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4 - Helping Canadians to Help Themselves

Jobs and Work

In its public consultations, the Committee heard a wide variety of proposals to stimulate growth and create jobs. This Chapter sets out a number of these suggestions. Some could be implemented in the 1996 budget; others requiring more study and analysis are included for future consideration.

A. Unemployment

Concern about unemployment was expressed in every part of the country. This concern arose in two distinctly different but related ways, as a fear held among a large proportion of the employed, and as a destructive reality lived every day by the unemployed.

In the last two years, the national unemployment rate has been reduced from 11.4% to 9.4%. Some 450,000 jobs have been created.

However, there is a widespread concern that this will not continue. The decline in the unemployment rate stalled in the weeks preceding the Quebec referendum and has remained at 9.4% for three consecutive months. The effect of referendum-related uncertainty has been particularly evident in Quebec, where unemployment has increased to 11.3% in December from 10.9% in September.

"...unless people actually have confidence, at the individual psy chological level, in the future of this country, they're going to hang on to their dollars and not reinvest them in a country that is unstable and uncertain."
Carole Gerson, Doctor.
Fear of losing jobs is also being generated by high levels of public and personal debt, and by federal, provincial and corporate spending cuts and lay-offs. The Committee was also told that the offloading of program costs onto business and individuals through user fees and payroll levies is also squeezing out private sector employment possibilities.

Most importantly, many employers are being forced by new technologies and competition to restructure and adapt. As a result, lay-offs, early retirements, buyouts and the like continue to proliferate. Major industries which once could be counted on to rebuild their work forces at this point in the economic cycle instead are still reducing their contribution to employment. Many major industries represented before the Committee expected downsizing or minimal employment growth.

Even more than usual, it has fallen on small business to create jobs and carry the burden of economic transformation.

During the period from November 1993 to November 1995 public sector employment fell by 95,000 jobs while private sector employment rose by 545,000. Between 85 and 90% of these new private sector jobs were created by small and medium-sized businesses.

Nonetheless, a brutal reality remains: while new kinds of jobs are being created in new areas of economic activity, old kinds of jobs are disappearing and older workers are not getting the newer jobs. Young workers without the proper training and education are not being hired.

"...right now I think Mr. and Mrs. Public in Canada are terrified of losing their job, and all this theor etical nonsense, with numbers and percentage of the area of an angel's wing and all of that crap, means nothing. People are concerned about losing their jobs."
Ron Cirotto, President, Different Products/MORGIJ2 Software.
Fear of unemployment, in consequence, is depressing both consumer spending and investment. This, in turn, is holding back employment growth and, in some cases, producing the very unemployment that is feared.

A case in point is the housing industry. This industry, and construction generally, are major generators of jobs. Traditionally, low mortgage rates have spurred home sales. However, this has not been happening. Virtually without exception, housing industry representatives said that the fear of job loss was one of the reasons for the slow pace of new housing starts.

In similar fashion, retailers reported slow sales over the Christmas season. This lack of consumer confidence is not just a Canadian phenomenon, but it has been particularly hard on a retail sector that has been sub-par since the start of the decade and is now worried about the possibility of recession without having enjoyed the usual benefits of recovery.

It is clear to the Committee that the fear of unemployment has become, in itself, an important reason for persistently and unacceptably high levels of unemployment throughout the country.

It is also clear that restoring the confidence of Canadians in their economy, their country and their future will not be easy but must continue to be the first priority of the government's next budget.

To the extent that the next budget can continue that process, as the last budget began it, restored confidence can lead to the spending by Canadians and the investments in Canada that are key to growing employment.

"...in Quebec, job creation and economic activity are particularly sensitive to the creation of a tax setting which favours small and medium-sized businesses."
Raynold Langlois, Chairman of the Board, Quebec Chamber of Commerce.
As confidence is restored in financial markets and among Canadians - who have demonstrated their ability to move their money into foreign currencies when it appears at risk in Canada - the risk, and the risk premiums demanded by Canadian and foreign investors in the form of historically high real interest rates, will diminish. Lower real interest rates will then provide their own form of stimulus, both in job-creating investments and in further reductions in debt servicing costs.

RECOMMENDATION

Accordingly, the Committee underlines the importance of continuing to consolidate and build on the fiscal progress that Canadians have already bought and paid for. Restoring Canada's fiscal health is the single most important contribution the Government of Canada can make to job creation.

The Committee believes that the government's present fiscal course is totally consistent with restoring economic confidence, improving economic conditions and encouraging job creation.

RECOMMENDATION

We cannot emphasize too strongly, therefore, our belief that the government must build up additional capacity to mitigate the worst effects of another possible recession. It must be able to avoid the kind of actions undertaken during the last recession, such as the increase in unemployment insurance premiums that served to exacerbate the recession's job-destroying effects rather than mitigating them.

Finally, with regard to Quebec, the Committee believes that the threat of another referendum on separation has jeopardized not only the jobs of Quebecers but of other Canadians as well.

"...the Government of Canada owes it to the inhabitants of all of Canada, including Quebec, to put the fiscal house as far in order as is possible so as to minimize the fiscal consequences of what must be a fairly high probability of Quebec separating."
David Laidler, Professor, Depart ment of Economics, University of Western Ontario.
The Committee believes that business has a major role to play in any future referendum in Quebec. Pulling jobs or investment out of that province now can only encourage those who seek to break up Canada. Furthermore, it would be terribly short-sighted in economic terms, because the Committee believes that the course the Government of Canada has embarked on to restore our fiscal integrity will prove to be a major factor in helping to keep Canada together.

Aside from restoring Canada to fiscal health, the single most important factor in restoring confidence in Canada will be securing Quebec's place in Canada. The Committee is confident of this result.

B. Equipping Canadians for Jobs of the Future

For a number of years Canada has lived with the paradox of jobs going begging in the midst of persistently high unemployment. There are a number of reasons for this.

Freer trade has removed traditional protection and forced industry to adapt to new competition by rationalizing operations, specializing in fewer products and services and downsizing, all of which reduce jobs but increase the level of the skills that are needed.

New technologies also have pervaded every economic sector, reducing the need for employees in whole categories of economic activity such as information processing and inventory control.

Increasingly, the growth areas of employment require higher levels of skill and more flexible work arrangements than prevailed in the traditional workplace. Companies of all sizes now depend increasingly on outside professionals engaged on a contractual basis.

One important consequence is that employees losing jobs in one industry or activity cannot count on their skills being needed in another industry or company. Rather, they must upgrade their existing skills or acquire whole new areas of expertise.

Young people seeking to enter the work force face the same situation. Education is the crucial determinant of their prospects - 49.8% of Canada's work force now consists of those who have completed post-secondary education, up from 41% only four years ago. Those who do not go beyond high school face particular difficulties in getting on a long-term job track that will provide them with reasonable pay and opportunity.

A common strand in advice from human resource professionals is that the definition of "literacy" has changed. Knowledge of computers has become an essential element in determining whether someone is literate. As well, areas of strong job growth tend to be in computer-based industries such as telecommunications, information technologies and software development. Companies in these areas are involved in such new activities as electronic imaging and publishing, multimedia applications and exploitation of the internet, many of which did not exist a few years ago.

Increasingly, too, computer systems and information technologies have become vital in health services. Laboratory work increasingly is automated. The use of automation for storing and manipulating medical records has become a vital service in terms of health administration, diagnosis and treatment. This includes the exploitation of rapidly emerging technologies such as gene mapping in which Canada is a world leader.

"There is a demonstrated benefit to on-the-job training. ... One of the difficulties we face in this prov ince - and maybe with the provin cialization of training programs it's almost like giving us a stick of dynamite and saying Merry Christmas - is where our people would get that training. ... to get the necessary experience and training we'd have to send people away."
Doug May, Professor, P.J. Gar diner Institute, Memorial Univer sity.

These developments do not mean that traditional industries and professions are no longer important generators of employment. Often, however, it means they are seeking fewer, more highly skilled people, requiring the same kind of technology-based skills that are being sought in newer areas of employment growth.

The Committee believes that governments have an important role in encouraging the development of the new skills the new knowledge-based economy needs. This includes not only support for traditional educational institutions but also workplace training for new technologies and apprenticeship programs for young workers seeking to make the transition from school to workplace.

RECOMMENDATIONS

The Committee believes that public educational support needs to focus more on the development of transferable, computer-based skills.

The Committee also believes companies should be encouraged to increase the resources they devote to keeping their own work forces current in terms of the skills they need and anticipating the new skills that will be required as new technological applications evolve.

The Committee recognizes, however, that the fundamental choices are those made by individuals in terms of the education and training they will invest in, both in terms of time and money, and the determination with which they pursue life-long learning.

"...when the teachers' federation expresses alarm about cutbacks to education, I think they're right on. A society that handicaps large seg ments of its population during periods of major technological change may be handicapping the future of the economy."
Mary Boyd, Prince Edward Island Health Coalition.
Government's role is vital, however, in providing Canadians with an up-to-date educational infrastructure as well as economic conditions that will generate the jobs and opportunities to use and develop their skills and experience.

C. The Importance of Innovation

Throughout this report, the Committee has emphasized the importance of ensuring that, as Canada's fiscal health is restored through expenditure cuts and the restructuring of government itself, it is necessary also to establish and maintain the programs on which Canada's future prosperity depends.

The Committee believes that Canada's ability to compete in the emerging knowledge-based global economy is central to our future prosperity.

This requires a continuing high priority for federal programs that sustain Canadian science and technology, from basic research and the quality of Canada's universities and colleges to the capacity of private industry to develop, exploit and market new technologies in Canada and abroad.

Last year, the Committee's recommendations to the contrary, the government reduced spending through the three granting councils - the Natural Sciences and Engineering Research Council (NSERC), the Social Science and Humanities Research Council (SSHRC) and the Medical Research Council (MRC). They were cut from $958 million in 1994-95 to $867 million for 1997-98.

RECOMMENDATION

The Committee strongly recommends that no further cuts be made to the granting councils.

In addition to the spending through the granting councils, other programs are vital to maintaining and building Canada's technological and scientific capability.

The Committee was told by various witnesses that the halt in new funding under the Defence Industry Productivity Program, which provides repayable, risk-sharing support for the aerospace and environmental technologies industries, will cost thousands of jobs.

Various witnesses urged the Committee to replace cancelled risk-sharing programs with new programs that would support the development of new products in industries such as aerospace, environmental technologies, advanced manufacturing systems, biotechnology and software and information technologies.

In all of these areas, Canada has emerged as a significant niche player or as a technological leader, in large measure because government programs sustained researchers, universities, major corporations and start-up companies in their high-risk, high-gain pioneering work.

RECOMMENDATION

We believe it would be a grave error for the federal government to make further cuts in this area or accord to science and technology a lower priority than the country requires.

With regard to university-based research, the Committee also notes that this is a shared area of federal and provincial activity with federal funding of research and provincial funding of university infrastructure. In part this provincial responsibility is also funded by the federal tax points and cash transfers for education provided under the Canada Health and Social Transfer.

In addition, a number of witnesses noted that the Canadian science and technology industry is extremely sensitive to changes in Canadian taxes. While Canada has much to offer, highly-skilled researchers and scientists are constantly being recruited for positions in other countries, particularly the United States, where taxes are lower.

Taxes form one element in the competition for skilled people as does the availability of adequate research funding, facilities and support.

The Committee is concerned that the government recognize in its next and subsequent budgets the interaction of the various elements of its support of science and technology throughout all federal departments and agencies. Witnesses speaking to this issue were united in urging the government to complete its science and technology review, and the Committee supports this position.

Again, witnesses stressed the importance of being able to plan their science and technology initiatives over the longer term. Universities for example cannot function effectively if funding for their research programs fluctuates from budget to budget. They must be able to plan ahead for at least five years. Accordingly, the Committee recommends the government ensure stability and predictability of its research funding.

In conclusion, cuts to science, technology and research, while reducing the deficit in the short term, can only lead over the longer term to declining productivity and fewer high-paying jobs for Canadians. We must not cut down the tree in order to harvest the fruit.

RECOMMENDATION

Spending cuts are required to put our fiscal house in order, but we must not create a technological deficit that will lead to a lack of future innovation. Governing is about making choices, and the Committee recommends enhanced, not reduced efforts, to foster innovation in Canada.

Work Opportunities

A. Small Business and Self-Employment

As stated, most large businesses do not expect to make a major contribution to creating jobs. Even when they are expanding, technology allows them to do more with fewer employees and the demands of competition require that they keep costs down, including the costs of employing a large number of people.

As a result, some 85% to 90% of new jobs will come from small businesses, those with fewer than 50 employees or revenues of less than $2 million.

The evolution of large businesses as they have cut costs has often involved their contracting out many of the services once performed in-house. This provides significant opportunities for small businesses that provide those services, often, with the former employees of the businesses doing the contracting out.

In some industries, notably telecommunications and computer software, big companies make a practice of seeding small companies run by former employees with contracts, funding, and other joint venture arrangements.

Small businesses, however, face significant difficulties in finding capital not only for start-ups but for expansion and growth. The following sections deal with a number of the issues raised in the Committee's consultations.

The Role of Banks

The House of Commons Industry Committee now undertakes a quarterly review of bank financing for small business. Ombudspersons have been appointed to review lending decisions. As well, the banks have committed to meet the government's objective of ensuring that small and medium-sized businesses have the equity and operating capital necessary to grow and create employment. The Finance Committee will monitor the record of the banks in fulfilling this commitment.

Should the banks fall short and fail to meet the legitimate financial needs of small and medium-sized business, the Committee will find other means to ensure they are met.

Labour-sponsored Venture Capital Funds

Labour-sponsored venture capital funds (LSVC Funds) were made possible by generous tax incentives established in 1983. Individuals receive federal and provincial tax credits on investments up to $5,000 a year. The federal credit is 20% or up to $1,000 and most provinces match this. With fund shares also eligible as RRSP investments, a taxpayer with a 50% marginal tax rate can make a $5,000 investment for an after-tax cost of $500.

These specially generous incentives are provided to ensure a flow of venture capital to small and medium-sized businesses and create jobs. To date, 18 such funds have been established and have accumulated $1.9 billion in investment capital. Not all of the capital has gone, however, to investments in job creation.

For example, the second largest of the funds, with more than $500 million in capital, had invested only $133 million in companies as of November 1995, the remainder being held in government securities. While this may have been prudent and useful in ensuring a high rate of return, the purpose of the legislation was not to give tax breaks for holding government debt.

The question raised before the Committee was whether additional action was needed to ensure that these funds help create jobs.

RECOMMENDATION

Since LSVC Funds are relatively new, the Committee does not recommend penalties be imposed at this time against those which have not met their investment and job creation obligations. This would only hurt the investors. Instead, the Committee will monitor all these funds closely, and expects to see significant improvements by next fall in those that are now offside. The Committee gives notice that one possibility open to it is to recommend that funds not meeting their obligations be barred from selling any further shares until such time as they do conform to the law.

One potential route for under-invested funds to get onside may be to expand their joint investments through other funds that are not as adept at raising money but have greater ability to identify investment opportunities.

The Committee believes that LSVC Funds, properly managed, can play a strong role in providing needed capital to small and medium-sized Canadian enterprises, and thereby contribute significantly to their efforts to grow and create jobs.

Micro Businesses

For a number of years, the Calmeadow Foundation has pioneered techniques for lending money to individuals who need small amounts to create their own employment. This Foundation, established by Martin Connell, successfully developed so-called micro-lending in developing countries. But more recently he has sought to adapt micro lending to Canada as a way of increasing self-employment among various Canadians whose financial needs are too small to interest traditional financial institutions. While their processing costs for such loans might well exceed any possible return to them, such loans have enormous potential in terms of community and individual development.

For example, Jeanette Eshkakogan of Manitoulin Island, a welfare recipient, obtained a $500 loan from Calmeadow to buy pizza ingredients. She was able to establish a reputation for quality and repaid the loan, then received another loan for $1,000 to establish a pizza business that has taken her off welfare and allowed her to employ her four sons.

Another effort is in Nova Scotia, the Partnership for Rural Development (PARD). This is a joint initiative by Calmeadow, the Royal Bank and members of the Lockport Community. Other ventures are underway in a number of aboriginal communities and in Metropolitan Toronto.

"One of the great struggles for communities and families today is really the lack of cooperation and coordination between levels of government. ... We're talking now about trying to do more with less, and this is the time to also try to marshal that sense of cooperation. It is a message we hear again and again that communities are to function that way and commu nities are to rally and provide that support, but we need to take that same message."
Yvonne Blanchard, Executive Di rector, Nova Scotia Family and Child Welfare Association.

The micro-lending approach, which involves peer assessment in the lending process, has also attracted the attention of organizations such as the YMCA and the United Way who wish to be partners in self-help projects of the kind identified and nurtured by Calmeadow.

The Committee believes such initiatives should be encouraged so that voluntary and charitable organizations can meet their traditional objectives in new ways without compromising their charitable tax status.

The Committee recognizes that Calmeadow's approach to financing micro-enterprises has immense potential for helping thousands of Canadians move from dependency to self-employment, and applauds these efforts.

RECOMMENDATION

The Committee recommends that a Parliamentary Task Force be established to study ways, including the Calmeadow approach, to promote self-employment, and to report to Parliament no later than April 30, 1996.

Facilitating the Transition out of Dependence

In seeking ways to encourage independence and self-sufficiency among Canadians, the programs designed to help them can sometimes prove to be an impediment to their helping themselves. The cold shower effect of losing full social assistance or unemployment insurance benefits can be so disruptive as to prevent someone from seeking a job at low pay or starting a small business.

RECOMMENDATION

While this is an area of great complexity and debate, the Committee believes that, as a matter of principle, unemployment and social assistance programs should allow for a transition period in which partial benefits continue to be paid while someone previously dependent on government assistance adapts to new circumstances.

At the outset at least, someone going into small business requires a minimal level of on-going support.

RECOMMENDATION

The Committee believes that amending assistance programs to provide for such transitional support would encourage more dependent Canadians to opt for self-employment, self-sufficiency and small business ventures. The Committee recommends that assistance programs be reviewed and, where appropriate, amended.

"...we have to implement policies that give an incentive to work, not that create a disincentive to work. If I was to suggest a complete over haul of the UI system, then every body in this room would probably kill me, because it brings all kinds of transfer payments to this region of Canada. It's probably exactly the thing we need, but nobody wants to do it, because no one likes being hauled up on a carpet and called all kinds of dirty names."
Gordon Sobey, Past President, Atlantic Farmers' Council.
Direct Selling

The Direct Sellers Association (DSA) has 55 member companies and over 600,000 independent sales contractors in Canada with sales exceeding $1.1 billion. Some 81% of independent sales contractors are women and 22% of direct sellers work more than 30 hours per week. Most sales are made in the home, and cover a wide range of goods and services.

RECOMMENDATION

Direct selling is a proven way to start one's own business with a minimal investment. To facilitate direct selling in particular and commerce in general, the Committee encourages the provinces to harmonize their divergent consumer-related measures and standards, thereby reducing costs for both government and industry.

B. Tourism

"Canada today is not just compet ing with cross-border destinations or with Florida or with Hawaii. We are in competition today for the tourist dollar around the world. Europeans have a choice of coming to the Americas, going to Africa, or going to Asia."
David I. McMillan, Chairman, Hotel Association of Canada.
The tourist industry is a major employer of Canadians with 250,000 workers, 170,000 of them full time. It is already a major area of activity for small business. It has immense potential in terms of generating additional jobs, investment opportunities and entrepreneurial activity.

The Committee recognizes that the government has already made tourism a priority area because of its employment and export potential. Among the measures already taken are the establishment of the Canadian Tourism Commission, the open skies agreement that is expected to bring seven million additional passengers to Canada each year, and the expansion of the tourism promotion budget from $13 million to $50 million a year.

The Committee believes that additional efforts are needed for Canada to realize this potential.

RECOMMENDATION

Among the measures the Committee urges for consideration are:

"...there are over 600 different courses on tourism in schools across this country. ... When you consider the transfer payments that the feds make to go out and pay for all of these programs, I would venture to say that they could probably be reduced by half if not more. Streamline it some what and get people better trained for what we need in our industry. Everybody benefits - or at least most people would."
Anthony P. Pollard, President, Hotel Association of Canada.

C. Housing

As set out earlier, uncertainty about job security has dampened activity in the housing industry, despite affordable homes and manageable mortgage rates.

A number of programs, however, have proven valuable in improving the housing of Canadians and employing skilled workers. As well, the Committee heard a number of proposals for new measures to assist the industry to grow and expand its job generating ability.

Among them are the following:

Residential Rehabilitation Assistance Program

This program, known as RRAP, provided a means for low income households to bring their homes up to minimum standards. In doing so, and creating jobs, the program protected the existing stock of affordable housing. The program expired as of the end of 1995.

RECOMMENDATION

The Committee recommends that the government consider re-establishing RRAP.

Home Investment Program

RECOMMENDATION

The Committee heard proposals for a home investment program using immigrant investor funds to finance the acquisition of homes by low-income Canadians. The Committee recommends that the government consider implementing this proposal to increase home ownership and create jobs.

Expanded use of RRSP Funds

Existing tax provisions allow first-time homebuyers to borrow money from their RRSPs without penalty to purchase homes. The Committee heard proposals that this should be expanded to allow Canadians to lend RRSP funds to relatives to purchase their first homes. The existing rules have been successful.

RECOMMENDATION

The Committee recommends expanded use of RRSP funds for first time home purchased by relatives as a means of fostering additional growth and employment without cost to the government.
"...the problems our industry is ex periencing with the underground economy... are extremely severe. ... I believe they are much more wide spread in both new home construc tion and renovation than is com monly recognized. They are ex tremely damaging to legitimate business, and they are quite de moralizing to many of our strug gling members."
Bruce Clemmensen, President, Canadian Home Builders' Associ ation.

Changes to the Interest Act

The housing industry testified that construction would be encouraged if the Interest Act were amended to require that the precise penalty for prepayment of mortgages of less than five years be clearly set out in all mortgages.

At present, prepayment penalties on such mortgages vary among financial institutions and make it difficult for homeowners to determine their options.

RECOMMENDATION

The Committee recommends that the Interest Act be amended so that mortgage prepayment penalties are defined and disclosed in advance.

D. Interprovincial Trade Barriers

The Committee commends the government for steps already taken to reduce interprovincial barriers to the flow of goods and services within Canada. These barriers were estimated in 1993 to reduce Canadian growth by over $6 billion per year.

The Committee, however, is concerned that many significant barriers still exist and, Canada continues to be fragmented as a market. In some cases, it is easier to do business in the U.S. than in another province.

RECOMMENDATION

The Committee recommends the government continue to seek further action by the provinces to reduce interprovincial barriers. Trade within Canada must be placed on an equal footing with Canada-U.S. trade in terms of the free flow of goods and services. We can no longer afford the extravagance of favouring foreign competition over trade among Canadians, and discriminating against fellow Canadians.

"...in terms of the exporters, Ca nada needs to present a Team Ca nada approach. If the activities undertaken abroad by the prov inces are not coordinated very closely with federal activities, there is confusion in the foreign customers' minds. If a mission comes out from Ontario three weeks before the Prime Minister or the Minister of International Trade leads a mission to India - this is what happened last year - that causes confusion.
We're talking from an exporter's point of view of coordinating in ternational trade in terms of promotion and doing most of the work centrally. We can leave the provinces to do specific work with in Canada, but work abroad is to be controlled by the federal gov ernment."
Mark Drake, President, Canadian Exporters Association.
E. Trade Promotion

Trade promotion has been a high priority of the government since it came to office. This priority is evidenced by the close personal involvement of the Prime Minister in foreign trade missions and his development of the Team Canada approach to these missions.

This approach produced significant results in missions to Asia and South America. The presence on these trips of most provincial premiers, with the exception of Quebec, served to underline Canada's co-ordinated approach to trade development. More recently, the Prime Minister led a trade mission to South Asia.

These are important areas for Canada. They are among the fastest growing markets in the world, and are likely to become increasingly important customers and partners for Canada.

These developing economies also need to make major investments in areas where Canada is well equipped to compete for contracts, including telephone and other communications systems, transportation infrastructure, resource extraction and power development. Canadians must develop increased capacity to compete effectively for such contracts. Canada's multicultural heritage is a vital asset in taking advantage of new global trade and development possibilities.

RECOMMENDATION

The Team Canada approach to trade promotion is a key initiative in creating new, globally oriented employment. The Committee recommends that the Team Canada approach be continued and consideration be given to expanding its use in other areas such as tourism, and to other countries where strategic opportunities can be identified.

F. Investment Promotion

The federal government has in place a number of programs to facilitate foreign sales of Canadian goods and services, but makes few efforts to bring foreign direct investment to Canada.

RECOMMENDATION

The Committee recommends that Canada make a concerted effort to attract foreign direct investment to Canada that will generate new economic activity and employment.

This has become urgent as freer North American trade has encouraged U.S. states to offer incentives to Canadian companies to relocate. Canada can no longer afford to ignore this competition or leave foreign direct investment to chance. Aside from the U.S., too many other countries are competing for investment to allow Canada the luxury of opting out.

The Committee does not believe that foreign direct investment can be a substitute for the start-up and expansion of Canadian businesses capable of competing in the global economy. Nevertheless, foreign direct investment can generate new, high-skill jobs, give rise to new Canadian businesses, and provide important links to global markets and new technologies.

G. New Approaches

Governments make available training programs for those on social assistance or who are unemployed. The trainees often find themselves better trained and educated, but still unemployed.

In one pilot project, started with minimal funding from HRD, a new approach is in its initial stages. A non-profit corporation called "Connections" tests each potential job seeker for aptitudes and abilities. The applicant is then matched with an employer. The applicant and employer decide on a program of both formal and on-the-job training. The applicant will forego all social assistance and unemployment insurance benefits, funding his or her education and up to four months of unpaid on-the-job training through student loans. Thereafter, when hired full time, the employer will pay 15% of the first year's wages to Connections to defray its costs.

This approach, if successful, could save large sums to governments for social assistance and employment insurance benefits. Connections should become self-funding and able to repay the government its start-up loan. Employers benefit by having prospective employees pre-tested and having a free on-the-job free look at them for up to four months. The 15% cost to business is small compared to usual head-hunting fees. Applicants benefit by being trained for a specific job and getting it. With loan payments geared to income, the cost of financing their training should not be unduly onerous.

RECOMMENDATION

The Committee recommends that the government monitor this project closely, encourage other such initiatives developed in co-operation with the private sector, and remove legal barriers that prevent them from achieving their full potential, such as current limits on the size of student loans.
"In my view, a more modern ap proach is to truly assess our com munity needs and desires and then decide how we're going to pay for them. I believe that if we had real, open and frank discussion and al lowed for real imagination and in novation, Canadians would decide on a fair and compassionate country, they would decide on a co operative, sharing country.
Unfortunately, I'm not optimistic. It seems to me that our government is leading us down the path to a very mean society, one that our children will pay dearly for."
Ronald Stockton, Business Agent, Nova Scotia Union of Public Em ployees.

Other Measures

A. Community Foundations

There are now 70 community foundations helping Canadians in all parts of the country. A community foundation is a simple but ingenious concept. It is a registered charity that pools large and small gifts and places them in a community endowment fund, the income from which is distributed in support of charitable causes. The Vancouver Foundation is the largest community foundation in Canada. It was established in 1943 as a public charity with capital of $100,000. By 1994, as the steward of some 560 permanent endowments, its capital had reached nearly $400 million.

The earnings of the pooled funds are distributed in support of a range of charitable causes such as supporting local arts groups, feeding children, cleaning up the environment and caring for the elderly. In 1994, community foundations made over $33 million in grants and held collectively over $600 million in assets.

Because of government cutbacks, community foundations have become even more important. The support they provide will be needed by more and more Canadians. Community foundations are certain to expand in numbers and importance because they help Canadians to help each other become more self-reliant. They also provide Canadians with community leadership in deciding how to meet local needs.

RECOMMENDATION

Community foundations complained that they are disadvantaged by the current tax treatment of charitable donations which favours gifts to Crown agencies over gifts to other charities. The Committee believes that, were the government to adopt the tax changes for charities outlined in Chapter 3, much of this concern would be overcome.

RECOMMENDATION

The Thomas Sill Foundation of Winnipeg expressed the concern that, as a private charitable foundation, gifts it might otherwise make to community foundations would not qualify for income tax purposes. Because it believes that the excellent work of community foundations should be encouraged, the Committee recommends that the government consider appropriate amendments.

B. Volunteers

In any given year, 6 million Canadians volunteer about 1 billion hours of service to others which is equivalent to the work done by 617,000 full-time workers, or 5% of all jobs in Canada. Voluntarism reaches into every community in the country, creating nation-wide bonds based on friendship and the sense of common purpose.

RECOMMENDATION

The Committee believes that budgetary measures should not detract from the capacity of Canada's voluntary organizations to both recruit members and expand their services. Enhancing the tax benefits for charitable donations would assist the voluntary sector. Consideration should also be given to ways in which the valuable contribution by volunteers to Canada might be acknowledged.

C. Cost-Recovery

Recent examples of cost-recovery measures undertaken by the federal government include the sale of budget papers to the public, callers being charged for weather forecasts, and increased prices for passports to better reflect their cost. Airport and port facilities will exact higher fees from users in the future.

The Committee supports the federal government in its efforts to introduce an effective user-pay system for many public goods and services. This approach limits government expenditures by imposing the cost on those who benefit.

Business indicated to the Committee that it is prepared to bear the cost of programs from which it benefits. It has two concerns, however, with new cost-recovery measures. First, it is concerned that, in some cases, cost-recovery may be used by the government to actually make a profit.

Second, business is concerned that some programs for which it is now required to bear the cost may not be run in either the most efficient manner possible, or in the best possible way to achieve public objectives such as health and safety. For example, the Committee heard of cases where inspectors broke open pallets to test canned food when they should have taken them off the assembly line, and should also have tested the products after the expiry of their shelf-life in retail stores. It also heard about costly microbiological tests being performed twice a year by government inspectors that could have been performed by the manufacturer on a weekly basis at less cost.

RECOMMENDATION

While supporting greater cost-recovery initiatives, the Committee recommends that the government work in closer consultation with the private sector to ensure that such programs are not for the purpose of profit, and are conducted in the most efficient ways possible to achieve their public objectives.

D. Sustainable Development

The Committee notes with interest the efforts undertaken by the Standing Committee on Environment and Sustainable Development, and agrees that a comprehensive baseline study of federal taxes, grants and subsidies should be undertaken in order to identify barriers and disincentives to sound environmental practices.

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