The Liberal Approach to Economic Growth

Introduction

In this election year Canada is facing some tough choices. Change seems to be the watchword for the coming decade. And hope. We hope the recession is really over. We hope the deficit can be reduced. And we hope our next government will change the direction our economy has been taking.

Jean Chretien has figured prominently on the public stage in Canada for over 25 years. He was first elected to the House of Commons at the tender age of 29. He then went on to distinguish himself in several elected and appointed government positions. In fact, Mr. Chretien has held virtually every major portfolio in the federal government.

He has served as Minister of Justice, the natural post for a lawyer, Minister of Industry, Trade and Commerce and as Deputy Prime Minister and Secretary of State for External Affairs. But he will perhaps be remembered the longest for his establishment of four new national parks when he was Minister of Indian Affairs and Northern Development. While those parks will, we hope, live forever, Mr. Chretien also had the good fortune of administering one of Canada's more short-lived initiatives, the National Energy Program. As a banker, I have particularly fond memories of one of its famous fallouts: Dome Petroleum, which, as you know, is no longer with us.

During the 70s, government policy leaned towards direct intervention in the economy, including the provision of funding to ailing companies and industries. Now Mr. Chretien's party has taken a leaf from the book of another famous Liberal, Mackenzie King, who wisely said that "the politician's promises of yesterday are the taxes of today."

So in the current economic climate, Mr. Chretien has turned to investment and training opportunities instead of regional development funds. He has also promised to rid us of the GST. But as one Toronto columnist recently pointed out, he has left a hole in the donut. Perhaps today we will find out whether the hole will be filled with jam or cod-liver oil.

Mr. Chretien, as leader of the federal Liberal party and the Opposition, has challenged the Conservative government on its fiscal and social policies for the past three years. He is here today to present us with the Liberal platform for change.

Please join me in welcoming our distinguished guest.

Jean Chretien

A strong economy is the essence of a strong society. This is why sound economic policy must be at the root of good public policy. We know all too well what can happen when our economy does not function as it should. And today it is not functioning as it should despite what the government says about the recession being over.

Here in Toronto, walk up Yonge Street, as I have. Visit Regent Park, as I have. Talk to a worker who's lost his job after 20 years. Or a university graduate who can't find a first job. Listen to a small business person explain how it is impossible for her to get the capital she needs.

Drop in on a foodbank. See the boarded-up factories, the empty office towers. Don Mazankowski should do all these things, as I have. And then let him look Canadians straight in the eye and say the recession is over.

Just look at the figures, 325,000 jobs lost in manufacturing since 1989. More than 206,000 bankruptcies in Canada since 1990. Forty per cent of service-sector jobs paying wages below the poverty line. The average family income no higher today than it was 10 years ago. Let's just say that if they made a movie about the Mulroney years, they would have to call it: Honey, I Shrunk the Economy.

The fact is that there is one major issue facing Canadians in the coming election campaign and believe me, it is coming sooner or later: Jobs. How to get our economy moving again and put Canadians back to work. The challenges we face as a country require a new approach, an integrated view of the factors which contribute to a better society and more choices for Canadians.

And there is one major test for the politicians: Which party is best able to accomplish that goal. I want to tell you today why I believe that party is the Liberal party.

The Conservative government has been in office for almost nine years. You cannot blame them for all our economic problems. But they made some very basic mistakes.

No policy caused more damage to the Canadian economy than their zero inflation obsession. Our major trading partners understood the need for balance. They were concerned with economic growth and jobs, not only with inflation.

They did not share the same macho approach as the Conservative government to monetary policy. Tough. Merciless. Impressive. Except for one thing. The operation, as the saying goes, may have been a success, but they have come awfully close to killing the patient.

To achieve zero inflation they hit us with a double whammy--a high cost of capital for those who had to borrow combined with a high dollar. Our export industries became less competitive. Rather than help our manufacturing sector modernize to keep its competitive edge, they devastated our industry.

Unemployment soared. Consumer confidence dropped. Because of high interest rates, carrying charges on the debt increased by billions of dollars for both federal and provincial governments.

You know, the Prime Minister has actually said:

"We are going to squeeze inflation out of the system. In the process we have induced a slowdown. It's as clear as spring water."

Well, if he thinks that this devastating recession is nothing but a slowdown, then I have to wonder what they are putting in his spring water.

The zero inflation obsession--combined with a do-nothing approach to adapting to new international realities--has been disastrous for Canada's international balance of payments position. In 1984, Canada's current account position was in surplus. The 1992 deficit will exceed $30 billion.

Never before has Canada been so much the prisoner of foreign creditors. The Conservatives have borrowed too much abroad and they have borrowed much too much short term. Canada has too many IOUs in the hands of foreigners.

We live in a world where economic events in other countries have a direct impact on our lives. Another fundamental economic mistake of the Conservative government has been the refusal to support the efforts of Canadians to adapt to major change in the marketplace.

They entered a Free Trade Agreement with the United States, but did not provide any adjustment assistance for Canadian industries or workers. They ignored the report of the de Grandpre Commission which they themselves appointed. The sad truth is they have done nothing because they have not grasped the role of government in a modern economy.

And that is why our economy is in such deep trouble. "Trickle-down." "Stay the course." "Let the market forces alone decide." It's all very familiar. And it may have been very popular during the 80s. But it's just not good enough now. If we are going to get our economy moving again--and get Canadians working again--we must change course.

That's what a Liberal government will do. I will not create unrealistic expectations. I know that we will inherit serious problems. I will not play the old game of making lavish promises today and breaking them the day after the election on the grounds that the books are worse than we imagined. There will be no miracles and no quick-fix solutions to all our problems. But this does not mean nothing can be done. On the contrary, there is much that can and must be done. We have before us the challenge of adapting the role of government to a new world. The key is to set a goal. And work with every sector in our society to achieve it. Our economic goal is simple: To help the private sector create well-paying jobs with a real future, and help Canadians adjust to change.

The role of government in economic policy is two-fold. First, setting an overall framework. This includes monetary and fiscal policy, trade policy and federal-provincial fiscal relations. Second, government has another role, and that is to work in partnership with provincial governments, business, labour and non-governmental institutions to attain national economic objectives.

There's no secret recipe. Only hard work. Common sense. A pragmatic, balanced approach. Other countries like Germany and Japan have been faced by the same global economic factors as Canada. But Canadians have been hammered by the fallout from this new global economy. And those countries have prospered because business, labour and government have worked together. We can too.

These are the fiscal commitments Liberals would bring to government:

• We are committed to fiscal responsibility.
• We are committed to unwavering discipline in controlling federal expenditures.
• We are committed to holding off on new programs that do not contribute directly to the promotion of economic growth and jobs.
• We are committed to a reduction in the deficit, both in absolute numbers and as a percentage of Gross Domestic Product.
• We are committed to reducing the national debt as a percentage of Gross Domestic Product.

These commitments will help restore the confidence of the international community. We will then regain the flexibility to employ fiscal and monetary measures to support worthwhile domestic objectives.

We must shift the focus from shrinking the economy to expanding the economy. The fiscal policy flowing from the commitments I have outlined will make possible monetary policy that produces lower interest rates. We must reduce short-term real interest rates and make them competitive with American rates. Our business community today has to pay rates almost double those American business pays. No wonder we are not as competitive as we should be.

Zero inflation cannot be the only object of economic policy. We require a balanced approach that takes into account the need for economic growth as well as low inflation. Our inflation targets should allow us to be competitive with our major trading partners.

Liberals believe that we should attempt to do about as well as the United States on inflation. Only in very unusual circumstances should we attempt to do much better. The current price of our inflation policy--1.6 million unemployed--is unacceptable. And I refuse to pay that price.

A Liberal government will aim at paying our way in the world. We must balance our international current account, so we can create jobs at home--and not export them abroad.

I turn now to another important area of policy. And I refer to federal-provincial fiscal relations. I begin with the basic premise that the role of governments is to serve the citizen, not to compete with each other.

If we are to create jobs at home, we must get our house in order. Instead of trying to score political points, we have to learn to co-operate. Look at what the current government has done.

To make its books look better, it cut billions in transfer payments to the provinces. The provinces then cut services and downloaded their deficits to municipalities. At the end of the day, it's still the same taxpayer stuck with the tab.

A Liberal government would insist that the rules of the game must be clear. All ministers of finance need as much predictability as possible. Current federal-provincial fiscal arrangements relating to Established Program Financing expire in 1994.

It is a basic principle of Canadian federalism that Canadians share risks and that there must be a basic minimum level of public services available from coast to coast. To achieve this, a renegotiation of federal-provincial fiscal arrangements will be a major priority of a Liberal government. And our objective will be to achieve the maximum degree of predictability for both levels of government.

The crisis in public finance extends well beyond the issue of transfer payments. But crisis can bring opportunities for solutions born out of compromise and consultation.

The Conservative government imposed the GST on Canadians. They did not listen to the people. And when the provinces disagreed, the Conservatives broke off talks. The GST has destroyed public confidence in the fairness of the tax system. It has expanded the underground economy. It has lengthened and deepened the recession. It is costly for small business to administer. And it is very expensive for the government to collect.

We must restore confidence in the fairness of tax policy. We must co-operate with the provinces in public finance. Above all, we must not repeat the Tory error of imposing major tax reform without full public participation.

In the first session of a new Parliament, a Liberal government will mandate the Finance Committee of the House of Commons to fully consult Canadians and provincial governments and to report within 12 months on all the options to the current GST.

Our objective is very clear: that the GST be replaced by a system which generates equivalent revenues, but which is fairer to consumers and to small business and which promotes federal-provincial fiscal co-operation.

That kind of co-operation is also essential to put Canadians back to work. Liberals believe, at a time of low inflation and high unemployment, that now is the time for an infrastructure program in co-operation with provinces and municipalities. The provinces are willing. The cities and towns are willing. A national Liberal government would be willing.

Our infrastructure program would create jobs now. And not classic make-work jobs, here today and gone tomorrow with nothing left to show for it. Improved public transit, telecommunications infrastructure, environmental protection and roads and bridges are all investments in our future, in our long-term economic strength. The Europeans are doing it. The Japanese are doing it. The Americans will be doing it too. Canada must not be left behind.

If we really want to create economic growth, it doesn't make any sense that there are now more trade barriers between Canadian provinces than between the nations of the EEC. A Liberal government will work in co-operation with the provinces to bring down these barriers.

Canada must rebuild its industrial base. We need new value-added industries. In the new economy it is the information and knowledge-based industries and value-added manufacturing that will be the foundation for industrial renewal and growth. These are the industries that will create the high-wage jobs our economy needs.

We have to get our priorities right. This is not the time to fight the Cold War by spending billions of dollars on military helicopters.

We have to put money into people by investing in research, in our universities, in training and infrastructure that have real long-term economic benefits for Canada. In the global economy, Canada will not be the only country competing for these jobs. That is why we need a workforce that is second to none in skills and flexibility.

• A Liberal government will establish, in partnership with provincial governments, business and labour, a National Apprenticeship Program.
• A Liberal government is committed to a tax based on-the-job training incentive.
• A Liberal government will create a Canada Youth Service.

I am convinced that if we invest in our people, we can compete globally. And with one in five jobs directly dependent on exports, we must compete. And we must secure and increase access to world markets.

Free, fair and open trade is essential to the future of our country. In the past, the multilateral trading system under GATT has served Canada well. A successful Uruguay Round will provide Canadian firms with the opportunity to invest, create jobs, develop new technologies and products, and of course, to trade.

That is why the Liberal party continues to support the GATT as the cornerstone of Canada's trade policy. I am worried about the apparent lack of progress in the current negotiations.

I am deeply concerned by the development of regional trading blocs. However, like it or not, we must recognize that they are becoming a reality. We cannot ignore the reality that the United States is our largest trading partner. The challenge is to manage our trading relationship with the United States in a way that best serves Canadian interests.

Canada's key objective in the free trade negotiations with the United States was to "secure and enhance" access to our largest export market. For that a mutually acceptable set of trade rules was essential. Only if the rules of the game were agreed upon, could Canada expect to enjoy anything resembling a "level playing field."

The Conservative failure to resolve the issue of trade rules meant that Canada was left with a half-finished trade agreement. The result--our steel, pork, softwood lumber, magnesium and lobster exports have all been subject to U.S. trade actions and harassment measures.

How can this be? It's very simple. The FTA did not include codes on subsidies and dumping. These are essential if free trade is to be fair trade.

The North American Free Trade Agreement gave the government an opportunity to correct major flaws in the FTA. Instead, the NAFTA would almost completely scrap the working group on subsidies and anti-dumping. Instead of correcting the energy give-away in the Free Trade Agreement, the Conservatives allowed Mexico to get protection for its energy resources that Canada does not have. And the problem of trade rules was not addressed.

The fact is, that without a common set of trade rules to govern the North American market, Canadian exports will continue to face trade harassment. And if you are an auto executive sitting in Tokyo or Munich, you are going to think twice about locating your next North American factory in Canada, and run the risk of being denied secure access to 90 per cent of the market.

A Liberal government will seek changes to both the Free Trade Agreement and North American Free Trade Agreement. We need:

• A subsidies code.
• An anti-dumping code.
• A more effective dispute resolution mechanism.
• Agreed upon labour standards.
• Agreed upon environmental standards.
• The same energy protection as Mexico.

Unlike the Conservatives, we know an opportunity when we see one.

There is a new administration in Washington. They have said they want to reopen a number of these same areas. A Liberal government will take them up on it.

Not only will we seize opportunities. We will create new opportunities. If it is inevitable that a Western Hemisphere Free Trade bloc evolves, Canada must play an active and independent role in defining that bloc instead of always reacting to Washington's hub-and-spoke approach to trade in this hemisphere.

Canada should be working with other countries to minimize dominance by the strongest partner. A Liberal government would work to build common Western Hemisphere institutions to provide political, demographic and economic counterweights to the United States.

But while we must seize the opportunities of trade in the Americas, a Liberal government will not turn its back on the rest of the world. The fastest growing economies in the world are in the Pacific Basin. The current government has ignored that region. And Canada is a Pacific Basin nation. A Liberal administration will put a high priority on expanding trade with this dynamic region.

The Canada-Japan 2000 Forum, co-chaired by Peter Lougheed, has recently charted the way to expand trade in that region. A Liberal government will act on that report and immediately establish a non-governmental panel to implement the recommendations.

Trade agreements are not an end in themselves. The ultimate objective is to secure a better life for people. That means jobs with a future in industries with a future.

And in Canada that future belongs to small- and medium-size businesses. There are today 900,000 small- and medium-size businesses in Canada. They create more new jobs than any other sector. And they must be the economic focus of a Liberal government. Now, this does not mean new federal spending. What it does mean are policies that would help these companies to develop and expand in Canada and to become exporters and world competitors.

It takes Canadian companies much longer to find out about new technologies than their foreign competitors. That's one reason they are more successful than we are in creating new goods and services to sell to the world.

In Canada, we have to start looking at technological innovation as an opportunity, not a threat. That is why a Liberal government will invest in gathering technological information for Canadians. We want to create a national information network, and ensure it is used as widely as possible, so that companies across Canada can take advantage of that information to get a share of the international market.

Government can also help in other basic areas, including training, research and development and its commercial application, capital availability, and enhanced trade opportunities.

Our platform in the coming election will spell out programs and strategies for these Liberal policies:

• Improved and continuous training for workers and managers.
• Initiatives to help businesses to bring new products to markets.
• Initiatives to speed technology acquisition by small- and medium-size companies.
• Initiatives to assist small- and medium-size companies to export to markets they have never before considered.
• Initiatives, in conjunction with provincial governments, to reduce the regulatory burden on small- and medium-size business.

Wherever I travel in Canada, I hear the same thing from entrepreneurs: They cannot get adequate financing. Even in the most promising, leading edge sectors of the economy of tomorrow--areas of high growth, like software development, environmental technology, broadcasting products and databases--there is not enough capital available.

These companies are just on the verge of taking off--making the transition from small to medium size companies. Then--bang! They run into a brick wall because they can't get financing.

We support the changes now before the House of Commons to the Small Business Loans Act. But they do not go far enough. Liberals will propose further reforms, to make it easier for small business to get financing. And we will propose ways to facilitate equity financing for small- and medium-size businesses.

But for many of these companies, it's not just the Small Business Loans Act that stands in their way. It is some of the practices of the major Canadian banks.

Canadian banks do not operate in an unregulated environment. Over the years, they have benefitted a great deal from the protection of the Bank Act. And that is one reason why Canadian banks have been so stable and secure compared to American financial institutions.

I believe it is time for the banks to give something back. The time has come for the government to exercise leadership and to challenge the banks to sit down and develop concrete ways to help Canadian businesses find the capital they need.

The government should not decide which companies get access to capital. But the government and the Prime Minister have a responsibility to bring the financial community together with its partners in the economy to give such companies a fighting chance. This we will do as a government. And I will expect the big banks to do their share in helping build the economy of the future.

Ladies and gentlemen, jobs, getting our economy moving again and putting Canadians back to work, these must be our national priorities. To meet them, we will need a new government with new energy and new ideas, a government that combines experience, common sense and a fresh approach.

Today I have outlined to you why I believe a Liberal government would meet that test. But if we are to change course every month we wait is precious time lost. Every lost month is another lost opportunity. The government is in the fifth year of its mandate. Its rendezvous with the people is overdue. It is no longer acceptable for a tired, discredited government to cling to power. The time has come for Canadians to decide. My party and I are ready for that moment.

The appreciation of the meeting was expressed by Hershell Ezrin, Executive Vice-President, Speedy Muffler King, and First Vice-President, The Empire Club of Canada.