INDY Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, May 6, 1999

• 0903

[English]

The Chair (Ms. Susan Whelan (Essex, Lib.): I'm going to call the meeting to order.

Pursuant to the order of reference of the House dated March 1, 1999, we are reviewing the main estimates for the fiscal year ending March 31, 2000, Industry votes 115 and 120.

I'm very pleased to welcome the Honourable Ron Duhamel, Secretary of State for Science, Research and Development and Western Economic Diversification. Mr. Duhamel, we are pleased to welcome you back and to have an opportunity to hear what you have to say. Perhaps you can introduce your colleagues who are with you.

[Translation]

The Hon. Ronald J. Duhamel (Secretary of State (Science, Research and Development) (Western Economic Diversification Canada), Lib.): Thank you, Madam Chair. Colleagues, you have already been given the formal documentation; I believe you were also given some extra pages to help you better understand our department.

Over the next few minutes, I will be talking to you about the unique character of our department, Western Economic Diversification Canada.

[English]

I want to start by talking briefly about a number of themes. I want to keep my remarks as brief as possible so that we get ample opportunity to question, if that's your wish.

The first item is client-focused services, les services axés sur la clientèle. For me, Western Diversification, or WD, as it's known—it's sometimes referred to as Western Economic Diversification—is primarily a people-driven department, which excels in client-focused services. Its main objective is to offer the services that businesses have told us they need and want.

• 0905

Let's talk a bit about entrepreneurship in the west, l'entrepreneurship dans l'Ouest canadien. Our business is really to be a facilitator and a broker. We try to bring people together who have different types of expertise and different types of services to offer to make things work. Some of you will know that small business in the west accounts for about half of all jobs. It's a very important sector. There are almost a million self-employed entrepreneurs in western Canada. We help small business to start up, to expand, and to create jobs, and we encourage them to look at exports, to trade globally.

In a sense, colleagues, we are there to try to assist people in realizing their dreams for economic development.

[Translation]

WD helps small businesses to start up, expand, create jobs, and where ever possible, trade globally as well as find new domestic markets. Let me give you an example.

[English]

One example that comes to mind is a company called Kelsan Lubricants in North Vancouver. A chemist by the name of Kelvin Chiddick purchased the company about 10 years ago. Of course he had little time then for product development. Sales declined, and developing new products was absolutely essential. He approached Western Diversification for assistance, and WD provided advice, absolutely, but as well, $45,000 for development and manufacturing. Six years later Kelsan accessed $1 million from the Business Development Bank through WD's knowledge-based industries loan fund. Mr. Chiddick then turned to WD's First Jobs in Science and Technology Program to hire recent science and marketing graduates to help diversify the company market base. It has been extremely successful.

There's an example, I think, of WD acting as a broker and a partner in bringing different people together to help a business help itself to become successful. We were there as a friend, a facilitator, and a broker, but obviously the business made itself successful.

These programs I've mentioned, such as First Jobs in Science, are important programs for the west and for those young people who have just graduated and who have marketing skills. In fact, since 1995 these programs have created over 950 jobs for young people in the whole of the western Canada operations.

Here's another example. WD helped finance research at Ballard Power Systems of Burnaby, British Columbia. It was developing futuristic fuel cell technology at the time. Some of you will know that Ballard announced pilot tests for pollution-free technology for buses in California and the Vancouver area. By financing early stage research, we encouraged the innovation that brought that futuristic technology into the present.

I want to turn now to people and partnerships,

[Translation]

people and partnerships. WD has a staff of only about 320, but we leverage resources from provincial, municipal and private sector partners. We try and ensure that everyone can work together effectively so that small and medium-sized enterprises can really benefit from these resources.

[English]

Innovative partnership arrangements with Canada's major banks have resulted in establishing 28 loan funds, which provide up to $57 million toward loan loss reserves to lever—and this is the important part—$429 million in small business loan capital.

• 0910

[Translation]

So, we work in partnership with the banks to ensure that adequate financing is available once a business plan is in place that meets certain standards.

[English]

We led the way in developing western economic partnership agreements. Some of you will know that's $40 million per province, $20 million from each level of government, and they are on a cost-shared basis. These have worked extremely well. Three agreements have been signed. We anticipate that the one in British Columbia will be signed shortly. We're the delivery agent for national federal programs in the west. You will know that we have been involved with the infrastructure works program, which provided $747 million in funding for over 5,300 projects and helped create over 35,000 jobs.

We're on the front line helping western Canadians in times of greatest need, for example, the $224 million of federal money to respond to the Red River flood disaster and flood prevention and federal assistance of $400 million for west coast fisheries economic restructuring and coastal community development. We were involved in delivering some of those programs.

[Translation]

More recently, $20 million in federal-provincial money was provided for technology commercialization at Whiteshell Laboratories in Pinawa, in addition to $3.7 million in community adjustment that is provided when a very significant activity is being withdrawn.

[English]

I should tell you that out of this has come a $200,000 loan to Acsion Industries to purchase the electronic beam processing technology from Atomic Energy of Canada. Acsion has opened its first European sales office in London. It has signed contracts with Air Canada to jointly develop the electronic beam process for repairing aircraft parts. As Chris Saunders, president of Acsion said, “EB repair is an exciting opportunity for Acsion and working with Air Canada will allow both companies to exploit the benefits of the technology quickly.”

[Translation]

I would now like to talk about our network of contacts and one-window services.

[English]

a network of contacts and one-window services. You will have heard me say that we have 100 points of service. That's true. In fact, it's in excess of that. There are 90 Community Futures Development Corporations; four Canada Business Service Centres, which are connected by the Internet to 97 community-based sites; four Women's Enterprise Centres with offices in nine locations; and four Western Diversification regional offices in the western provinces, along with two local offices in Regina and Calgary. These are all connected. These synergize. They help one another. They share information. They work together as partners. They are our partners, and we treat them as such.

Roughly two weeks ago I was able to announce on behalf of the Government of Canada a $90 million, five-year extension of support to Community Futures Development Corporations.

[Translation]

These Community Futures Development Corporations are there to develop the rural communities and are managed by community volunteers who set their own priorities and carry out their own follow-up as they see fit.

[English]

In the last four years CFDCs provided more than 8,000 loans, totalling $176 million, and created or maintained over 28,000 jobs. By the way, they also get a lot of help from the volunteer sector. There are more than 1,000 volunteer board members, and they tell us that they probably utilize another 10,000 volunteers in a host of activities for community development in these various little villages and towns dotting western Canada.

A few weeks ago I was able to announce a five-year, $17.5 million extension to the Women's Enterprise Centres. I want to stress this because it's very important. Women entrepreneurs create half of the new self-employment jobs in the country, and women account for one-third of all self-employment in western Canada. Women own almost 300,000 businesses in western Canada. They are as yet an untapped talent pool for economic development. Across the west, colleagues, over the last four years Women's Enterprise Centres have handled over 70,000 enquiries, and they've trained 17,000 workers.

• 0915

[Translation]

Over $10 million has been made available to women to start up or expand their businesses.

[English]

The money has gone to people such as Daphne Petrakos, who wanted to expand her business. She says of this experience of borrowing money:

This was the best lending experience I ever had. I had the feeling that they were on my side and would help ensure that my business expansion went well.

She said that she felt they wanted to make sure that she succeeded. She felt that they cared.

I want to talk about bridging the gaps,

[Translation]

bridging the gaps. I am sure you know that some services are not provided to certain segments of the population, whereas other groups in society are unfortunately marginalized.

[English]

I'm talking about, for example, aboriginal peoples, who are not yet as involved as they could be or would like to be in economic development. We've been important partners to our first nations and to our Métis people. In fact, we've contributed $7.6 million—over one-third of the funding—to the Aboriginal Business Services Network.

[Translation]

WD also contributed $950,000 to establish an Aboriginal Business Centre in Winnipeg which is very successful.

[English]

Other economically marginalized people also benefit from our assistance. For example, under the urban entrepreneurs with disabilities initiative, we provided $1.2 million to Edmonton and Calgary to assist people who have a variety of disabilities. We all know that they need help because they are not always treated as they should be. Let me give you an example of a success story. In Cold Lake, Alberta, this meant that Cindy and Vern Stevens opened Zac's Critters, Pets and Supplies Ltd., a company that soon employed two full-time and three part-time employees—and they expect to expand their business.

Under the francophone economic development initiative,

[Translation]

under the Francophone Economic Development Initiative, WD is providing modest financial support for economic development in French-language communities in western Canada. Not long ago, I announced a $525,000 contribution for the Conseil de la coopération de la Saskatchewan. I made similar announcements in the provinces of Manitoba, Alberta and British Columbia.

Let me give you an other example. Mr. Camille Provencher, from Quebec, needed a $40,000 loan in order to start a cheese factory. With the support of the Community Futures Development Corporation, as well as two private sector loans and a Scotiabank loan, Mr. Provencher will soon be able to realize his dream. He will have his own cheese factory in Alberta, with a staff of twelve.

[English]

One fundamental message, colleagues: WD connects with people to deliver government services that respond to communities and to regional needs.

Let me wrap up very shortly by talking about innovation and knowledge, l'innovation et le savoir.

Many of you will know that half of Canada's GDP is in the knowledge-based sectors of the economy. The fastest-growing sectors are information and communications technology, biotechnology, and aerospace, precisely the areas in which the west is growing rapidly. WD has been a key player in helping businesses find innovative ways to be more competitive, more connected, and ready for the 21st century.

Some of you will have heard about the Synchrotron initiative in Saskatchewan. This not just a unique science facility. It will help in developing new drugs, new cancer research, and improvements in treatments for diabetes and a number of other diseases. It also boosts the province's economy by $35 million annually. There will be 200 high-skilled, permanent jobs.

I want to now come to the conclusion. I want to thank you for the opportunity to share the true nature of our work by sharing with you certain examples that I think illustrate rather precisely and concretely

[Translation]

that unique character that I wanted to emphasize—that of a department that meets the needs of people and their communities in western Canada.

[English]

I welcome opportunities to share ideas with you and to work together with you to strengthen western Canada, because I think you feel as I do, whether you're from western Canada or from elsewhere: a stronger west means a stronger Canada.

• 0920

I would be pleased to take questions, Madam la présidente.

The Chair: Thank you very much, Minister.

We're now going to start with questions. Mr. Stinson.

Mr. Darrel Stinson (Okanagan—Shuswap, Ref.): Thank you, Madam Chair.

Welcome here, Mr. Duhamel. I also agree with you that a stronger west means a stronger Canada.

Before I got into politics I was in small business—very much so. I found one of the greatest deterrents to us was actually the taxation level here in this country. In fact, I've been a very strong advocate in getting that decreased as soon as possible.

I actually found it kind of strange to read in the National Post that the minister, Mr. Manley, was stated as being the most vocal minister on this issue of tax relief. This is also the same minister who, a few months ago, puzzled the economists and angered many business leaders with his remark that, arguably, a high tax level, if anything, should increase productivity, because it would drive innovation in order to lower other costs.

So my question to you is, which one of Mr. Manley's development schemes does he really support: that high tax helps productivity, or that taxes should be pegged to U.S. levels to encourage growth in Canada?

Mr. Ronald Duhamel: In a sense, I suppose Mr. Manley should be answering that question, but let me tell you what I know of it.

Mr. Manley is part of a government that has reduced taxes. Some people would argue that it's not enough. I would like to be paying fewer taxes as well. This has been right from the beginning, and we continue to do so and we hope to do more. But we don't believe there are any miracle cures, that we can do it just like that. For example, there are 15 million tax filers in Canada. Let's assume for a moment we could give them tax relief of a dollar a day. Most people would be insulted. They would say, you can't even buy a cup of coffee for a buck a day. That would cost the federal treasury $5 billion.

I have no doubt that Mr. Manley is committed to the reduction of taxes. I think he wants to do it, as other colleagues do, as the government has shown, gradually, over time, in a responsible kind of way. We don't ever want to be in a position where we have to go and borrow in order to sustain the decisions we've made with respect to tax reductions.

I think you will agree with me as well that there's been a recent report, a very credible one, that has said that Canada is one of the best places to do business because of the lower cost to do business. That doesn't mean to say it's perfect, but clearly we have a lot of things going for us, Mr. Stinson.

Mr. Darrel Stinson: We have some things going for us. We have a lot going against us. Taxes are one of them, and I think that's a very important question. Where does the minister stand on this issue, sir?

Mr. Ronald Duhamel: I did tell you where he stands. He wants lower taxes, just as we all do.

Mr. Darrel Stinson: Okay. At the recent conference in Jasper on western economic development, you announced an addition of $90 million to the community futures program.

Mr. Ronald Duhamel: That's correct.

Mr. Darrel Stinson: Is this announcement in the main estimates? Is it reflected in the main estimates?

Mr. Ronald Duhamel: Yes, it is. And let me just explain, because I don't want to mislead anyone.

It's roughly the same level of funding as in the past. In fact, it is. But it was given over five years in order to help Community Futures Development Corporations—a request that they'd made of us—so that they could plan long term. That was the nature of the announcement—$18 million dollars a year over five years for the 90 Community Futures Development Corporations. And it is in the main estimates.

Mr. Darrel Stinson: So you're saying this is not a cut to that program in the west.

Mr. Ronald Duhamel: No, it is not. It's an extension and an announcement that permits them to plan for the future, sir.

Mr. Darrel Stinson: Thank you.

The Chair: Thank you very much, Mr. Stinson.

Mrs. Barnes, please.

Mrs. Sue Barnes (London West, Lib.): Thank you.

I remember a number of years ago, when we were deep in deficit, we got here and the Synchrotron project was just a dream for many Canadians. And I think the Synchrotron project is something that has created jobs and economic activity in western Canada. Actually, it's the only one in Canada, so it's for all of Canada. I happen to be part of the community that fought for that. We lost to the west, but I think it's good for Canada that we have it.

Mr. Ronald Duhamel: But you take it well.

Mrs. Sue Barnes: Well, we have to.

But I do want to compliment us all in saying that scientific investment, the R and D side of it, does make a big difference for the country, and we did have the foresight to go through with this. That's an example of spending, not a tax cut, that helps grow the economy and does very important things for the country. I think we have to note that, because that decision-making was done through a time period where it wasn't an easy decision for any government in that type of fiscal reality.

• 0925

Next, I'm glad you raised the point about the productivity that's created by women entrepreneurs. Knowing how successful it is—you have nine locations right now—I'm wondering whether you have any plans to expand this. We do know that these are the number one suppliers of newly created jobs in Canada. I'm also wondering whether there is a good liaison between the information in these offices and other departments of the government. I think Beyond Borders: Canadian Businesswomen in International Trade was just released, talking about women entrepreneurs.

Sometimes I find in our own government the good work of one department seems to be unknown to other departments. We set up sites—they have a great website, for instance—and don't really make available the documentation and that knowledge. There are very surprising data now collected by the Government of Canada about women exporters in Canada. And perhaps first you, on expansion, and then maybe some of your officials, could get this out on record, because it's a good news story. I think it's something, when we've found a group.... In this instance, we've known it before; the Bank of Montreal has done studies on this. But now we have own government studies and statistics. Let's put more money toward a system that's obviously producing.

Mr. Ronald Duhamel: I have just a few brief comments.

First of all, with respect to the Synchrotron project, I just want to make sure people understand that initially, in the first stage, there was a peer review, obviously. Any number of centres in Canada could probably have done a very credible job. It just so happened that the men and women who made the judgment felt that Saskatoon was the most appropriate place. That does not make any negative comments about any other source.

Second, you should know as well—because I know many of you are really vitally interested in how prudent the government is in spending money—that it was done through the Canada Foundation for Innovation. It's the Canada Foundation for Innovation that made that decision, subsequent to having some additional reviews and having international experts decide that the business plan was sound and that funding from the private sector, the universities, the federal government, and the provincial government was appropriate, because that was a big, big partnership initiative.

So we're delighted with the process, and we're looking forward to some significant results, to the benefit not only of Canada but indeed of the world, because as you well know, when we discover these new medications, these new processes, they are applicable throughout the world.

With respect to Women's Enterprise Centres, let me make sure I have the two issues, and if I don't, you can correct me. I suspect you'd like to do that.

Mrs. Sue Barnes: [Inaudible—Editor]

Mr. Ronald Duhamel: Expansion, in terms of physical facilities, is not in the cards right now, because we have limited resources in WD. But expansion in terms of trying to make sure we work even better together, more cooperatively, so that we can synergize our efforts, absolutely.

As well, they get a lot of benefits from the volunteer sector. Women do exceptionally well at that, and some people have suggested they do it even better than men, that somehow they can—

Mrs. Sue Barnes: It's the only way they've had in the past.

Mr. Ronald Duhamel: Well, they've had a lot of practice is what you're saying.

Mrs. Sue Barnes: That's right.

Mr. Ronald Duhamel: With regard to cooperation, I think it was with regard to statistics and other data that are collected, I think we do a pretty good job. Now, having said that, I'm one of those who believe we're always in the process of improving, and what's good today we can make better tomorrow. Hopefully a year from now when we take a look at what's available in business centres, at WD, at CFDCs, at Women's Enterprise Centres, and in the banks that we could use profitably, that would in fact be utilized in a more significant, more meaningful, more precise kind of way.

Did I get those two issues, or did I meet part of that—

Mrs. Sue Barnes: I just wanted to make sure that you have the liaison, and if you don't have the booklets, then perhaps—

Mr. Ronald Duhamel: The liaison, I'm sorry?

Mrs. Sue Barnes: I think your official may be able to—

Mr. Ronald Duhamel: Yes, my deputy minister, who I should have introduced. Perhaps you can do that for me, since I forgot.

Ms. Oryssia J. Lennie (Deputy Minister, Western Economic Diversification Canada): I'm Oryssia Lennie. We also have with us Judy Ferguson, who is the assistant deputy minister in Ottawa, and Bernard Ouellet, who is our finance head.

Mr. Ronald Duhamel: I'm sorry. I was so anxious to share my story.

Ms. Oryssia Lennie: Yes, there is liaison. The Women's Enterprise Centres, the CFDCs, and the Canada Business Service Centres are part of the Western Canada Business Service Network. They're our partners. We work with them in delivering business information to the clients. But the other side of that is that we also work with them in conveying to them programs that the federal government has. They have access to that kind of information, and we have a regular liaison with them.

• 0930

I was a member of the core group on the Beyond Borders study, which I think is a very important one. One of our tasks now is to see where that study goes from here.

Mrs. Sue Barnes: And I think one of the tasks is to make sure it's not a secret to Canadians, because it is a very good study.

The Chair: Thank you very much, Mrs. Barnes.

[Translation]

Mr. Dubé, please.

Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): Mr. Duhamel, my first question is of a financial nature. Looking at the budgets allocated to the various agencies that carry out economic development in Canada, as laid out in the main estimates, one realizes that your agency was cut more than any of the others this year. Indeed, its budget dropped from $313 million to $195.055 million, which is a difference of more than $100 million. Also, looking at administrative costs, I see that the cuts there are not as large; of a total budget of $195.055 million, funding in that area drops from $33.915 million to $31.824 million. In the case of the Quebec agency, we are talking about $314.366 million to be administered and operating expenditures of $27.893 million. So, there are more funds to administer, but that is costing less. What are the reasons for these cuts, and why is your agency more costly to administer?

Mr. Ronald Duhamel: Those are very good questions. As far as the cuts are concerned, the infrastructure program budget dropped by $65 million. Grants and contributions were cut by $27 million. Also, as you just mentioned, there were cuts to administrative costs, but there are fewer applications under the small business loans program, through which we simply pass money on. If you add all of that up, you arrive at a figure of approximately $118.5 million. My officials can probably provide you with additional information in that respect.

In terms of administration, I think we first have to determine whether the definitions are the same. To be perfectly honest with you, I don't know, but Mr. Ouellet may know.

Secondly, even though the operations are very similar, they are also very different. We have 90 communities in the rural areas; that figure greatly exceeds the number of communities in Quebec, even though we're talking about similar populations. There is actually a larger population in western Canada, if we include all four western provinces. We also have Women's Enterprise Centres and all the other organizations I mentioned. It is quite possible that the answers can be found there. Having said that, I would like to ask my officials if they can provide any further clarification in that respect.

Mr. Bernard Ouellet (Director General, Finance, Information Management and Administration, Western Economic Diversification Canada): In terms of how we define operations and grants and contributions, I can tell you that the definitions used are the same from one agency to the next.

Our department makes fewer contributions now than in previous years. It provides more services to its clients by means of partnerships, as the minister already explained, hence the amount budgeted for operations.

Mr. Antoine Dubé: Perhaps current collective agreements are a consideration here, but if your budget has dropped significantly and your role has changed, have there been any corresponding staff cuts and are you intending to make any, or will the staff numbers remain stable?

Mr. Ronald Duhamel: I will let the deputy minister answer that question.

[English]

Ms. Oryssia Lennie: No, it does not have anything to do with the collective agreements. The numbers in our department really reflect the strong orientation toward client service, which is the direction that has been taken over the last two to three years. It's a very intensive business counselling, business advisory kind of service that the department provides to SMEs and entrepreneurs.

• 0935

[Translation]

Mr. Antoine Dubé: On page 24 of the blue book, you say:

A potential barrier to achieving the outcomes involved the challenges of working with third party service providers to ensure accountability for results.

You say this is an issue that will have to be explored further. I gather that is because you believe it to be problematical. I also note, Minister, that in your report, you set certain directions and lay out your intentions for target groups, but that these are not quantified.

Mr. Ronald Duhamel: We quantified them to a point, but as I'm sure you understand, when you're working with partners, it isn't that easy to set criteria, evaluation methods, and so on. When we manage everything ourselves, we have our own staff and our own programs, but when we work with partners, it's a little more delicate. We have made progress. We are trying to agree on ways of measuring or assessing results, in the positive sense of the term. We want to come to some agreement and be certain that the information we receive is as accurate as possible.

So, we have made progress, but we still have some way to go. The process is moving along fairly well. Don't forget that we are dealing with about a hundred different partners, who are all fairly independent men and women with strong values and principles, and who want to maintain a certain independence—something that I applaud them for, of course, although I do want to be sure that we agree on the measures.

Mr. Antoine Dubé: I have just one supplementary. Given the trend toward budget cuts—we see this in the estimates, and it is like by to continue—are you not concerned that your partners will be reluctant to meet the targets you've set in terms of outcomes, for fear of being subject to cuts themselves?

Mr. Ronald Duhamel: Well, that is always a possibility, but I could take that same approach with you and assume that your questions are nothing but a trap. However, we are both professionals, we ask questions and provide answers and try to be honest with one another. I treat them in exactly the same way.

I want to come back to the issue of budget cuts. We talked about the infrastructure program, where almost half of the overall cuts have occurred. There is also the small business loans program, that came from Industry Canada and is now the responsibility of Western Economic Diversification; there are fewer applications coming in now than was previously the case. That represents almost one quarter of the cut. Our contributions have also dropped considerably. And that is perfectly normal. There is nothing there—

Mr. Antoine Dubé: So, there is no threat there.

Mr. Ronald Duhamel: No, not at all.

The Chair: Thank you, Mr. Dubé.

Mr. Bellemare, please.

Mr. Eugène Bellemare (Carleton—Gloucester, Lib.): Thank you, Madam Chair. I have three questions.

The first has to do with the Y2K bug. In the report, you say that DEO is not a mission critical department and that you have asked Consulting and Audit Canada to prepare a report that you expect to receive in early 1999.

[English]

What was the target date exactly? This being May, we have now moved away from the beginning of 1999 or early 1999. Have you set a target date?

Mr. Ronald Duhamel: I believe it's June. It's June 30.

We should understand too that we have some assurance and we've already done some verification. We think we're there, but by June 30 we will know for certain. We really believe we've done it.

Mr. Eugène Bellemare: The fact that you say the target date is early 1999, and early 1999 now becomes June, which is really not early but halfway through, concerns me.

Mr. Ronald Duhamel: If I could bring a clarification, we believe we're there. The June 30 deadline is to make absolutely certain that it's confirmed that we are. We've already done some verification and gone through the processes that would normally give us that assurance.

• 0940

Mr. Eugène Bellemare: In other words, you'll have auditing completed and the contingency plan in place.

Mr. Ronald Duhamel: Right.

Mr. Eugène Bellemare: Then that would pass on to the next step in Y2K, which would be to address your suppliers and the supply chain. What are you doing regarding the suppliers and the supply chain as to auditing and contingency plans on their part?

Mr. Ronald Duhamel: Let me in answer in part, and my officials will give additional detail if they have it.

First of all, we have been working with the Y2K challenge for a long time, and we've been working with the people, the suppliers and the supply chain, as you've mentioned. In fact, we've been informing not only them but indeed all businesses in western Canada of the importance to be Y2K compliant as soon as possible.

We put out a lot of information supplementary to the government's several million brochures distributed throughout Canada, and we've worked very closely with partners, indicating quite clearly that if they don't do that we can give them no assurance that we can continue to do business with them.

Mr. Eugène Bellemare: This is the awareness part.

Mr. Ronald Duhamel: Yes.

Mr. Eugène Bellemare: We've long gone through that at this committee. We're now at the auditing and contingency plans, and the specific question is, have the suppliers been audited or are they about to be audited, and do they have contingency plans or are they about to be asked for their contingency plans?

Mr. Ronald Duhamel: My assistant deputy minister will answer that.

Ms. Judy Ferguson (Assistant Deputy Minister, Ottawa Office, Western Economic Diversification Canada): Mr. Bellemare, we have been working with Consulting and Audit Canada. We've been working with the National Contingency Planning Group. We've been working with people who have looked at our administrative systems for the year 2000. We're currently using the GMAC system for financial and program information. We're assured that those systems are Y2K compliant. We have been doing our own testing, and we will continue to test from June 30 through to the end of the calendar year.

Mr. Eugène Bellemare: That's in-house activities.

Ms. Judy Ferguson: That's correct.

Mr. Eugène Bellemare: My reference is to the suppliers and the supply chain. I have confidence that you're doing everything and you're on track.

Ms. Judy Ferguson: By “supply chain,” are you talking about our clients that we work with?

Mr. Eugène Bellemare: Yes.

Ms. Judy Ferguson: Okay. We have been working with clients to ensure that they know what the Y2K problem is. We have not been providing assistance to ensure compliance directly, but we've been telling them how they can get advice, what they need to do to ensure that their systems are compliant, and how to go about getting assurances from their suppliers. It's third-party.

Mr. Eugène Bellemare: You're about to be giving, if you have not already given, moneys in this year, 1999. Have you asked for commitments on the part of your suppliers that they are in fact audited for Y2K; in other words, that they are compliant?

Ms. Judy Ferguson: We haven't actually asked for audits. We have explained to them what the problem is. We have indicated how it might affect their individual businesses and what they need to do to ensure compliance, how to deal with their suppliers. We have asked them to have a compliance plan, but we don't actually assess that plan ourselves.

Mr. Eugène Bellemare: Is that not exposing yourself to extreme criticism at your next budget, or even before then, if the moneys you're giving out this year you're giving out only on a hope, a wish that they are aware, but not on the insistence that they have been audited and that they are compliant and that they have a contingency plan?

Ms. Judy Ferguson: The legal advice we have received is that we must exercise due diligence. We must indicate to our clients and our partners what they have to do. If we were to actually assess whether they meet compliance standards, we would be exposing ourselves to legal risk. So we have been very aggressive in saying to our partners and our clients, this is what you have to do to ensure that your systems will continue to function beyond January 1, 2000.

Mr. Ronald Duhamel: But if I could go a little further with Mr. Bellemare with a short question myself, Mr. Bellemare, are you suggesting and do you have something precise in mind

[Translation]

that we could do or that we should be doing? Are you aware of any systems being “imposed”?

[English]

Mr. Eugène Bellemare: In the banking system, for example, if you are a business, the bank will ask you for an audit and will ask you for a contingency plan. If you do not have that, you will not get your loan this year. It's that simple. That we've been told by the Canadian Bankers Association and the bankers who came in.

• 0945

You are like a banker/donor, and you're providing money for services and you have a clientele, and what I see is that you're just saying, are you aware that there's a storm coming? You may have an answer, yes or no, but the real question should be, have you barricaded yourself for this tornado that's coming?

Mr. Ronald Duhamel: I don't think we've barricaded ourselves, but I make a distinction and I will want to follow that up. The distinction is, first of all, WD used to be in the loans business. We no longer are. So that's number one.

Number two, with regard to moneys that are made available, not necessarily to businesses but in terms of grants, perhaps we need to look at this further. But we no longer give loans to businesses. Those loans are given by banks to businesses.

The Chair: Thank you very much, Mr. Bellemare.

Mr. Murray.

Mr. Ian Murray (Lanark—Carleton, Lib.): Thank you, Madam Chair.

Minister, I want to commend you on your project working with the disabled in Calgary and Edmonton now. This is the first I've heard of this, and I gather from your comments that it's still in its early days. I think this is a fairly recent initiative, but I'd like to have some more information on how it is being done, because it may be that it could be a model to be used elsewhere across the country.

I'm also interested in who your partners are in this. For example, do you work with associations that are directly involved with the disabled to try to determine who may be a good fit for the program? I'm interested in the management of this project.

Mr. Ronald Duhamel: We do work with partners, and very often they are those who have had a lot of experience with people with disabilities openly or the groupes revendicateurs—advocacy groups is what I was looking for—for this group of individuals. In fact, I could have mentioned Saskatoon as well—that's the most recent announcement—where we've taken the north Saskatchewan and south Saskatchewan organizations that look after people with disabilities and in fact we give them operating funds, if you wish, in order to assist them in finding the people and assisting them, and developing business plans and what have you. Then there are loans that are made available to people with disabilities so that they can go forward when their business plans are in order.

There are loans actually that are made available, but they also try to lever loans from banks and credit unions, and caisses populaires and what have you. And, you're quite right, we can't do this ourselves. We don't want to do it ourselves. We want to go to the people who know best about people with disabilities and the kinds of assistance, the types of services they require in order to become independent or more independent than they have been in the past.

We expect these services to grow. We're looking at that possibility, although it's modest if one looks at it in relationship to other investments. It's something we would like to expand in each of the provinces.

I should mention that our CFDCs, the Community Futures Development Corporations I mentioned a moment ago, are also significantly involved in programs for disabled entrepreneurs. And we've been able to provide funding, both operational and loans funds, for them to do exactly that, to assist people with disabilities.

Mr. Ian Murray: Do you know if it's primarily individuals who are taking advantage of this or do you have people in groups and we get—

Mr. Ronald Duhamel: My understanding, but I stand to be corrected, is it's primarily individuals, but there have been examples of groups who have worked together with the partnering institutions.

Mr. Ian Murray: Thank you.

The Chair: Thank you.

Madam Jennings.

[Translation]

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Good morning, Minister.

Mr. Ronald Duhamel: Good morning.

Ms. Marlene Jennings: I would like to begin by apologizing for not being here for your presentation. I was retained at another committee meeting. As soon as I was able to get away, I came over. But I did have a chance to quickly look over your presentation, and I want to commend you on it.

Mr. Ronald Duhamel: Thank you.

Ms. Marlene Jennings: I think you have done good work and that you deserve praise.

• 0950

The dominant theme of your presentation is that the government has to find ways or tools that can help businesses to be more innovative and productive, as well as more competitive, on both domestic and international markets. We know that the buzzword these days is productivity. There are studies that show that Canada is not doing all that well, compared to the United States and even other G-7 countries. We know that one way of boosting productivity is to encourage small business to invest in better equipment and continuous employee training and development. Studies comparing Canadian and American small businesses show that we are not doing very well in that area. First of all, what are you doing to encourage and increase small business investments in those two areas?

Secondly, studies show that employee stock purchase plans offered through the tax system are directly linked to increased productivity. Is our government considering establishing these kinds of plans? In Quebec, the provincial government already has a program of this nature, which is limited in scope, but is proving to be very effective.

Those are my two questions. Thank you.

Mr. Ronald Duhamel: Thank you, Ms. Jennings.

As regards employee stock purchase plans, we have already discussed the idea. As far as our department is concerned, we still have a long way to go, as I understand it. My officials may have additional information on that. It is quite an innovative idea that warrants further examination and debate, because I do think it has a lot of merit.

What you say about productivity is absolutely correct. We are focusing mainly on innovation. We have to give people the tools they need to decide their future on their own. In my view, a company that has the best possible tools will obviously have the best performance, create the best jobs and be best able to improve people's quality of life. I spoke earlier of the kind of tools we make available to our clients: information, the perspective of markets both domestically and internationally; obtaining funding when it is required; providing assistance in preparing business plans. For example, we have mentors and we provide counselling and advice. We are there to provide that kind of information. We are also there to assist with training. I referred earlier to businesses run by women. If memory serves me, the four businesses run by women in western Canada have provided training to 17,000 women. That is extremely positive. Community Futures Development Corporations, particularly in rural areas, provide a great deal of training. We also do some training, but we mainly rely on our partners for that.

My last comment would be that we emphasize innovation as I define it: that is, doing more with what we have, whether we're talking about forestry, mining or other sectors. That is one part of it. The second part involves asking oneselves whether it is possible to start up new businesses, launch new initiatives, or do new things that we have never thought of doing before. So, we emphasize innovation and training. I'm sure you know that we have very close ties with the universities and colleges, as well as with our partners, and that training is a very major focus. We have talked about a number of tools. The most important tool is probably giving people the education and training they need to make the transition to this new society we often call the knowledge-based society or economy. That is where we are focusing our efforts.

[English]

The Chair: Thank you very much, Madam Jennings.

We have a few minutes left. The minister is scheduled to be here until 10 o'clock, and I have both Mr. Keyes and Mr. Dubé with questions.

Mr. Keyes and Mr. Dubé.

• 0955

Mr. Stan Keyes (Hamilton West, Lib.): Thank you, Madam Chair. Welcome, Minister Duhamel.

I wanted to follow up on my colleague Eugène Bellemare's question, because I think it's important, and it has to do with Y2K as well. You said you don't loan money, and yet the fact sheet you provided in the portfolio that has come to us says $439 million in small business loan capital.

Mr. Ronald Duhamel: That's correct.

Mr. Stan Keyes: Are you taking credit for small business loans, but you're not giving them money? I don't understand.

Mr. Ronald Duhamel: No. Let me try to explain. What we did a number of years ago when we got out of the direct loans business—because at one time we did give out loans, and we no longer do so—is that we put up $54 million as a loan loss reserve and we established 28 loan funds with banks and other lending institutions. So let's assume that you were a business person who had a solid plan with a growth idea or new initiative. We would take you to one of our loan funds, depending upon the bank, Scotia or Royal or what have you, and you would in fact be dealing with them, Mr. Keyes, directly.

Mr. Stan Keyes: Directly.

Mr. Ronald Duhamel: That's correct. No, I'm not trying to take credit. Perhaps I should have explained it better. We facilitated, if you wish, this portfolio of—

Mr. Stan Keyes: By the very fact that we as the federal government, which is in control of $54 million worth of taxpayers' money sitting in a bank...and even though it's the bank that administers it, it's still the taxpayers' money that sits there. I think what Mr. Bellemare was getting at, and what we're concerned about especially at this committee, because of the tremendous amount of work this committee has done on Y2K, is that since it's our money sitting there it's incumbent upon WD to do its job to ensure that the institutions we are putting this tax money into are Y2K compliant, that they do have a plan, so that we know exactly where every penny of that $54 million is going to be tomorrow. So this means you have to contact these institutions and they have to supply for you the assurance that they're Y2K ready and/or that they have a plan ready to go if they're not.

Mr. Ronald Duhamel: Thank you for raising it again. I indicated that Mr. Bellemare's questions are really quite appropriate. I will look into it further.

My understanding is that all of the banks with whom we deal do in fact have those contingency plans. They are all of the major Canadian banks. We will make doubly sure that it is so. Our money is administered, if you wish, it is there with the banks that deal directly with the customer. But the point's well taken. I have no difficulty with it whatsoever. We'll double check to make absolutely certain. I'm 99.99% certain, but I'll make sure that it's 100% for the next time I see you.

Mr. Stan Keyes: Are the Community Futures Development Corporations also run through a bank?

Mr. Ronald Duhamel: No. They are run independently.

Mr. Stan Keyes: By WD?

Mr. Ronald Duhamel: They are partners of WD. They render services. They give services to the communities and the small and medium-sized businesses.

Mr. Stan Keyes: So there again, it's taxpayers' money of some 8,000 loans worth $176 million from 1995-98, and $90 million that you announced two weeks ago to this development corporation. So in essence we're a partner in the loans business.

Mr. Ronald Duhamel: This is not a loan. This is actually operational assistance. You see, the choice we had, Mr. Keyes—to make sure I don't mislead anyone—is theoretically we could have administered those services with our officers. We just felt it was better to go to the communities and ask these individual corporations to do that for us. They'd be managed by local people who would know—

Mr. Stan Keyes: But the Community Futures Development Corporations are not a bank.

Mr. Ronald Duhamel: No, it is not.

Mr. Stan Keyes: It's just an organization that takes the government money and redistributes where they feel the need is greatest?

Mr. Ronald Duhamel: They do two things. They provide services and they do micro-loans.

Mr. Stan Keyes: Micro-loans.

Mr. Ronald Duhamel: Yes.

Mr. Stan Keyes: They did 8,000 of them so far this year.

Mr. Ronald Duhamel: But there are ninety, and they've been operating for a number of years as well.

Mr. Stan Keyes: You see, again, that's another concern. You're confident in the banks' ability to be Y2K ready, but what about these Community Futures Development Corporations?

Mr. Ronald Duhamel: When I met them recently we talked about it, and clearly they've given me confidence. But if you say, Ron, do you have it down in black and white, no, I do not.

Mr. Stan Keyes: You have to have it in black and white, Mr. Duhamel.

Mr. Ronald Duhamel: Okay.

The Chair: Thank you. Thank you very much, Mr. Keyes.

[Translation]

Mr. Dubé, please.

• 1000

Mr. Antoine Dubé: Minister, I am a little disappointed to see that I am the only opposition member present to question you about regional development and Western Economic Diversification Canada.

Mr. Ronald Duhamel: Well, I think it's great; it gives us more of a chance to talk.

Mr. Antoine Dubé: It is rather ironic that you are being questioned not just by a member from Quebec, but a sovereignist to boot.

I see that you have succeeded in renewing federal-provincial agreements with three provinces.

Mr. Ronald Duhamel: Yes.

Mr. Antoine Dubé: I believe British Columbia has not yet... Perhaps the report was written at budget time.

Mr. Ronald Duhamel: Yes, you're absolutely right. That one has not gone through yet.

Mr. Antoine Dubé: Could you tell me something about these agreements? I imagine these federal-provincial agreements are in the public domain, are they not?

Mr. Ronald Duhamel: Yes, yes.

Mr. Antoine Dubé: Madam Chair, I would ask that you request copies of those agreements, as I would be interested in reviewing them.

Mr. Ronald Duhamel: Yes, of course.

Mr. Antoine Dubé: Since 1994, we have been trying to do the same thing with the federal government, through Mr. Cauchon's department, but it just isn't working. In the Maritimes, all the provinces have come to an agreement. Yet there are different governments there. There are two Conservative governments, and you have been able to reach an agreement with them, and now you are about to conclude an agreement with an NDP government. I'd like to know what your recipe is.

Mr. Ronald Duhamel: Well, the recipe is simple. I'm a politician during election campaigns and I work with elected officials between elections. It's as simple as that.

Mr. Antoine Dubé: Well, I want to commend you for concluding those agreements.

Mr. Ronald Duhamel: Thank you.

[English]

The Chair: Thank you very much, Mr. Dubé.

Mr. Minister, I want to thank you very much for being here today and taking time to discuss the western economic diversification portfolio with committee members and for entertaining questions. We appreciate your brief, and we appreciate your staying with us to answer questions. We're now going to let you go.

Mr. Ronald Duhamel: Thank you, Madam Chair and colleagues. I appreciate all of the questions I have received. I want to thank my colleagues, Bellemare and Keyes, as well for pushing the question of Y2K. As I said, I'm 99.99% confident, but the next time I see you both I'll be 100% confident.

Thank you. Merci.

The Chair: Thank you.

Now, committee members, we have another group of witnesses. We're going to suspend for about two minutes. We're going on to productivity, and officials from Industry Canada are going to join us.

• 1002

• 1009

The Chair: What's going to happen now is pursuant to Standing Order 108(2), consideration of a study on productivity, innovation and competitiveness.

We're going to have two witnesses this morning. The first witness we have in front of us is Dr. John Baldwin, the director of micro economic studies and analysis at Statistics Canada. Dr. Baldwin is going to do a presentation for about 15 minutes, then we're going to have questions for about half an hour, and then we're going to move on to the second presenter and questions. We're going to do it a little bit differently this morning because Dr. Baldwin has another commitment.

We'll let Dr. Baldwin begin.

• 1010

Dr. John Baldwin (Director, Micro Economic Studies and Analysis, Statistics Canada): Thank you very much for inviting me here to discuss the productivity programs at Statistics Canada.

I've passed out a folder with material for members. The material contains a summary that explains the release of the productivity statistics that were made on March 23 and a slide presentation, which I won't have time to go through in detail today, but I will walk you through it briefly in the next 15 minutes.

This particular document in your folder is entitled “Presented by John Baldwin, Statistics Canada, to the Standing Committee of Finance, May 6, 1999”, and it's material that was presented last week. I'm here to talk basically about the productivity program at Statistics Canada and the data that is produced, which tries to track how well Canada is doing in terms of its productivity performance.

Looking at the first page, entitled “Productivity Measures”, I point out to you that there are two basic productivity measures that are produced by the statistics program. One is called labour productivity and the other is called multifactor productivity.

Now, productivity is a basic measure of the productive capacity of the economy. Labour productivity is a relatively simple one, and it essentially creates a ratio of the amount of output relative to the amount of labour input into the system. The multifactor productivity measure is more complex. The labour productivity measure has been with us for twenty or thirty years, but in the last twenty years, economists and outsiders have argued that it's inadequate by itself—that the amount of output you get per worker in the economy, which is the labour productivity measure, is clearly determined by the amount of capital that you have per worker, the amount of materials that workers have to utilize, and that changes in output per worker may be caused by these other factors.

Why is that important to take into account? Well, in some sense, people would like to know the extent to which we are getting changes in output that are unrelated just to the changes in inputs that we're placing in the system, changes in inputs being labour, capital and materials. We're interested in learning something about the extent to which outside knowledge or technological change improves our capabilities, and therefore Statistics Canada, at the behest of the general community at large, has begun to produce multifactor productivity measures in the last decade.

All of these measures that Statistic Canada produces are measures that look at changes in capacity relative to changes in inputs. They are, in effect, rates of growth of productivity. They do not deal with levels. Why are we interested in that? Well, we're interested in knowing whether our productive capacity has increased relative to the amount of inputs that we're devoting to our production process.

In order to think a little more easily about what multifactor productivity measures are, think of the following two numbers. If we increase our output in any one year by 6% but we increase all of our inputs, somehow weighted and combined, by 5%, then our multifactor productivity growth has been 1%. The difference between 6 and 5 is 1. In some sense, we've got 1% extra out of the system.

Now, some people refer to that as the free lunch. It's 1% that's come from nowhere. In reality, it has probably come from somewhere that just hasn't been measured. It has probably come from increases in knowledge that have been created in the educational system. It has come from increases in knowledge that are associated with R and D, or from increases in knowledge that are associated with higher-skilled workers. But it's the measure, in effect, of this residual that people are interested in, because in some sense it tells us how rapidly we're incorporating all of these outside influences into our productive system—“outside” being outside of our labour and capital and materials.

The measure of productivity I've just referred to is not an easy one to put together. As I've explained to you, it's the difference between 6% and 5%. Six percent is a first difference; it's a rate of change of output. Five percent is a first difference; it's a rate of change in inputs. Therefore, productivity measures are differences in first differences. Inherently, therefore, we have always recognized that these measures have a fair amount of...not so much air, but there's a large confidence interval that we must utilize when we come to interpret just how accurate these figures are.

• 1015

Now, let me deal just briefly with how Statistic Canada goes about producing these numbers. It's a complex process. The productivity group at Statistics Canada is, in effect, at the top of the pyramid. We have to get our numbers from everybody else. Every other division has to do its job before we can produce the estimates. Sometimes there are problems in other divisions or results are slow or being revised, and therefore we come a little bit behind in terms of our release of estimates.

We have to start by relying upon the system of national accounts to produce data that give us rates of change of outputs. We have to then rely upon the labour division to give us rates of change of inputs. More importantly, we have to work very hard with the labour division to get a rate of change of labour input that we believe is meaningful. Over the last 20 years, the rate of growth of employment, that is, the number of people employed, has gone up far faster than the number of hours worked, partially because we've increased the amount of part-time work in this economy. We want a measure of input that reflects the true hours that go into the work process or into the production process, and therefore we spend a fair amount of time deriving the numbers for hours worked that go into these estimates.

We also have to have an estimate of changes in capital stocks, which is another one of the important inputs in the multifactor productivity measure. We want to know how much investment is occurring in the economy, and we have to turn investment numbers into capital stock numbers, which is the accumulation of all past investments; that's still useful and can be used for the production process. For that, we rely upon the investment in capital stock division, who have spent a long time devising ways of estimating capital stock in a reasoned and precise fashion. And here considerable progress has been made over the last 20 years.

At one time, very arbitrary assumptions were made about how long investment lives before it dies, how long a piece of equipment sits in a plant before it's discarded, and how rapidly it depreciates during that period of time. In the last ten years, Statistics Canada has implemented a number of fairly sophisticated survey programs to get direct estimates of those numbers rather than assumptions, a program that was implemented in conjunction with the Department of Industry, the Department of Finance, and the Bank of Canada to improve upon these estimates.

Finally, the productivity program relies upon an esoteric set of numbers called the input-output tables. The input-output tables in a system of statistics tell us exactly what commodities each industry purchases and what commodities each industry sells. That's essential if we're going to develop productivity measures at an industry level that are reasonably precise.

Why is that important? In order to sum all of the outputs and all of the inputs that we're talking about when we come up with productivity numbers, we have to have reasonably accurate weighting schemes. I started by saying we're talking about differences in rates of change of outputs versus rates of change of inputs, but of course outputs consist of thousands and thousands of products, and so do inputs. You have to have some way of combining those, and only with a reasonably accurate set of input and output accounts can you hope to do that in a precise way.

To use an analogy that some of the members may be acquainted with, we worry a great deal about the accuracy of the consumer price index. The consumer price index is accurate only to the extent that we measure changes in prices reasonably precisely, but that we know how to weight those changes in prices up to one number, which is then published. Those weights depend upon the consumer expenditure pattern of Canadians, and if that consumer expenditure pattern isn't updated fairly frequently, you get an imprecise consumer price index.

In the same way, productivity numbers, which are just aggregates of all of these commodity changes at both output and input levels, have to be weighted, and the prime way in which they get weighted is through these detailed input-output tables, which allow us to say something precisely or reasonably precisely, to the degree of precision that Statistics Canada requires before it publishes something, about these rates of change.

Let me say just a few words about what we do produce and what we don't. In our numbers, we talk about the business sector primarily. We remove government from our estimates because we don't have good measures of productivity in the government sector. The way the national accounts put together our numbers for output in the government sector is basically to measure inputs. If outputs are measured by inputs, rates of change in outputs and inputs are going to be the same, and by definition, productivity as we measure it in the public sector, perhaps not real productivity, is essentially constant, so all we can do when we produce our numbers is measure productivity in the private sector.

• 1020

We also don't produce numbers that compare levels in Canada to other countries. We look at rates of growth in productivity. The reason for that is very simple: we have thousands and thousands of prices that we can use to calculate rates of change of outputs and inputs from dollar numbers. In order to get rates of change in real quantities, we need the value numbers and prices, and we have that because of our statistical system.

We do not have thousands and thousands of prices in order to make comparisons between Canada and the United States. We do not devote the same amount of resources to that program and therefore we don't produce numbers on those levels.

We also don't produce numbers on productivity that take into account a number of external influences. Our output measures do not take into account pollution, for example, or “bads” that might be produced from industry. We stick with the market system, that which is measurable—readily, easily measurable.

So that's a brief introduction to the numbers we've produced. Let me now quickly go through the release and some of the numbers that we released on March 23 that have got some attention elsewhere.

I'm going to start the next slide, which is called “The New Estimates”, by talking about why we have revised our numbers, indicating to you that this is a regular process. I'm going to talk to you about what the revisions look like for the business sector, which is the total economy, and then for the manufacturing sector, because a large number of people focus on the manufacturing sector as being something very specific.

First of all, let me deal with the reasons for the revisions. Statistics Canada has recently argued that the productivity growth rates in the 1990s were better than those we had previously thought were occurring. These revisions have occurred for essentially five or six different reasons.

First of all, the system of national accounts revised its real GDP numbers, the real output numbers we receive. This is a revision process that takes place every five years and occurs because, as the economy changes, the weights that have to be applied to sum up the various outputs in the economy change. As we increase the computer sector, for example, we have to change the weights that the computer sector gets. The SNA, system of national accounts, does this about every five years. In this particular case we have just received the new revisions going back to a re-basing in 1992.

When they do these re-basings to re-weight their output levels with more suitable industrial structure weights, they then take them back over time. So we get historical revisions back a long period of time.

In addition, this particular historical revision has involved a fair number of redefinitions. Countries across the world are more interested in comparing themselves one to another. That means their statistical systems have to be made more comparable. Not all countries use the same definitions of how you should measure output in the economy at large, the system of national accounts.

Under the coordination of the United Nations, there has been a general agreement to move toward more consistent definitions. The 1993 agreement has now been implemented by Canada. As a result of that, there were changes in definitions of some industries, such as, for example, household services and what is called here FIRE—that's an acronym for finance, insurance, and real estate. By the way, not all countries are yet on-line with that. The Americans are behind in their adoption of that system.

In addition, the group that provides us with this massive set of tables on who buys what from whom and who sells what to whom has revised the way in which they deflate some of their industries. Deflation techniques are used to turn nominal dollars into real dollars and tell you something about the real rates of output change as opposed to just the inflated rate of output changes, which include price changes. They have changed, improved some of their techniques for obtaining real changes in series, in particular in retail and wholesale trade.

In addition, there have been revisions made to the labour force survey estimates that we use, not to the labour force survey itself but to our estimates, to give us a more consistent series over time.

Finally, there have been revisions to both capital stock and some additions to the capital stock series that we use for estimating rates of change of that particular input, which are made both because we have re-based to take into account the changing nature of the industrial system and to take into account the 1993 changes in the UN definitions.

• 1025

Now, on the next page I note what the results of these revisions are on multifactor productivity. Multifactor productivity is the most comprehensive measure but also the one that's most difficult to estimate. The graph after that details the changes that we see as occurring in our estimates. The graph after that shows new estimates with triangles and old estimates in solid lines. You can see the new estimates now show slightly more growth in the 1990s than was there before. In fact, you now have, if you draw a straight line through this curve, more or less constant growth from the early 1970s.

The next graph, which is labelled page 7, gives you an average rate of growth of multifactor productivity and labour productivity over these last three decades. The labour productivity number is the bar on the left, the dark bar; the multifactor productivity is the one on the right, the semi-shaded white-dark bar. You can see that over the last three decades multifactor productivity has been more or less constant. If you look at it and push your eye—it's gone up a little bit. Those are not significant differences, given the difficulty in estimating multifactor productivity.

Labour productivity is about the same in the last two decades. But the main point is that in all three decades productivity growth is much less than that in the pre-OPEC crisis. We haven't changed the story whatsoever. We have relatively low growth rates post-1973. What we've essentially said with this release is that growth rates appear to be relatively constant through the last three decades.

In graph 8 we've added additional information. We've also looked at the real growth and output. Multifactor and labour productivity estimates are only one, in my opinion, of the measures you have to look at to evaluate the success or failure of the economy. You can see in the far left bar in each of the groupings the real output—it's called the Chained Fisher Ideal Index—which is the rate of growth of real output in each of these periods. You can see the rate of growth in real output has continued to fall since 1973. In the last three periods, despite the fact that multifactor productivity growth is about the same, we have done less well in terms of annualized real growth rates. So you can have constant multifactor productivity and you can have declining real growth rates.

I then turn to figure 9 to look at multifactor performance in manufacturing and discuss what changes have occurred there, and point out that basically the same story has occurred in the new Statistics Canada numbers. We do a little better post-1988 than we did with the old numbers prior to our revising our industrial structure and re-weighting. We have about the same growth over the last three decades, and again it's much slower than we had pre-1973.

Then on graph 11 I turn to some Canada-U.S. comparisons. I do this because whenever we release our estimates very large numbers of people call us and say they want to compare Canadian numbers to the United States. At one time our usual response was that we think there are comparability problems, and we would prefer not to make public releases. But the demand was so great to correct misimpressions after they were made that we now produce numbers side by side for Canada and the United States, recognizing and stating that they're not exactly comparable, but putting the two numbers that we think are most comparable together. We do that basically again for the business sector, the entire private sector, and for the manufacturing sector. And here I want to stress that at the business sector level we have not changed our story very much with our new numbers.

On graph 12 we show you what we had previously produced as comparable Canadian and U.S. data for multifactor productivity over a long period of time. For all intents and purposes, until our last report, two or three years ago, there was no difference in these two economies.

Graph 13, though, shows you what happens after we've made the revisions. For all intents and purposes, we've grown slightly faster over the period 1982 through 1997, but it's only slightly faster. It's only 0.4% per year.

• 1030

You can see in graph 14, page 14, the average differences over this period for Canada and the U.S. look very similar on the left bar, which is 1961 through 1973, and they're quite similar on....

[Translation]

Is there a problem with the names?

[English]

The Chair: They're looking at the wrong brief. They're looking at the next brief. They're supposed to be in the blue folder, English and French. Please continue, Dr. Baldwin.

Dr. John Baldwin: You can see Canada is slightly higher, but it's not significantly so. I could talk at length about the difference in the methodologies used in the two countries. The Americans make slightly different assumptions in a number of areas. When we change the American numbers to use our assumptions, they move very close to ours. So for all intents and purposes, when I'm asked if there is a significant difference in the business sector, I answer that I find it difficult to see it.

Now I'll turn to number 15 and look at what's happening in manufacturing. It has been the case that a large number of people have focused just on manufacturing. Manufacturing may be the tradable, but it's only 15% to 25% of the economy, depending on how you measure it. We're behind there. It should be pointed out that we're therefore ahead in the other 75% of the economy, which is services. The two balance out in our gross numbers.

In the old numbers, the U.S. had been doing phenomenally well. U.S. productivity in the 1990s was extremely high. It was higher by historical records than they've seen since just after the Second World War, and Canada's was not. Now we make provisions and so does the U.S. It's a standard procedure to catch up with industrial structure.

On page 16, I've shown you what happened when the U.S. made revisions two years ago. They moved their productivity in manufacturing down dramatically. There had been, on page 15, a percentage point difference of about 30-odd points. The Americans moved it down by 12 to 15 points. They did so only by recognizing the structure of the economy as of 1991-92.

They are well behind us in coming up with adequate current weights in order to do these estimates. When they got to the early 1990s, they made dramatic changes. We're up to 1995-96 and waiting for the Americans to recognize the changes in their industrial structure, which are more dramatic than ours in terms of the relative growth of the very high computer growth sectors. When both sets of provisions are put together, as they are on page 17, you can see that the Americans are still higher than we are. There is a gap.

On page 18, we ask where the gap is occurring. Is it across all Canadian manufacturing industries? I was at a conference the other day at C.D. Howe Institute, and the title of one session was “Can We Whip Our Lazy Manufacturers into Shape?” This does not show that we have a group of generally lazy manufacturers when it comes to TFP growth.

If you look at page 18, you see there are two industries—electrical and electronic products, and commercial and industrial machinery—where the U.S. has a productivity growth that is incredibly high. It is over 8% per year in one and almost 5% in the other. Those are the computer-based industries. In those industries they do well relative to all their other industries. It's what's driving their growth in the 1990s. They also do very well relative to our industries that aren't similar industries.

By the way, those industries have a higher weight in the United States, so that higher rate of growth has a greater influence on the total sector productivity growth and manufacturing. In the other sectors, Canada wins in about half and loses in about half. It is in these two sectors where you see most of the difference.

After our numbers were released, a number of people called with what I have referred to as puzzles, like upsets. These were things they said confused them in light of what we had said. The first had to do with standard of living issues. A very large number of people came to us and said “Look, it's our impression that standard of living as measured by GDP per capita has not done well in the last decade. How can that be consistent with productivity growth rates that you're saying are relatively constant?” The OECD released a report late last year saying not only did we not have positive growth rates, we had negative growth rates. A very large number of people asked why the two of us differed.

First of all, let me deal with whether or not there's a necessary conflict between standard of living numbers and productivity. Normally, they move together. If we take GDP per capita, GDP per capita growth rates should be equal to GDP per hour worked growth rates plus growth rates in hours worked per capita in the country. Normally, hours worked per capita remain relatively constant, therefore the GDP per capita growth rate—standard of living—and GDP per hour worked—productivity—go hand in hand. That didn't happen in the 1990s.

• 1035

On graph 22, while I've shown you real GDP per capita growth rates in the 1970 through 1988 period—let's call that the 1980s—and 1988 through 1997—the 1990s—at the far left bar in each of these sequels, rates of growth of GDP per capita and standard of living have been falling, as everybody was saying, and of course it has. Rates of growth in the 1990s were one-third what they were in the 1980s.

On the far right is GDP per hour worked. It's not our measure of productivity exactly; it's the one people often take and call productivity. I've put it on this graph because it allows us to compare. You can see that the rate of growth of GDP per hour worked remained about constant in the two decades, while GDP per capita fell dramatically.

What's happening? We're putting fewer of our population to work, either because they choose not to work or because they can't find jobs. That's an unusual period.

This also influences Canada-U.S. comparisons. If you turn to page 23, I give you business sector labour productivity in the two countries. Some would prefer to use labour productivity because multifactor productivity, as I've just described, is complex, difficult to measure, and people get confused afterwards and aren't fully confident of the results. So I've gone back to labour productivity rates of growth over time. If you look at U.S.A. and Canada, the eye has a difficult time seeing much difference in those performances. They moved apart in the 1970s. We grew more rapidly in the late 1960s and 1970s than the Americans, but after that they're pretty constant.

Turn to the next page and look at GDP per capita growth rates. Again, they're pretty constant until the 1998-99 recession. In the 1990s we collapsed relative to the Americans. Our productivity slowed a little at the labour productivity level in the 1990s, although not much. Your eye can't tell much of a difference there. But your eye has no trouble telling the difference on the GDP per capita side on page 24.

The final puzzle is why there is a difference between Canada and the OECD. After answering this question over the phone for several days, I began to pull the OECD numbers. I simply discovered the OECD had two stories to tell. The OECD has two sets of productivity numbers, as shown on page 26. The ones on the left are the ones that were being traipsed around Canada as showing we had negative productivity growth. The ones on the right were produced by their statistical directorate with a methodology we fully understand.

We can reconcile our numbers with theirs by changing the definitions of what is defined as inputs. The OECD uses persons, not hours worked, so it goes up a lot faster because of the increase in part-time work. They use gross capital stock, not net capital stock. Net captures usable capital stock and has a different time path.

The one on the left simply befuddled us. We have met with the OECD. They are redoing their formulae and we will see new estimates this June. I am not allowed to describe what they are at the moment, but they're not going to be as negative as they look there.

The last graph simply compares Canada and the OECD's statistics directorate. The top line is the Canadian and the bottom line is the OECD's statistics directorate. Both are for Canada. We can move ours directly down onto their line by simply using what we regard as the less perfect definition of input—workers, as opposed to hours.

With that, I'll end my presentation. Thank you very much.

The Chair: Thank you very much, Dr. Baldwin.

As I said earlier, Dr. Baldwin has another commitment, so we will only have time for one round of questions. We have another witness as well, with another presentation.

So I'll begin with Madame Lalonde.

[Translation]

Mrs. Francine Lalonde (Mercier, BQ): I feel like I'm at the first class of a very long session. What is the purpose of this presentation? Is the point that we have a productivity problem here in Canada or that, if the numbers had been crunched properly and the OECD was using the same method as we are to measure total factor productivity, our situation would not be as precarious?

• 1040

It is important that we get an answer to that question because our overall policy thrust will be completely different depending on whether we believe the OECD figures accurately depict our situation, or whether we believe Canada truly has a productivity problem that we need to try to understand and resolve.

[English]

Dr. John Baldwin: The purpose of the presentation was twofold. It was to present the numbers that were recently released and to try to explain the context in which they were released.

With regard to the OECD, there is no one single OECD position. There are clearly two sets of OECD numbers. There is the set of OECD numbers that are produced by the statistics directorate and used in science and technology, which show virtually no difference from the estimates we have presented. They use a methodology that is relatively common across countries—that's the statistics directorate's job—and the numbers show little difference.

There is another set of numbers at the OECD that are recognized as wrong but have not been redone. They have two divisions that will have to come to some agreement over whether they can afford to produce two separate different numbers and why those numbers differ. I really can't say much more about that.

My numbers do not say something about whether we have a productivity problem in Canada. I haven't drawn that conclusion. Some have drawn the conclusion that Statistics Canada has painted a rosy picture. I think they drew this conclusion from the fact that revisions moved our numbers upwards in the 1990s slightly from what they had been.

Others have concluded, in sessions where I have been, that our productivity growth rates are not dramatically high, are quite low relative to many other countries despite the fact that they're positive, not negative. We at Statistics Canada don't draw conclusions as to whether the country is well or poorly off. We try to present the numbers, and when the numbers are questioned we answer questions about them and try to explain where they came from and how they're compatible with one another.

[Translation]

The other puzzle I referred to has to do with the gap between standard of living and productivity. Certain issues are raised with respect to the data on standard of living, but not those that relate to productivity. Our productivity has remained at the same level since the 1980s, whereas our standard of living has grown far less. It's up to you to decide whether Canada has a serious problem or not.

Mrs. Francine Lalonde: That one is high. How do you explain the gap between productivity and standard of living, which you are saying has remained fairly constant since the 1990s?

[English]

Dr. John Baldwin: I don't have a good explanation except a statistical one that is a tautology, an identity, and that is that we have not increased the hours worked as rapidly as we've increased our population. As I sat in a conference several days ago, I heard economists talk about whether that was the result of people withdrawing from the labour force because they were forced to or because they chose to.

Those are important distinctions. There's no doubt that the number of hours worked has not gone up as rapidly as the population has. Therefore, GDP per capita has fallen but GDP per hour worked has gone up at about the same rate as previously. The answer has to be found in aggregate demand in labour markets, and I don't have a strong opinion on that.

The Chair: Thank you, Madame Lalonde.

Mr. Shepherd.

• 1045

Mr. Alex Shepherd (Durham, Lib.): Thank you.

Getting back to the issue at hand, which is the presumably lagging labour productivity compared to the United States, it seems to me that on your graph here, when we hit 1990, the baby boomers became 50. The fact that we have an aging population, more so compared to the Americans, must have a direct correlation on their productivity, would it not?

Dr. John Baldwin: It would certainly have a bearing on why GDP per capita might not increase rapidly. If indeed a large percentage of your population no longer chooses to work, then of course your GDP per capita will move in a different direction from your GDP per hour worked.

I haven't looked at those demography numbers; somebody else could be called before the committee to deal with that issue. Indeed, as you noticed early in the graph that I reported, we actually report workable population as 15 plus, because it's probably not politically correct to call people over 65 incapable. So 15 plus is the working population we looked at.

Mr. Alex Shepherd: However, there must be statistics around that show that as people age their propensity for work obviously must decline.

Dr. John Baldwin: Yes, and there are statistics around that show that Canadians are increasingly taking early retirement, especially males.

So some of this collapse, as we put it, or as some have put it, in the participation rate is a preference; it's not forced upon people. Restructuring forces it on people who can't find new jobs. What percent is being forced and what percent is voluntary is something I don't know.

Mr. Alex Shepherd: Switching on to technology, because it's the buzzword, your system of measurement is basically on an outputs-based system. How accurate are your figures in the sense of your ability to keep abreast of new technologies? I only think of a simple situation: If somebody puts a computer down here and instructs me to do a task, which maybe I had to do by hand, obviously I can do it a lot faster now. If tomorrow somebody invents even a better computer, I can do that even faster. But there must be a tremendous lag in the ability to measure how technology is influencing productivity figures.

Dr. John Baldwin: There are two questions there, if I might. The first is that when you come to measuring outputs and inputs, can you accurately measure rates of change when you have rapid technology in the system? And computers are a good example. Computer prices have been falling, but the real price of computers has been falling even more rapidly. If you look around town, the standard computer has been about $2,000 for four or five years—it's falling more rapidly now, but for the last four or five years it was $2,000—but $2,000 last year bought you a computer that was 10 times as fast as one four years ago.

Interestingly, in this particular instance, statisticians in the United States a long time ago started modifying the price they would use for measuring changes in outputs. They don't use the market price, they use a market price corrected for improvements in value. So if your computer becomes twice as fast, they divide the price by two and presume the price is half that, and this changes the rates of growth of output. This is one of the reasons you see this dramatic growth in the computer sectors in the United States; it's being partially driven by this. It's not an artifice; it is a transformation of a price, and it's argued by many economists and statisticians that it's the appropriate way to consider quality.

We do the same thing. The rates of growth in our outputs and our inputs are different because we don't have the same sort of manufacturing sector. Using example A, big chip factories, we don't; and it's in the chip factories where this productivity gain has been immense and it's where you're seeing this huge productivity growth in the United States.

The second part of the question, though, has to do with this: can you measure rates of price change when technology moves very rapidly, or is it more difficult to do so? And the answer is yes. You can only imagine coming up with accurate price measures for CAD/CAM machinery in manufacturing. It must be difficult, because most of these machines, or many, are task specific, and keeping a good price series is not easy. We have a price division that tries to do that. It becomes more difficult when technological change is rapid.

The third part of your question was, do you expect to see productivity gains lagging, because it takes a while to learn something? Of course that's personal opinion, and I suspect you'd answer yes, you'd expect to see it lag.

• 1050

The Chair: Thank you very much, Mr. Shepherd.

Mr. Jones, please.

Mr. Jim Jones (Markham, PC): You indicated in your presentation that you weren't sure if there was a productivity problem in Canada. Can you please explain to me the difference between Canada's 8% unemployment rate versus the U.S.'s 4%? Why is their rate much lower?

Dr. John Baldwin: No, I really can't. Economists would argue that you could have a number of different reasons for that, one of which might be productivity, but I don't have a strong opinion on it. I can't explain it either. I'm here to explain the numbers. It's beyond Statistics Canada's purview to have many opinions in policy matters pertaining to issues like that.

Mr. Jim Jones: But isn't unemployment and employment all part of productivity, part of a booming economy? That's a key measurement factor too.

Dr. John Baldwin: Let me go back to what productivity is and isn't.

A number of people have equated productivity to everything else in the system. Productivity is not a wage increase; it's not profitability in the economy; it's not a lot of things. For example, Rick Harris gave the following example at the Standing Committee on Finance last week. We could be producing our oil more productively than any other country in the world, as we are improving the amount of oil we get per unit of input, but if nobody in the world really wants to buy oil—for example, the price has gone back up. Let's use nickel. If nobody wants to buy it, our standard of living is going to be bad. We're not going to be able to afford to buy much. Wages are going to be lower.

A businessman can increase his productivity efficiency as we measure it, but his profits could go down if prices are going down very rapidly. A businessman could increase his profitability with no increase in productivity if he managed to get lower prices for his inputs. That's efficiency in an overall sense to him, but it's not what we measure in productivity.

So all sorts of other things can be happening in the economy that may or may not be related to productivity.

Mr. Jim Jones: You mentioned the big chip factories. The large multinational corporations in the world control a lot of the world economy. Why isn't Canada getting its share of the corporate expansion of these organizations?

Dr. John Baldwin: I don't have an answer to that.

Mr. Shepherd asked earlier if there are interesting things happening at the micro-economic level that these numbers don't tell us, and the answer is yes.

Our particular group also does a fair number of micro-economic studies. We have one study out that looks at the extent to which we've had a switch in employment from large to small firms, and small firms are less productive than large firms, and might that account for a productivity slowdown? The answer is yes, maybe a bit.

We've also looked at the extent to which labour productivity in large multinational foreign-owned firms in Canada has been increasing faster than in large domestic firms. The answer is yes, a little bit. So they're clearly here.

We have not done a study of the determinants of foreign investment. I know Industry Canada has worked extensively on that and I know Serge is going to be here after I am, and I'm sure he is better qualified to answer that question than I am.

The Chair: Thank you, Mr. Jones.

Mr. Lastewka.

Mr. Walt Lastewka (St. Catharines, Lib.): Thank you, Madam Chair.

I thought I was going to get a little bit better informed, but now I'm more confused than I was when I started. The reason is because of the different formulas that are being used to decide on productivity. What I see happening here is you can use any figures you want and make any story you want. I think we're just confusing not only ourselves but our country if we don't explain ourselves properly on the productivity. So I'm going to just talk about labour productivity, if I can.

My understanding is it's labour hours—is that correct?—not dollars.

Dr. John Baldwin: Yes.

• 1055

Mr. Walt Lastewka: I'll use an example. If I'm making 2,400 engines a day, exactly the same in Canada, and I'm making 2,400 engines a day in Mexico, although I use three times more labour in Mexico, it says Canada is more productive on that statement. Is that correct?

Dr. John Baldwin: Using the definition of labour productivity and comparing levels, that would be correct.

Mr. Walt Lastewka: But when we pay in U.S. $2 and in Canada $36, it makes us less competitive. So it's just using labour hours.... What does that tell us?

Dr. John Baldwin: Labour hours cannot tell you everything about competitiveness. Competitiveness involves more than just labour productivity. It also involves exchange rates and, as you pointed out, the remuneration workers get. They're all relevant when it comes to looking at competitiveness. Labour productivity bubbles will not tell you whether the firm is going to be competitive. I have no disagreement with that.

Mr. Walt Lastewka: So the relation between productivity and competitive...when we look at productivity it is two different things.

Dr. John Baldwin: I don't think I'd say two different things. I'd say if you were going to look at competitiveness, as you have just done here, you would look at relative labour productivity levels and you would look at the relative wages in nominal dollars in the two currencies, and you would make some exchange rate correction that would capture what they were in the same currency. So labour productivity is not irrelevant to competitiveness; it's part of the formula, but by itself it can't answer the question of whether you are or are not competitive. That's the way I understand this, sir.

Mr. Walt Lastewka: Could you run through again your item on multifactor productivity? It was just a bit too fast for me.

Dr. John Baldwin: Okay. Most statistical agencies only produce the labour productivity number at one time and most of them only produce that number in terms of a growth rate. So we would not normally produce a number that says we produce 2,400 engines per person. We instead produce numbers that tell us how many more engines we're producing as we add more persons. So it's a rate of growth. We do that because the statistics systems are best set up to do that. So we look at the extent to which rates of growth in output per worker go up. As we add more workers, does the percentage increase in output go up more than the percentage increase in workers?

It was long pointed out by those who understand these things better than I that that could be misleading in some circumstances, that you could be getting that increase simply because you were adding capital, not because you were doing a better job in terms of technology and anything else, and that you should therefore consider not only the increase in hours worked, but the increase in amount of capital used and the amount of other things that could be measured. That's the multifactor productivity measure.

Let me come back again. Think of your business or another business increasing its locomotives by 6% this year. Your multifactor productivity measure is 6% minus whatever percent you increased all of your inputs by. In some sense, it's the margin that you've improved things by. So if you increase your engines by 6% and you had to increase all of your inputs by 5%, you've got a 1% margin difference. That's what multifactor productivity is.

Mr. Walt Lastewka: I just want a short one, if I could.

The Chair: Quickly.

Mr. Walt Lastewka: It would seem to me the best thing to do, instead of comparing ourselves with other countries and trying to straighten out how other countries should be doing statistics, and whether we're ahead of going to the OECD standard and the U.S. is behind, is for us to continue to be consistent in the way we're looking at productivity and measure ourselves from year to year to see where we're going.

Dr. John Baldwin: That is indeed the main focus of our program. Indeed much of the work I've been doing over the last two months in terms of comparisons with others has been outside our normal responsibilities. But there is a fairly large demand for these comparisons. I just note that.

• 1100

The Chair: Thank you very much, Dr. Baldwin. We do appreciate you taking time out of your schedule to be with us this morning, and we'll excuse you now because we know you have a previous engagement. Thanks for the presentation.

Dr. John Baldwin: Thank you very much.

The Chair: We're going to ask M. Serge Nadeau, director, micro-economic analysis directorate, Industry Canada, to join our table. He has a presentation, which everyone should have in front of them as well.

Dr. Nadeau, whenever you're ready to begin, please proceed. I know you have to get set up there.

[Translation]

Mr. Serge Nadeau (Director, Micro-Economic Policy Analysis, Industry Canada): Thank you, Madam Chair, for inviting me to make a presentation to your committee.

Over the next few minutes, I will be talking about productivity, but unlike John Baldwin of Statistics Canada, I will be focusing on productivity levels and making comparisons with the United States.

My presentation is based on the document intituled Improving Productivity: The Key to Higher Living Standards, the French version of which is entitled:

[English]

Improving Productivity: The Key to Higher Living Standards, and I see that this document has been distributed ahead of time.

Let me start with a definition of productivity. What is productivity? A very general definition of productivity is the following one: Productivity is the measure of the efficiency with which capital, people, resources, and ideas are combined in the economy. You can see that the word “efficiency” is underlined. It's for a very good reason. To coin a phrase that is becoming cliché among economists, productivity is not about people working harder; it's about people working smarter. For this definition here, I was going through the formulas, as John did, but all the formulas that have been used were to represent this, the efficiency in which people and capital are used in the economy.

Why are we interested in productivity? The answer to this question is very simple, and it is actually one of the few things on which all economists would agree. Productivity is the most important long-run determinant of standards of living in a country. The higher the productivity is, the higher the economic pie is, the more choices it gives us as a society. Productivity makes investment in other elements of quality of life, besides income, possible. Productivity makes investment in education and health possible. As this chart shows, the relationship between productivity and wages is striking. As productivity goes up, wages also go up.

How does Canada fare? Actually, Canada fares quite well. It has high productivity and also high wages. But the issue here is that Canada should and can do better, especially compared with the U.S.

Before we go further, why do we want to benchmark ourselves against the U.S.? There are several reasons for that, including that the U.S. is our closest neighbour and also the country that most Canadians compare themselves with. The U.S. is our most significant competitor and is, arguably, the most dynamic economy in the world. In fact, comparing ourselves with the U.S. gives us an idea of how large the Canadian economic pie could be.

• 1105

According to this chart, it could be quite a bit larger. Using this chart, what we see is that depending on the different purchasing power parity figures we could use, the per capita income in the U.S. is between 25% and 30% higher than it is in Canada. In dollars it means between $7,500 and almost $9,000, and that's per capita. For a family of four, it means about $30,000. That's a lot of money. Of course, some families would have more and some families would have less, but this is the average of how much larger the economic pie could be.

This is reflected also in terms of the American pie compared with the Canadian. The best-selling car in Canada is the Honda Civic, and the base price is about $16,000. On the other hand, in the U.S. the best-selling car is the Toyota Camry, and it's about $21,000. I'm using cars here as an example. I could have used the size of houses. Houses in the U.S. are about 200 square feet bigger than they are in Canada. I could have also used house ownership, which is slightly higher in the U.S. than it is in Canada. Here I'm using GDP per capita. I could have used national income per capita.

But the bottom line is that the standard of living in the U.S. is on average 25% to 30% higher than it is in Canada.

The gap between the standard of living in Canada and the U.S. has not narrowed over the last 40 years. In fact, if anything, it has increased over the last 10. The widening of this gap over the last 10 years is due mostly, as John mentioned, to the relatively better performance of employment in the U.S. than in Canada. But the point here is that while we had a gap of about 25% in 1961, we have about the same gap now. We haven't made any progress over the last 40 years in terms of our standard of living compared with the U.S.

What are the reasons for this gap? There are basically two reasons: lower employment in Canada and lower productivity in Canada. A study done by Industry Canada shows that on average lower employment in Canada has explained only 4% of the income gap with the U.S. over the last 10 years. On the other hand, lower productivity has explained 96% of the gap with the U.S. over the last 10 years.

What does this mean in dollar terms? It means that if in Canada we had had the same productivity as that in the U.S., every Canadian would have received about $5,800 more than they have received, and that's per year over the last 10 years. That's what the difference in productivity costs Canadians on average. Of course, some Canadians would have received more than $5,800 and some Canadians would have received less than $5,800, but the point here is that on average Canadians would have received about $5,800 per year per person. Of course, this $5,800 may not only be in terms of income; it may also be in terms of services. This is the 1989-98 average.

The situation in 1998 is slightly different. As we know, the U.S. labour market is doing extremely well. The unemployment rate in the U.S. is extremely low, and that's why the lower effective employment rate in Canada provides a greater explanation of the income gap with the U.S. In 1998 it explained about 17%, while productivity explained about 83%.

So the importance of productivity is quite large. What this says is that even if the employment situation in Canada were as good as that in the U.S., there would be still be a $6,200 gap in income per person between Canada and the U.S.

• 1110

What this says also is that while of course the employment problem is important, it's relatively small compared to the productivity problem. In fact, in terms of productivity, they have seen our income gap staying the same with the U.S. while the productivity gap—and here again I'm using labour productivity—has stayed the same with the U.S. over the last 20 years or so. This gap is about 15% to 20%. No progress in terms of standard of living, no progress in terms of productivity.

In manufacturing, as was pointed out earlier, the situation has even worsened in the sense that now at this juncture we're about 25% less productive than the U.S. in terms of labour productivity.

As I mentioned earlier, very little progress has been made in closing these productivity gaps over the last 20 years. In fact, productivity over the total economy has grown at the same rate in the U.S. as in Canada. In the business sector it has grown slightly faster in the U.S. than in Canada, and in the manufacturing sector, as mentioned earlier, it has grown significantly faster in the U.S. than in Canada.

However, if we use total factor productivity growth figures, which is what John concentrated on, then the results vary. They vary from some widening according to the OECD to some narrowing according to Statistics Canada. Now, as John mentioned, the OECD will probably revise their estimates following the revisions by Statistics Canada. However, we understand that the new figures will be very close to zero, or slightly positive, should I say. It will be significantly below that of Statistics Canada still.

One way or the other, what this says is that this situation is not very rosy even in terms of rate of growth. We have a significant lag with the U.S., a significant gap with the U.S., and we're not closing this gap very fast. In fact, according to Statistics Canada, we would have had the second lowest rate of growth among the G-7, while in the OECD we would have had the lowest rate of growth. So the situation is not especially exciting. I mean, there's nothing much to get excited about.

Also something interesting is that even using Statistics Canada figures, which are 0.6% rate of growth in Canada versus 0.3% rate of growth in the U.S., it would take about 65 years to close the standard of living gap with the U.S. So still, even if it's positive, it's so slightly positive that we're not doing well enough. You know, 65 years means what? It means that it's our children's great-grandchildren that would be able to enjoy the same standard of living as the American children. This is not really a shining performance.

[Translation]

It is interesting to look at the situation at the provincial level. This low productivity in relation to the United States is also reflected regionally. For example, British Columbia had practically a zero rate of growth over the past 15 years. The performance of the Atlantic provinces was also relatively weak. The most productive provinces in Canada are Alberta and Ontario. It is estimated that Alberta is approximately 20% more productive that the Atlantic Provinces.

However, it is important to remember that the productivity rate of even the most productive provinces in Canada is lower that the American average. It is difficult to compete internationally when next to a neighbour like the United States, which is our largest competitor.

• 1115

Since 1990, the competitiveness of the manufacturing sector has increased, at least as measured by unit labour costs.

This graph shows that productivity rose by almost 13%, but the important point here is that this higher productivity has been entirely due to a depreciating Canadian dollar. It also has to do with the fact that we are not talking correlating competitiveness and productivity. Here, we are breaking down the productivity growth into three components: compensation growth, labour productivity growth, and growth through depreciation of the dollar. Had the dollar not moved, we would have experienced a productivity loss of 7.6%, minus 3.2%, for a total of 4.4%. So, had the dollar remained at the same level, we would have been less productive during the 1990s then we were previously.

It is also interesting to note that although our compensation did not rise as quickly in Canada as it did in the United States, it rose too quickly in relation to labour productivity growth.

We mustn't be under any illusions here. If our compensation increases by 20.5%, when labour productivity increases by only 15%, that is not something that can work for very long. At some point, there has to be a correction.

The purpose of this graph is to show the importance of productivity to international competitiveness.

I will now conclude my presentation.

[English]

What I would like the message to be here is that, first of all, productivity, sustainable competitiveness, and standard of living go hand in hand. The recent debate on productivity growth figures have obscured the real issue, I believe. In fact, as you saw, in all these charts only one figure changed, and that launched the whole debate.

The fact is that a country's level of productivity is the key determinant of that country's standard of living. Canada's level of productivity is significantly below that of the U.S., and that explains most of the standard of living gap with the U.S., and that means we should and can do better.

This concludes my presentation.

The Chair: Thank you very much, Dr. Nadeau.

I'm going to begin with questions.

[Translation]

Mrs. Lalonde, please.

Mrs. Francine Lalonde: This presentation is very interesting, but no less troubling than the one we just heard. In this document, to which you certainly contributed in one way or another, I see that it says we must sustain growth, human development and social cohesion. At the Cabinet level, there is recognition that we have a productivity problem. Whatever level we're talking about, there is clearly a significant problem.

But you stop there. Why is that? If our work as members of the Industry Committee is to be of any use, we must understand why things are the way they are and make proposals that fall within our area of responsibility. Obviously, the first step is to be informed of the problem and its effects, but after that, we need to have a clear understanding of it and be in a position to take action.

I want to ask you another question. Wasn't the downward adjustment of the dollar sort of a trap? We know that one important factor in productivity is better equipment and technology. And since part of that is imported from the United States, aren't businesses tempted to argue the weakness of the dollar—which has just moved up slightly—to avoid improving their productivity? Won't this cyclical competitiveness be harmful in the mid-term?

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Mr. Serge Nadeau: There is a great deal of debate about that. There are various opinions. One thing is certain, however: with a weak dollar, it is more difficult to invest, because much of the machinery we use comes from outside Canada, notably the United States. So, investments in machinery and equipment have to be much higher. Thus a weak Canadian dollar can only have a negative impact on productivity.

The other element is what is called the lazy manufacturer hypothesis, that John referred to. There is a great deal of debate about that. When the economy is working at full capacity, it's probably because the dollar is high, prompting businesses to invest in innovations or other ways of improving their productivity or lowering their costs. When the economy is not working at full capacity, it is probably easier for them to cut jobs. So, it is difficult to determine whether in recent years, the dollar's weakness has had a positive or negative effect. There's a great deal of debate about that.

Mrs. Francine Lalonde: You are not really in a position—

Mr. Serge Nadeau: Lets just say that Bank of Canada officials would be in a better position than we are.

Mrs. Francine Lalonde: The provincial figures are very interesting. You have a great deal of data on each of the provinces. Are those figures as valid as the ones for Canada as a whole? The reason I'm asking that is that in other areas, when there is insufficient data, the figures are less reliable.

Mr. Serge Nadeau: The provincial figures are always less reliable than the ones relating to the country as a whole. However, in this case, we believe the figures to be quite reliable. At the same time, it would be very difficult to produce figures for specific sectors of the economy within the provinces.

Mrs. Francine Lalonde: This will be my last question for the time being. The fact that the rest of the opposition is not here is working in my favour, I'd say.

Mr. Baldwin mentioned earlier that the problem is that we have not increased the number of hours worked as quickly as our population has grown. Looking at the regional data, it seems to me that in Saskatchewan, for example, the population has not increased much and yet the unemployment rate there is still fairly high.

Mr. Serge Nadeau: In his answer earlier, John explained why we experienced higher productivity gains in Canada than in the United States during the 1990s, although their standard of living grew more rapidly. He was not attempting to explain labour productivity. He was giving an overview of the context for that whole period. He was right and, as I already mentioned, the main reason why the Canada-U.S. standard of living gap grew during the 1990s is that here in Canada, the level of employment has not been as high as in the United States, for a number of reasons.

In Saskatchewan, the situation is a little different; productivity grew very rapidly. Some sectors have been very successful in recent years in Saskatchewan.

Mrs. Francine Lalonde: Fine. Thank you.

[English]

The Chair: Merci, Madame Lalonde.

Mr. Lastewka.

Mr. Walt Lastewka: Thank you, Madam Chair.

I wonder if you could put your first slide back on. My question is, is that the same definition as Mr. Baldwin uses?

M. Serge Nadeau: This is labour productivity per employee, so it's a different definition of labour productivity. It can be measured for all work or it can be measured by employed person. This definition of labour productivity is based on employed person. So it's different.

I think John at one point mentioned that particular definition, but it's different from the general definition that he used throughout his presentation of labour productivity.

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Still, though, this definition of labour productivity is very close to the definition using numbers of hours worked. And we use this definition because it allows for comparison across countries. Some countries don't measure number of hours worked. I mean, they have better measures of number of working persons.

Mr. Walt Lastewka: When you referred, in slide 8, to productivity growth and you talked productivity growth by province, you also mentioned earlier that on the manufacturing side we have not had good growth at all.

M. Serge Nadeau: That's right.

Mr. Walt Lastewka: Could you pull out of that all the automotive items—in other words, automotive and non-automotive, breaking it down a little bit finer? Or could you tell us where the priority is in the manufacturing where we've not had growth?

M. Serge Nadeau: We've had two things. Probably for Ontario we could see what happens to productivity if we pulled out the automobile sector; probably we could. On the other hand, as mentioned earlier, it's very difficult when we play with sectors on a provincial basis. But probably for Ontario we could do it.

There are some sectors that have done relatively well, but still the issue is that here we are making a comparison with the U.S., and in many, many sectors the U.S. has done better, and in some sectors they have done tremendously better, than Canada. It's in, for example, electrical and machinery. Their rate of growth in terms of productivity...in electronics, for example, their rate of growth was almost 14% over the last 10 years, while in Canada that sector grew by only 4.3%, which is okay, but 13.9% is so much more.

I understand, though, that the Canadian automobile industry has done very well in terms of productivity relative to the U.S.

Mr. Walt Lastewka: This is what I'm getting at. That's why I'd like to get the breakdown, having worked in automotive. Canada being a branch-plant country, when automotive expands, we never get the first model, the first line, the first engine production, or whatever automotive production. It always goes to the U.S. It stands to reason that they would always be ahead in the automotive. That's why I'm interested to see the automotive figures and the non-automotive.

And can we break down the manufacturing? If that's the area where the problem is, I want to see a kind of fish-bone chart on it. Where is it, why is it, and what has to be done? Before everybody else starts to take their own impression of what needs to be done, could we see that data?

M. Serge Nadeau: We are working with Statistics Canada, actually, to make comparisons at the sectoral level between Canada and the U.S. Hopefully we should have something within the next six to eight months that would allow some further breakdown.

Mr. Walt Lastewka: When we really get down to it, we're going to ask the question, which manufacturing sectors concentrated on value-added and which ones didn't? Where is there more work being done on value-added, which then gets the productivity portion of that sector?

M. Serge Nadeau: That's a good point, yes.

Mr. Walt Lastewka: When it gets down to the bottom line after all the data, it's who is doing the best value-added and who isn't. Would you agree?

M. Serge Nadeau: Yes, you're absolutely right. However, I must point out that, even though I'm not an expert in the automotive sector, the productivity of the automotive sector in Canada is very high compared to the U.S. Maybe they don't have the new models; still, it's a sector where productivity is on average, I believe, higher than in the U.S.

Mr. Walt Lastewka: I know that. That's why I'm trying to find out where are the sectors.

M. Serge Nadeau: Yes.

Mr. Walt Lastewka: I think it would be beneficial for us to understand...as in Mr. Baldwin's area, when he talked about annual growth rate on the multifactor side of the various areas, we should like to have the same thing from your presentation, and I think it would point us in some directions.

M. Serge Nadeau: Your point is well taken.

Mr. Walt Lastewka: Thank you.

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The Chair: Mr. Murray.

Mr. Ian Murray: Thanks, Madam Chairman.

I must say it's rather frightening that if the automotive industry drives the economy of Canada to the extent that it does, and they have higher productivity than the auto industry in the States, it means there are a lot of other industries in Canada that have a long way to go to catch up to U.S. productivity levels.

I'd like to move from the descriptive to the prescriptive, if I could, because you finished up your presentation by saying we should and can do better. Obviously you have some thoughts about what we could be doing. I ask you what you think the things are that are holding us back in Canada. Are they public policy questions? Are they questions of complacency among the population? Is it our unwillingness to take risks, perhaps, compared to the U.S.? Is it our banking system? Are any of these factors that might come into play?

M. Serge Nadeau: I cannot make any policy prescription. I think my minister would be in a much better position. The only thing I can say is what we think are the possible reasons for the productivity gap with the U.S., and that's purely from an analytical point of view.

There's a view that Canada is in an innovation gap. Canadian businesses, for whatever reasons, or Canadian society in general, is not as innovative as U.S. society. Innovation is a very, very important determinant of productivity. As you can imagine, new ways of doing things increase the output. So that's very important for productivity.

What are the reasons for that? That's very difficult to answer. What we know is there's not as much R and D in Canada as in the U.S., and the adoption of technology in Canada is not as fast as it is in the U.S., especially in the case of small firms. There is a reasonable amount of fact on this.

Investment is another very important determinant of productivity. If you have machines to work with, you are going to be more productive. Now, at the aggregate level at least, it turns out that investment in Canada in machinery and equipment is about 35% below that in the U.S. This is at the aggregate level, mind you. We need to find out what happens at the sectoral level too. The data are scarce. But that's really what we're trying to do with Statistics Canada, in fact. Why is it that investment is lower in Canada than in the U.S., and in what sectors in particular?

There are other important reasons for productivity. For example, the U.S. has a very large stock of scientists and engineers. Educated people are productive people. Now, in Canada we graduate many university graduates. In fact, we have the highest rate of university graduation in the world in terms of tertiary education. We are doing very well, but our stock is low. We have to catch up a lot, at least compared to the U.S. So from that point of view, it may take time. But at least there's some movement there.

There are other reasons too—for example, small versus large firms. We know that in relative terms, in Canada we have more small firms than they do in the U.S. We know that small firms are not as productive as large firms. Mind you, small firms are very, very important. But the trick here is that we need them to grow faster so that they become more productive. But as John mentioned, that may explain part of our productivity gap with the U.S.

So these are some of the possible reasons that we in Canada aren't as productive as they are in the U.S.

Mr. Ian Murray: By speaking of small businesses you've raised something that's bothered me for a long time, and that is that in Canada we tend to almost worship small business. Governments for years have been saying that's where all the employment growth is. We tend to have perhaps an anti-big business bias in Canada, at least among a significant part of the population. People tend to forget that small businesses are suppliers to big business, and that big businesses have supplier development programs that would probably lead to productivity increases.

So perhaps we've been focusing in the wrong area there by promoting this idea of small business. Perhaps we should not only be promoting small businesses, but also be looking at ways to increase their productivity, whether it's through the tax system or whatever.

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But it just strikes me that we have a mindset in Canada that accepts the way things are a bit too easily—and it's only recently, because we've seen these comparisons. I think the strongest one we've seen—I've seen this in the paper, as well—is this automotive comparison between the Civic and the Camry. I think that rings some bells with people and starts people thinking about this issue.

Anyway, I just want to thank you for your presentation. It was very helpful.

The Chair: Thank you very much, Mr. Murray.

[Translation]

Mrs. Lalonde, please.

Mrs. Francine Lalonde: The question of R&D in Quebec and Canada is a very important one. I know that a significant effort is being made in that area in Quebec, although it hasn't yet... It depends on the industry. And the situation is no different in Canada. I believe that all of this is having quite a dramatic effect. And yet this is a something that has been studied.

When I went to the OECD, as part of the Council of Europe, I bought this book entitled The Globalization of Industry: Overview and Sectoral Reports. I'm sure we have it in the library. The first chapter deals with research and development in large national corporations and their subsidiaries. It says that large multinational corporations tend to conduct more research in their country of origin, which might partly explain the fact that private investment is much weaker here in Canada. But in Canada, even Canadian corporations, with the exception of two that we could name, tend to invest less than others. In those cases, the government has to pick up the slack, but the government has not succeeded in restoring the balance.

I'm sure there are a great many studies dealing with this at Statistics Canada. Madam Chair, I address my comments now to you and Mr. Nadeau. It would be very useful for us to find out what we already know. Certain facts are already well established. We should at least be made aware of those facts so that we can pressure government to develop some strategies. This is an issue I have looked at quite closely. I know that even small businesses can improve their productivity, sometimes dramatically, when they hook up with universities, which have links to industries where their research can be applied. Things can move quite quickly. Small businesses are able to improve their productivity when they are aware of these opportunities and have access to funding. Sometimes it is easier to bring about a rapid increase in productivity in a small business than it is in a large corporation which is already well ahead.

So, perhaps you could list some of these certainties for us, to help us understand things better.

Mr. Serge Nadeau: Certainties—

Mrs. Francine Lalonde: With respect to improving productivity. As far as I'm concerned, productivity doesn't mean making workers work harder. Working them to the bone will not make a difference. What will make a difference is something like work organization, for example.

Mr. Serge Nadeau: Well, I presented a couple of quasi-certainties, as I call them.

Mrs. Francine Lalonde: Yes, that's right.

Mr. Serge Nadeau: In statistics, one is never really absolutely certain of anything. It is almost certain that we are less innovative in Canada than in other countries. We know, of course, that subsidiaries of foreign corporations carry out less R&D than do the parent corporations. We also know that small businesses do less research and development than large corporations. Perhaps that's one of the reasons why overall, there is less research and development carried out here in Canada.

We also know that small businesses adopt fewer new technologies than large corporations, and even less than equivalent American companies. So, there is work to be done in that area. We know that to be the case. However, it is a little more difficult to ascertain the reason for these phenomena.

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As I was saying, investment is not as high in Canada as it is in the U.S. There is one other thing I didn't mention. Some new figures have just come out. American businesses adjust much more quickly than do Canadian businesses to new technologies. In the United States, the electronics and other electric equipment and industrial machinery and equipment industries are the ones that have experienced the most rapid growth in productivity. The Americans have been able to almost double those two industries, share of their economy over the last ten years, which proves that they adjust very quickly; in Canada, however, we have been able to increase that share by only 20%. Americans have succeeded in making vary rapid progress in these new high value-added industries, whereas this has taken us a little longer. What are the reasons for that? Well, it would be very interesting to research that.

[English]

The Chair: Thank you, Madame Lalonde.

Mr. Shepherd.

Mr. Alex Shepherd: We start off with a basic assumption here; that is, that we should approach U.S. productivity statistics. When we compare ourselves to some of the OECD countries, we're not that far out of whack. So we start off with a skewed analysis that we want to compare ourselves to the economically most robust country in the world, which has had sustained growth over the last 30 years.

To me, productivity is just part of a larger picture. You can look at culture, the culture between the United States and Canada, their attitudes towards business, their attitudes towards investment. You can even look at our attitudes towards our social safety net.

I know when I was talking to some of these automotive companies that have run operations on both sides of the border, they said, well, if you want to solve our absenteeism problem, do away with your unemployment insurance system. I think a lot of the workforce in the United States is driven out of fear. In other words, if they lose their jobs, they're in big trouble; there's nothing to fall back on. As to their consumption today, the Americans are consuming more than they're earning, so they're in huge personal debt. All these things are driving these productivity figures you're talking about.

I was reading in a document the other day that one in 20 people in the United States will serve time in incarceration. These are all other parts of the American culture.

So I guess the first challenge is...and I'm just throwing that out; I don't have any problem philosophically with using the Americans as a comparison, but is it appropriate to say that our productivity numbers and theirs should be identical?

M. Serge Nadeau: That is a very difficult question. The point in comparing ourselves with the U.S. in terms of productivity is basically to know how high in productivity we could get. There are probably different means to achieve that, and it's a policy choice in choosing those means.

As I mentioned, the objective in comparing ourselves with the U.S. is just to know how much more productive we could be, and after that, it's up to us and up to Canadian society to decide how to achieve that and also how to redistribute that. It doesn't mean that we need to do everything the Americans do.

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Mr. Alex Shepherd: I think when you do this kind of economics it sounds good for number crunching and so forth, but in regard to the gap here, that we're 25% below the United States, when you start talking about the alternatives, well, sure we could copy everything the Americans do, and then ideally we would have the same productivity figures, but I don't know that Canadians have a propensity to do that.

M. Serge Nadeau: There's a lot involved here in policy choice, but on the other hand, we know a high crime rate doesn't improve productivity.

Mr. Alex Shepherd: Yes, but it's a throw-out of a materialistic society.

M. Serge Nadeau: There are different debates that we have raised, and so on and so forth, but I don't want to get into that. I'm not a specialist in that area. On the other hand, what we know for sure is that innovation, in large part, drives productivity, and for whatever reason, it appears that we in Canada are not as innovative as they are in the U.S.

Investment is very important for productivity, and again, for whatever reason, investment in Canada is not as high as it is in the U.S. We can look at the sectoral level and there may be differences, but still, in the aggregate, there is a 35% difference in investment each and every year. That's a lot.

Mr. Alex Shepherd: I'm just saying the objective may well be not to necessarily equalize, but to get the gap a little closer by maybe selectively dealing with productivity. In other words, how can we instil a more innovative attitude among Canadians? Is there something we can do in our tax system? Is there something we can do in our support for universities, and so forth? But I don't know that the ultimate is there—that is, that we're going to be identical to them—because I think we then have to start to say, well, we want some of these negative things too, because that goes as part of the cost argument.

The Chair: Thank you.

Before I go to Madame Lalonde and Mr. Lastewka, I want to make a point here and try to understand it.

You agreed with Mr. Lastewka that our automotive productivity was higher than that of the United States. If I heard correctly earlier today, there is productivity based on labour and hours, yet I know the big three automakers are looking constantly at, I guess, inefficiency, but something they have in the United States, which is hours of work week, which is longer than the hours our workers actually work. So it doesn't make a lot of sense, when you compare the two, if they get more hours of labour from an employee and their productivity is less than our productivity is in the automotive sector. I think it would be a step backwards almost for the Canadian automotive sector to go towards something when you're already saying our productivity is higher, and yet we always hear that argument.

M. Serge Nadeau: Often productivity is measured in terms of hours worked. So the fact that they work longer hours would not mean that they are more productive than Canadians; in fact, it might mean that they are less productive.

The Chair: In fact, that's what I think it says in this picture, because in the automotive sector, if you look at what happens in the United States, their employees work a longer work week versus the employees in Canada, yet according to what I heard earlier, our automotive workers are more productive than they are in the United States.

I find that interesting, because I hear in some of the concerns from the automotive companies in Canada, we can't do this because the unions won't let us; however, this is what we want. Yet if I use the analysis we hear today, it doesn't make sense to go in that direction anyhow.

M. Serge Nadeau: Again, I'm not a specialist on the automotive sector, but the point you make is very interesting. I guess it reinforces the idea that productivity, being productive, doesn't necessarily mean working harder; it means working smarter.

The Chair: Right.

M. Serge Nadeau: That message is often lost outside.

The Chair: The other thing I want to ask you is in regard to your graph or chart on page 3, where you talk about real income per capita. How do you define real income?

M. Serge Nadeau: Actually, in this case it's gross domestic product. It's everything that has been consumed or produced. So it's different from disposable income. It's income before taxes and all types of income. It's really the size of the pie.

The Chair: So when you compare a Canadian and an American, how do you factor in health care?

M. Serge Nadeau: It's included in that. That includes everything. It is not necessarily cash income—

The Chair: But they take their income and then pay for health care, and Canadians don't. So how do you factor that in when you talk about their buying power?

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M. Serge Nadeau: This chart here is not related to buying power per se; a component of it is. If I had used personal disposable income, then you'd be right. There would have been this component of health care costs—who pays what—that would have intervened. But here, using the total income in the economy, which includes the income received, health received, services received from your government, everything, it gives the idea of the size of the pie.

This doesn't have anything to do with the redistribution, this is an average. As it turns out, in the U.S. the income is much more skewed toward high-income people than low. There's a much larger population who have very high income compared with Canada. Here the point of this chart is just to talk about the size of what I call the economic pie; the rest is how we manage in redistributing this pie. Whether health care is funded by the government, whether education is funded by government, it just says here that in terms of the goods received on average by the average American, it's 25% to 30% higher than for the average Canadian.

The Chair: I understand, but you're using that as a measure of GDP.

M. Serge Nadeau: That's GDP, yes. Here, real income per capita is GDP.

The Chair: Earlier we heard from Dr. Baldwin that you couldn't use GDP to measure productivity. So now we're talking about productivity and standards of income, and you say we've experienced a slowing in the growth of our standard of living. You're using this income to talk about standard of living for individuals, yet it doesn't reflect on individuals; you're talking overall. You're not showing the difference in classes between the two countries. I mean, I think it's a very false picture.

M. Serge Nadeau: The major determinant of standard of living is income and the best measure of income per capita is GDP per capita. Now, I agree with you, this doesn't encompass all the elements of standard of living or quality of life, but as I mentioned, the part that is not income has to be funded by something, and that has to be funded by the production or the income in society. Here increasing GDP per capita means that overall our standard of living would be better. Now, it can be redistributed in different ways, but we cannot be worse off, right? If the pie is bigger, still the poor will get at least as much as they had.

The Chair: I'm not disagreeing with that. It's just that when you make statements...when you say standard of living, I still think there are other things that need to be compared between Canada and the United States for standard of living. I'm not disagreeing with what you want to say based on GDP and real income, but when you start to make other statements—standard of living—I disagree. I think there are other things that go into that picture and need to be taken into consideration when you compare a Canadian standard of living with an American standard of living.

I live in a border community and I find people sometimes sit in Ottawa and don't understand the real differences in standard of living between the two countries. You're trying to do it based on a chart and not looking at all the variables that go into it. There's a big difference between our lifestyle and their lifestyle, and that has to be taken into standard of living, and I don't see that in any of your comparisons here.

Anyway, I won't ask any more questions.

Madame Lalonde and Mr. Lastewka.

[Translation]

Mrs. Francine Lalonde: I'm very interested in this discussion because I think it's important to establish that we have a productivity problem, not only in Quebec but in Canada. It's not just a question of comparing ourselves only with the United States. We need to do that because the United States is the country to which we export more than 80% of our goods. So, it's important for us to know this. We need to try and improve productivity here, but not necessarily to the detriment of people's working conditions. In organizations where there are unions, those unions increasingly realize that they are competing and that if they participate in managing the company, that can become a plus.

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I'm aware of cases where astonishing levels of productivity in competitiveness have been achieved. A trained workforce with the resolve to ensure that the company succeeds can do a lot more than a group of workers that constantly have to be supervised and punished. I am entirely satisfied with your definition of productivity. I think it's important to remind people of this and to let them know that it is possible to improve productivity and make societal choices. The larger the pie, the better able we are to decide that the government will bear the cost, which is pretty well the model used in Quebec and Canada, or that the costs will be borne by individuals and be distributed extremely inequitably, which is what the U.S. has decided to do. However, we can see that overall, their pie is larger.

I don't think making different societal choices necessarily means lower productivity. That is the aspect of this whole issue of most interest to me. My theory is that we can be more productive even with a proper social safety net, if we invest in research and development and if there is an overall consensus in society that we need to improve productivity.

I would like to close by saying that if we had part of the auto industry in Quebec, I am certain that our overall productivity would be better and we could compare ourselves to Ontario.

[English]

Mr. Walt Lastewka: Thank you. I want to get back to what Mrs. Lalonde said earlier.

Getting the facts is key. Not having the facts by province takes away from looking at the problem properly. I would hope you've got all the facts for Ontario and I think we should break it down. We should break it down and understand it and then make choices on how and where and what we need to do in the various areas.

I would hope that's the line we would proceed on, because when you're trying to make decisions on poor facts, you get what you deserve, as far as I'm concerned. I'd like to see the Ontario facts. Let's break it down. Let's look at it and be able to say where are the areas we need to look at. My personal experience is that it's going to get right down to value-added and non-value-added.

M. Serge Nadeau: We're working on that.

Mr. Walt Lastewka: Okay, thank you.

The Chair: Thank you.

[Translation]

Mrs. Francine Lalonde: Madam Chair, I have a question.

The Chair: For me?

Mrs. Francine Lalonde: Yes. I found out quite by accident yesterday that the Finance Committee was doing a study of the productivity of the business sector. I was quite surprised to hear that, and I wondered whether that isn't really within our purview. If we decided to do a study of business taxation—

[English]

The Chair: Madam Lalonde, in fact, the finance committee is having seven round tables on productivity in preparation for the next round of pre-budget consultations. They're looking at the next round of pre-budget consultations and what the outcome of that should be, because productivity seems to be on the minds of most Canadians. As they meet with them they want to have a background.

My understanding from the liaison committee meeting—this came up at the liaison committee meeting—was that finance would be preparing a report based on what they heard, but looking at it from the financial aspects of tax cuts versus other things as they go into pre-budget consultation. They're going to be receiving, or they may have already received, the same presentation we've had from Industry and Statistics Canada today as part of their round table. This is, as i said, in preparation for the pre-budget consultation meetings they're going to be holding.

Ours is part of a longer-term study as a second chapter of our sustaining Canada study, so we're looking at it from a slightly different perspective from the one they are. You're quite right, productivity in industry is a mandate of this committee.

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I want to thank you very much, Dr. Nadeau, for being with us and for your presentation. We look forward to the day when you have further breakdowns for us, because we will be studying this for quite some time.

The meeting is now adjourned.