Putting People First: Productivity, Growth and Living Standards

Head Table Guests

Gareth S. Seltzer, Vice-President, Private Wealth Management, Guardian Capital Advisors and Immediate Past President, The Empire Club of Canada; David Buchanan, OAC Student, Eastdale Collegiate Institute; Dr. Diane Bridges, D.M., J.P., Director of Pastoral Care, Brampton Memorial Hospital; Gerry Phillips, MPP, Deputy Leader, Ontario Liberal Party; Dr. J. Stefan Dupre, President, Canadian Institute for Advanced Research; Colin D. Watson, President and CEO, Spar Aerospace Limited; Paul Lucas, President and CEO, Glaxo Wellcome Inc.; Dr. Claude Lajeunesse, President and Vice Chancellor, Ryerson Polytechnic University; Byron Wilfert, M.P., Member of Parliament-Richmond; and Dr. Frederic Jackman, President, Invicta Investments Incorp. and a Past President, The Empire Club of Canada.

Introduction by George L. Cooke

It is my pleasure to again introduce as our guest speaker, The Honourable John Manley, Minister of Industry. It was almost a year ago that The Honourable John Manley was with us, for what has become his annual visit. Welcome back to the Empire Club. Minister Manley leads a Department whose mission is to foster a growing competitive, knowledge-based Canadian economy; working with the private sector to improve Canada's conditions for investment, improve innovation performance, increase our share of global trade, and build a fair, efficient and competitive marketplace.

John Manley was first elected in 1988 and re-elected in 1993 and 1997 as Member of Parliament for Ottawa-South. He was appointed Minister of Industry in November 1993. He was given additional responsibilities as Minister responsible for the Atlantic Canada Opportunities Agency, Canada Economic Development for Quebec Regions, and Western Economic Diversification Canada in January 1996. Minister Manley is assisted in these duties by three Secretaries of State.

The Minister is also responsible for a number of government agencies including the Standards Council, the Canadian Space Agency, the National Research Council, Statistics Canada, the Business Development Bank of Canada, the Canadian Tourism Commission, the Natural Sciences and Engineering Research Council, and the Social Sciences and Humanities Research Council.

Supported by these organisations, which represent the government's key tools for economic renewal and innovation, Mr. Manley and his colleagues have been given an important part to play in advancing the Jobs and Growth Agenda. Under his leadership, this team is acting to build a positive entrepreneurial climate and help small business grow; to expand markets for jobs and growth through trade; to create an efficient and modern infrastructure; to build stronger regional economies within an integrated national framework to meet the challenge of global competition; and to make technology work for Canada.

Minister Manley is dedicated to securing Canada's place in the new economy. As Minister responsible for telecommunications policy, he has led the development of Canada's Information Highway Strategy.

Before entering politics, Minister Manley practiced business and income tax law in Ottawa. He and his wife, Judith, live in Ottawa South with their children, Rebecca, David and Sarah.

John Manley

Thank you for your kind introduction George.

It is an honour for me to address this distinguished Club again. Last year I spoke about our "connectedness agenda" that continues to link Canadians, no matter where they live, young and old. For those of you who were not here last year, this is not a government-sponsored dating service. Rather it is our six-pillar agenda that provides opportunities for Canadians to gain skills and access electronic tools through the Internet.

The Connecting Canadians agenda is positioning Canada as the lead nation in the knowledge-based economy of the 21st century. Evidence of this progress is SchoolNet. I am very proud of this programme that will have connected each of our 16,500 schools and 3,400 public libraries to the Internet by the end of March. We will further our lead by establishing up to 10,000 community access sites and by building the fastest network in the world by March of the year 2000.

Under the able leadership of our Prime Minister, the federal government has been focused on an agenda that points to one goal-creating the conditions where Canadians can see reason for optimism about the future of their individual lives, the communities in which they live and a country that is fit to wear the reputation as the best place in the world to live.

On Tuesday, the Finance Minister delivered a budget that gave meaning to optimism. After years of difficult choices, the finances of the nation are on a solid footing and the government has finally reached a point where it can act on those things that matter to Canadians.

By far, the greatest priority for Canadians was the strength of our public health-care system. Over the next five years, an additional $11.5 billion will be transferred to the provinces to be used in meeting the health-care standards that Canadians have a right to expect.

Health care is an obvious element of our quality of life. And the quality of life is clearly dependent on our standard of living. This is what I am here to talk about today.

How can we maintain, or better still, increase our standard of living? Since 1987, we have done OK; our standard

of living has grown by 7 per cent but when we look at our American friends, we see that in the same time, they have increased their standard of living by 17 per cent. In other words, by 1997, per-capita income was 30 per cent higher in the U.S. than in Canada--$37,239 for Americans compared to $28,234 for Canadians. And in that 10 years the gap has been widening. If this is a trend, then we should all be very concerned.

Productivity--the measure of the efficiency with which people, capital, resources and ideas are combined--is the most important determinant of our standard of living. And by broad international standards, Canada is doing relatively well. Unfortunately when you look at our track record, we have been doing less well year over year.

Over the last 25 years, Canada has had the lowest rate of productivity growth in the G-7 and while these countries may be our friends, they are also our competitors in the fight for a share of the global economy.

And for those of you in Toronto who think that this is a problem that emanates from other parts of the country, I draw your attention to Ontario's performance. When one uses the narrower measure of labour productivity, Ontario is just slightly ahead of Mississippi.

So what does this all mean? Well moving back to our standard of living--which is the whole point of this address--if productivity in Canada had grown 1.2-percent-per-year faster, which is the gap between the average U.S. and Canadian growth, according to the OECD, our per-capita income would have been $7,000 a year higher. For a family of four, this is a $28,000 shortfall!

It is no wonder then that last fall, the House of Commons Finance Committee warned that the slower rate of productivity growth is cause for real concern. The OECD went further; it warns of the consequences of continued slow productivity growth. Based on the current trend, our per-capita GDP will drop from 10 per cent above the OECD average to 15 per cent below within 20 years.

"There is no room for complacency," according to the OECD. Canada has a productivity growth challenge.

Now the Toronto Star is illustrative of the spectrum of responses to the productivity challenge.

David Crane, a Toronto Star journalist wrote after the recent World Economic Forum, that Canada must innovate or lose. Ultimately the living standards of Canadians and the quality of our health and educational systems depend on whether we welcome the productivity challenge or fear it.

Crane's colleague at the Toronto Star, Rosemary Speirs wrote that many people believe that the "productivity agenda" will mean "lower wages for Canadian workers" because "that is the usual way of achieving lower production costs for the same amount of output."

Somewhere in the middle of these perspectives lies the views of Canadians. Eighty-two per cent of Canadians believe that increasing Canada's economic productivity is essential to improving our standard of living. But there is no question that there are Canadians who wonder where their place is in the productivity agenda beyond lower wages. I hope that I can convince Canadians that a productivity agenda need not mean lower wages, more hours worked and greater hardship. With time and a concerted effort, the government and the private sector acting in partnership, can make sure that all Canadians see an increase in their standard of living.

And we've already started to prove it. The broad economic conditions of the country are coming together. When I became Industry Minister in 1993, the federal deficit stood at $42 billion and was swelling. In partnership with all Canadians, we turned that around and last year, the federal government recorded the first budgetary surplus in 28 years.

Our inflation rate has been the lowest in more than a generation. This, coupled with fiscal responsibility has created the room for low interest rates.

And on the employment front, the Canadian economy is creating jobs at a rate unequalled in the G-7. Last year, a total of 453,000 jobs were created, making 1998 the strongest year of job creation since 1987.

Canada experienced a bounce back in productivity in 1997. In particular, labour productivity in the Canadian business sector rose 2.9 per cent, the largest increase in 13 years. Just the year before, labour productivity had actually declined by 0.4 per cent.

These real success stories have created a world-class macro-economic climate for Canada. In fact, the World Economic Forum believes that Canada is one of the most competitive countries in the world. In 1994, we ranked 20th on the Forum's competitiveness scale; today we are fifth.

Clearly, Canadians have demonstrated that when they put their minds to a task, they can achieve their goals. This aptitude will stand us in good stead for the next challenge to which, I believe, we must now turn our minds. We need to focus on the productivity challenge.

First, in terms of overall debt, it is simply still too large. But I will tell you today the government's commitment to its reduction is resolute. Last year the debt-to-GDP ratio fell from 70.3 per cent to 66.9 per cent. In this fiscal year, it should drop to 65.3 per cent. As a Member of Parliament whose constituency bore a huge share of the burden of government downsizing, I can assure you that the sacrifices made by Canadians will not be squandered by this government.

Second, taxes are an important component of any globally competitive business environment. Canada's overall tax burden ranks average among the G-7 but the reality is it is 20 per cent higher than our major competitor for investment and human resources--the United States. In the budget, the government set out its plan for tax relief: It must be fair, focused on the individual and most importantly, it must be permanent.

The 1999 budget actions will provide an additional $1.5 billion of tax relief in this coming year, $2.8 billion the year after and $3.4 billion in 2001-02. The cumulative tax relief from the 1999 budget totals $7.7 billion over the three fiscal years.

The 1998 and 1999 budgets together provide tax relief totalling $16.5 billion over three years.

And our commitment is firm. As resources become available, the personal income tax burden in Canada will be further reduced.

Third, stronger productivity growth will require stronger business investment. The investment rate in Canada is much lower than that in the United States. Our rate of investment in machinery and equipment is about 30 per cent below that of our American counterparts.

Fourth, we need more foreign investment in Canada because it can bring new technology and ideas. We received about a quarter of North America's inward foreign direct investment in 1985; now we get only about 15 per cent. Think of the lost opportunities in terms of job creation, business survival and businesses created.

Fifth, Canadians must take more chances, innovate more often and bring our ideas to market. Technology must be used creatively, thereby closing Canada's innovation gap. Innovation is a strong determinant of productivity growth and intellectual property is a measure of innovation.

Our patent application rate is the poorest of the G-7. Canada's private sector also spends less on research and development as a share of its GDP, despite our more generous R and D tax incentives. Nortel, of Mississauga accounts for 25 per cent of industrial R and D in Canada and while we should applaud Nortel's performance, we should be mindful of the opportunities that could emerge if more companies followed its lead. According to a recent survey by Statistics Canada, fewer than 1 per cent of Canadian firms perform any R and D.

Moreover, not enough Canadian ideas are commercialised in Canada. We must reap the rewards of Canadian creativity. This slide shows examples of six products developed in Canada, but commercialised abroad.

Sixth, we must continue to invest in our employees. According to the World Economic Forum, we are first in producing knowledge workers. But on-the-job training is essential and Canada is weaker in this increasingly important area.

Seventh, Canada is a world-class trading nation, one of the most open economies of the G-7. Trade represents just under 80 per cent of our wealth; 40 per cent of our production is destined for other markets. Nevertheless, our top five exporters account for 21 per cent of Canadian exports and less than 10 per cent of our small and medium-sized businesses export at all.

Taken together, training, trade, R and D, the World Economic Forum ranks Canadian businesses as 15th in terms of company operations and strategy and that ranking is dependent on too few firms.

Earlier in my address, I spoke of the need to move in partnership in addressing the productivity agenda. The government started down this path with Building a More Innovative Economy back in 1994 and has broadened its strategy with the last federal budget.

There is no quick fix. There is no single action. It requires that everybody in the Canadian economy play his part. For our part, we are helping to foster the creation of knowledge and innovation.

In 1997, the Canada Foundation for Innovation was created with an $800-million investment from the federal government. The Foundation's mandate is to fund new and modernised research infrastructure at our universities, colleges, not-for-profit research institutions and research hospitals. On Tuesday, our government announced it is increasing its investment by an additional $200 million.

To ensure that our research infrastructure is fully utilised by the brightest minds in the country, the government has further increased its support to the research-granting councils and the National Research Council by more than $120 million. Through these federal agencies, we fund research that may win more Nobel prizes and, more significantly, may also save or improve millions of lives as was the case with Banting's work on insulin, one pre-eminent example of success in Canadian research.

We are accelerating our efforts to disseminate knowledge.

We started with the most promising prospect for our future--Canada's youth. As I mentioned at the beginning my address, we are going to lead the world in ensuring that state-of-the-art technology will bring the world of knowledge to Canada's youth. This achievement will be strengthened by connecting 10,000 urban and rural communities to the information highway. And with Tuesday's budget, Canada will pioneer yet another on-ramp to the information highway with the Smart Communities demonstration projects.

We are also accelerating the creation of knowledge and we will commercialise ideas in Canada!

Technology Partnerships Canada has invested in the commercialisation of innovative technologies. Repayable TPC investments leverage private-sector innovation and I want to highlight just two of the many examples of this kind of partnership.

A $30-million TPC investment is enabling Ballard Power Systems of Burnaby, B.C., to develop a fuel cell that could revolutionise how the world powers its cars, lights its buildings and heats its homes through the development of new, environmentally friendly power sources.

Our $60-million partnership with Pasteur Merieux Connaught Canada of Toronto has landed the worldwide mandate for the development, production and export of therapeutic cancer vaccines.

These examples typify the knowledge-based economy where ideas open the future to economic opportunity. We are also developing sector innovation strategies such as the Next Generation Manufacturing Strategy working in partnership with the Alliance of Manufacturers and Exporters of Canada to identify technology priorities and projects that will improve productivity.

Moreover, I have appointed an Expert Panel on the Commercialization of University Research as part of the Advisory Council on Science and Technology. We can't afford to lose commercialisation of ideas whether they be synthetic insulin or an artificial heart. Our Networks of Centres of Excellence have brought together the best of the best minds in a uniquely Canadian way that creates ideas like sparks off a flint. I want those sparks to ignite and blaze as many productive paths as possible. I want Canadian ideas to create Canadian opportunities in terms of jobs and growth.

In some sectors, Canadian businesses and workers challenge the world, and foreign companies are investing in Canada. Our aerospace industry is setting standards for the world and grabbing market share that was unimaginable 10 years ago. In the auto sector, Canadians have doubled their share of the North American market over the last three decades.

In January, I had the pleasure of participating in the announcement of a $150-million expansion plant of the Swedish firm Astra Pharma in Mississauga. They chose Canada because of the right intellectual property framework, the access that Canada offers in the North American market and their ability to find Canadian workers with the right stuff. This proves that when Canadians go head-to-head with others around the world, we can come out ahead with good jobs that pay good salaries. In other words, productivity pays.

But we must broaden these success stories across all fields of economic activity.

On Tuesday, my friend and colleague Paul Martin spoke for one hour and twenty-two minutes in the House of Commons. I'm not going to try to outdo him here. He predicted that in the fiscal year 2000, we will have our fourth consecutive balanced budget or better. We are truly making history. Only twice since Confederation has the government recorded balanced budgets for at least four consecutive years. This was not done by politicians alone. All Canadians played their part. Sacrifices were made by everybody to achieve the fiscal success for which we can all be proud.

As we look to the 21st century, we can pull that same resolve together as a nation, to address the productivity challenges that are core to a better standard of living. The title of my speech is Putting People First. This is what this agenda is about.

Today I ask you to join the partnership to find the winning combination of skills, resources and technology to secure a standard of living that Canadians rightly deserve. Because this standard of living that I envision means high-quality, accessible health care, a strong educational system second to none, a society that provides real opportunities for youth and security for their parents and grandparents.

This is what makes a country the best place to live in the world. When we look at our productivity challenge, I hope you will agree with me that it is not too late to turn the OECD's warning of complacency into an opportunity for everyone. Thank you.

The appreciation of the meeting was expressed by Gareth S. Seltzer, Vice-President, Private Wealth Management, Guardian Capital Advisors and Immediate Past President, The Empire Club of Canada.