. Accountability should have been an election issue. And I believe that accountability is not solely in the realm of politicians, it also should apply to their bureaucracy.
The success of our next 12 years, I believe, lies in the fulfilment of the mutual interests of business, labour and government. We need strong-willed single-minded leadership to take us out of the wilderness, and we need a stronger consensual `glue'-shared mutual values. It goes beyond voting and folding ballots every four years. Politicians need to look beyond the next election just as business needs to be concerned beyond the next quarterly results. We need to establish and work with premises and principles which are values shared between all, values that enable leaders of government, business and labour to share a common purpose even if they differ on how best to get there.
With all of these actions and the commitment and accountability of business, government, educators and labour I am convinced we will have the capacity to move the country ahead.
Ladies and gentlemen, my call to you today is to play your part in making Canada in the year 2000 a jewel in the world's crown. No one wants to look back in anger, so ask yourself these five questions for any important strategic action that faces the country:
1. What will it cost?
2. Who is accountable?
3. Can you measure the benefits?
4. Will we have the right information to evaluate it? 5. What is the ultimate objective?
Cost, accountability, measurement, information, objective. The acronym is CAMIO. We must use CAMIO as a framework to fulfil our accountability as Canadians.
The appreciation of the meeting was expressed by Catherine R. Charlton, President of the Charlton Group and a Past President of The Empire Club of Canada.