FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 4, 1999

• 0939

[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call the meeting to order and welcome everyone here this morning.

As you know, the finance committee is dealing with this issue of productivity, an issue that in the past few months has received much attention nationwide. As always, the finance committee seeks input from experts and individuals who represent large constituencies to get a sense of where we are on this particular issue, and what your initiatives may be and what your thoughts are on what I think is indeed a very important issue, as we try to strengthen the already strong Canadian economy.

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I would like to let you know that you have approximately five to ten minutes to make your introductory remarks on productivity; if you can do so, that's great. Thereafter, above and beyond the question and answer session in which members may participate, I would also like the members of the panel to comment on statements made by other panellists. This is the interaction I would like to have on this round table.

We'll begin with the representative from the Canadian Chamber of Commerce, the president, Nancy Hughes Anthony. We also have Dale Orr, who is a member of the economic policy committee.

Welcome, and you'll kick this off.

Ms. Nancy Hughes Anthony (President and Chief Executive Officer, Canadian Chamber of Commerce): Thank you very much.

It is a challenge, as you say, to try to comment on productivity within a timeframe of ten minutes, but certainly we'll try. As you mentioned, Mr. Chairman, I am Nancy Hughes Anthony, the president and CEO of the Canadian Chamber of Commerce. With me is Dale Orr, senior vice-president of WEFA Inc. and also a member of the chamber's economic policy committee.

Certainly we welcome this opportunity to express our views on this important debate regarding Canada's productivity performance. The chamber strongly believes that enhancing Canada's productivity is one of the fundamental drivers of growth, job creation and prosperity and, as such, must be fully understood by policy-makers. Government policy plays a vital role in enhancing the domestic environment that is conducive to strong productivity growth, sustained GDP, and therefore a higher standard of living for all Canadians.

[Translation]

The Canadian Chamber of Commerce is Canada's most important and representative business association. Our members represent a complete range of businesses in Canada, which allows the Chamber to be a spokesperson for businesses from all sectors.

[English]

The standing committee has recently been presented with considerable testimony on the measurement and performance of Canada's productivity and standard of living. There is some dispute, I understand, amongst the productivity experts with respect to some of the data regarding Canada's performance, and not surprisingly, there's much uncertainty and contention when it comes to recommending policies to improve our productivity and standard of living. The chamber is well aware of this testimony and has framed this submission in recognition of the views of experts on productivity and standard of living.

Comparison of Canada's productivity on an historical basis, or relative to that of the U.S., can be very useful in indicating where we have lived up to our potential and for indicating where to look for improvements. However, the bottom line, Mr. Chairman, is that we must adopt whatever policies are required to perform up to our potential in the future.

Despite the debate surrounding revised Statistics Canada estimates that show that Canada possibly has slightly outperformed the United States recently, we know Canada's standard of living has faltered and our productivity growth has deteriorated considerably since the 1960s and 1970s. Furthermore, some forecasts point to a marked deterioration in productivity growth over the next three to five years. Since productivity is one of the keys to a higher standard of living, Canada still needs to focus economic policy at boosting productivity and sustaining strong economic growth.

Mr. Chairman, the Canadian Chamber of Commerce fully supports the government's efforts to increase productivity. However, in our view, the government should focus on policies that put top priority on the incentives for economic growth. This should be done regardless of what the committee decides with respect to the appropriate measurement of productivity, and regardless of whether Canada's productivity has been greater or less than that of the Americans, and regardless of what emphasis the committee places on productivity improvement relative to the broader standard of living improvement.

Your government has indicated on many occasions that improving productivity and Canada's standard of living are important building blocks for economic policies. Indeed, the Prime Minister stated in his speech to the Canadian Chamber of Commerce during its 1998 annual general meeting that productivity is the key to improving the nation's standard of living and that the government would focus many of its efforts on this issue. I would ask you, Mr. Chairman, perhaps in the question and answer period, if you can throw any light on the Prime Minister's remarks, which were reported yesterday, which seemed to show a shift in this opinion. Indeed, if you could answer how that would affect the mandate of this committee, it would be helpful.

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The Chairman: Don't worry, we're an independent committee.

Ms. Nancy Hughes Anthony: One of the chamber's main concerns around the government's productivity agenda is that the government will attempt to use “productivity” as a buzzword to justify a wide range of program spending initiatives in future budgets. As a necessary condition for sustained economic growth, the government should continue to improve the country's fiscal condition by doing three things.

Number one is to control spending. The way to a more productive and healthier economy is not through dramatic increases to program spending.

Secondly, it should make a bigger commitment to paying down the debt in a systematic fashion. At 64%, the debt-to-GDP ratio remains very high, and in our opinion it must be reduced to at least 50% in a reasonable period of time before the government considers any significant program spending initiatives.

Most importantly, Mr. Chairman, tax reduction must become a top fiscal priority, especially in this era of significant surpluses. The Canadian Chamber of Commerce strongly believes that the government should place the same degree of importance on tax reduction now as it did on eliminating the deficit just a few years ago.

Certainly, Mr. Chairman, the government has a vital role to play in other policy areas that directly affect productivity. The development of new technology, the diffusion of technology and best practice techniques, and education and training are certainly some of those important ones. However, our point is that if the tax system dampens Canadians' incentives to be more productive and dampens entrepreneurs' incentives to invest, and businesses' incentives to hire, and skilled workers' incentives to stay in Canada, then these other policy initiatives are really ineffective in achieving their objectives.

I would also say there is no question that the business community has an important role to play in enhancing productivity. Businesses invest in plant and equipment, hire people, develop and adopt technologies, and drive economic growth. Once again, if the policies that create the climate conducive to greater productivity growth are not in place, their full potential to expand and create jobs is somewhat limited.

I think, Mr. Chairman, you probably have a lot of evidence here about high differentials in personal income tax putting Canada at a serious disadvantage in trying to prevent the emigration of its tax base, particularly south of the border. The annual outflows of people are not particularly large when compared to the entire Canadian workforce. But I think the important factor to keep in mind is that these individuals tend to be very well-educated, highly skilled professionals. They're highly productive and they're highly mobile. These are precisely the individuals Canada needs to take on the high-value-added jobs in innovative growth industries. Losing this calibre of individuals results in a huge negative rate of return on education investments. So Canada is paying the social costs for investment. But if a significant number of its best people leave, it's not reaping the full benefit from this investment.

Although unemployment rates have fallen considerably since 1993, Canada's unemployment rate is well above that of the United States and we are far from reaching the point of full employment. I must stress that employment insurance premiums must continue to fall, which will provide the right incentive for businesses to hire while putting more money in the hands of hard-working Canadians.

Certainly, in view of the combination of unemployment insurance and CPP premiums, those payroll taxes are rising significantly due to the increases of CPP premiums. I would note that the unemployment insurance account surplus is estimated to grow by $26 billion by the end of 1999. This makes reductions to employment insurance even more urgent.

To wrap up, Mr. Chair, taxes must begin to fall much more rapidly than has been exhibited over the last two budgets. A greater weight must be placed on tax reduction and the government's overall fiscal policy mix. It's important that the government take advantage of this era of surpluses to make significant inroads in tax reduction. We feel that taking a minimalist or short-term approach will not solve Canada's most pressing issue of competitiveness and our falling standard of living.

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I would also stress to the committee that taking on this productivity agenda really requires the government to focus on growing the economy as a whole and creating wealth so that everybody is better off, and not arguing about who gets a different, or larger or smaller piece of a pie. I feel we must work together to grow the entire pie for the benefit of everybody concerned. In order to accomplish this, the government must base policy development on a set of criteria that increase incentives to join the workforce, incentives to work harder and smarter, incentives to stay in Canada, to hire more workers and to invest in our country.

As one of its fundamental policy priorities, the government should deal with the high level of taxes in Canada relative to our major competitors, as a matter of urgent priority.

Thank you very much.

The Chairman: Thank you very much.

Now I'll move to the Canadian Federation of Independent Business. We have Ms. Catherine Swift, president and chief executive officer, and Mr. Garth Whyte, vice-president, national affairs. Welcome.

Ms. Catherine Swift (President and Chief Executive Officer, Canadian Federation of Independent Business): Thank you very much, Mr. Chairman. As always, its our pleasure to be here today to give you the perspective of the small and medium-sized business sector on productivity issues.

As you probably know but I'll reiterate anyway, the CFIB is a national non-partisan business advocacy organization. We currently have over 93,000 small and medium-sized business members in every sector and in every region of the country. Some of the data we're going to be presenting to you today, actually some of it for the first time, are derived from surveys of these members.

This recent controversy over our national productivity in Canada has raised a lot of very important issues from the standpoint of small and medium-sized businesses. We all know there's been a number of recent studies, some of which have had contradictory findings, but in the view of the small businesses in Canada there is no question that Canada has a productivity problem.

I've seen some of the debate, and often it's been a rather sterile debate about how to define productivity and how many angels can dance on the head of a productivity pin. I'm reminded of the old economist joke that economists, if they find something working in practice, have to prove it'll work in theory. I think a lot of our productivity debate is that we see clear indications that we have a productivity problem and yet we seem to be determined to produce this via complex econometric models.

One of these clear indications is that on a secular trend we've had a declining value in our currency now since the 1970s. This is something that most countries would view extremely seriously and as something that implies clearly a standard of living decline as well. We see our unemployment rate roughly twice that of the U.S., an unusually high gap. These are very disturbing factors that can't be ignored, and certainly not in the context of any debate over productivity.

However, productivity also has to be viewed as a means to an end, and by no means an end in itself. Most Canadians, in a number of recent opinion polls, have ranked productivity very low in terms of their priorities, but they rate standard of living very high. Obviously people aren't making a connection between some of these issues as to what productivity growth means in their day-to-day life. So I think maybe we need to get into some language that people understand.

The facts show that Canadians have become poorer in the 1990s. The average net income of Canadians has declined by about 6% over the 1989 to 1996 period, and our savings rate, something that Canadians once had very high levels of relative to the rest of the world, is now down to 1% of personal income. Canadians now work roughly six months of the year to fill government coffers. Statistics Canada data of a few months ago showed that taxes represent the largest expenditure item for Canadians, ahead of food, clothing and shelter.

Although some minor tax cuts in a few selected areas have been announced, the overall federal tax burden cumulatively has increased over the past five years, and program spending, we know, is now on the rise again. On page 3 of our presentation there's a figure that represents pretty clearly what's happened. The revenues have consistently gone up. We did see some decline in program spending in the early 1990s, but it's once again on the rise.

We've also seen a significant growth in the profit-insensitive business taxes, and this is something we have always, in the small business sector, made a particular cause célèbre out of because we find they are very punitive to job creation, and expansion and creation of new enterprises.

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The figure on page 4 is derived from the Jack Mintz report of last year out of the federal Department of Finance and shows pretty clearly how those profit-insensitive business taxes—the ones you pay even though you're not making money and could even be losing money—have been increasing significantly for quite a long period of time now, really since the mid-1970s, by and large. The profit-sensitive business taxes—the ones that are less problematic for business because at least they have to be making money to pay them—have been declining as a proportion of overall business taxation.

We find it a little ironic these days that politicians are bemoaning the state of the poor and the prevalence of child poverty in Canada, but they nevertheless permit this tax travesty to continue. There are, of course, many elements to the productivity equation, but high taxes that beggar individual Canadians and small businesses are certainly a key component of this.

I found some of the press in the last couple of days rather interesting. It was referring to a recent industry minister's speech, where he talked about items such as the overall budgetary surplus. Half of the surplus will go toward increasing our productivity, the other half toward reducing the tax burden, as if they were separate things.

Another reference—some members of the Liberal caucus have been lobbying Mr. Martin to table a child budget next year, as if that differed from standard of living. I think some of our debates that we set up here are very phony debates, because if we improve people's standard of living and productivity, we're going to improve situations for poor children, poor families, create more employment, etc., right across the economy.

As you probably know, the Canadian business sector consists primarily of small and medium-sized firms, with about 90% of businesses having 50 employees or less. On page 5 of our graphics package, the pie chart shows you the proportions of the different parts of the Canadian economy. We also know that small firms currently provide roughly 60% of all of the jobs in Canada, and this percentage has been growing over time. Again, figure 6 shows a comparison between 1979 and 1995 in terms of the relative proportions of the small business sector. As you can see, it's grown quite significantly over that period.

The message of small business to governments over this period of time has been very consistent: lower taxes, lower government debt, and lighten up on the burden of complex and onerous regulation and user fees, if productivity in the small firm sector is to improve.

We've recently done a survey, and we haven't got all the results in yet, but we did a preliminary crunch of these data for this committee appearance, actually, and the data are illustrated on page 7 of our presentation. Basically, what this outlines is the small business productivity priorities. We asked the question at the bottom of the page: what active federal government measures would help your firm do more or produce more with the resources it has?

Well, the results are pretty unequivocal. The top three items, all roughly neck-and-neck, over 80% priorities, are to reduce payroll taxes, reduce income taxes, and pay down the federal debt to reduce future tax pressure. A lot of other things were important: naturally, the regulatory issue, the whole government fees issue that has grown so dramatically as a problem in recent years is on there. Then we get into a number of other areas: more incentives for direct investment, improve access to financing, skill development programs, etc., down the list. Tax priorities obviously are key for productivity growth in the small firm sector.

I'd like to refer to a report that one of my colleagues, Brien Grey, and the then chairman of the Canadian Chamber of Commerce, Phil O'Brien, produced back in 1994. This was called Breaking Through Barriers: Forging Our Future. We've provided you with copies, although I'm sure Industry Canada and the Department of Finance probably have a lot sitting on some shelf somewhere, because they jointly commissioned this report at that time.

There are a number of very pragmatic recommendations, quite detailed, as to what needs to be done to promote productivity on a number of fronts. Tax is one, but there are financing issues, equity as well as debt, and regulatory recommendations. Virtually none of these has been implemented. A lot of people in the small business sector spent quite a bit of time to put together this report. We were told it would be taken seriously. I would recommend now to go back and revisit a lot of these recommendations. They're just as relevant today as they've ever been.

One of our problems, I think, when we look at the productivity issue, is not a lack of good ideas but a lack of political will to take the steps needed to provide a real solution to this problem. What also must be avoided is the temptation to engage in some kind of quick fix—new tax breaks for certain industries or sectors, for example. We've done lots of these in the past and we wouldn't be in the soup we're in today if they worked.

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Government can be very helpful in the pursuit of improved productivity, and we've noted three key ways here. We believe government should do a better job within government itself to define the problems associated with productivity. Some of the recent contradictory studies we've seen emerging from different government sources have eroded government credibility on this issue, and this needs to be restored.

Government also has a role in meaningfully engaging stakeholders to search for solutions to our problems and avoid the temptation of indulging in quick fixes or pointing fingers at different groups. Governments should also steer the debate away from sterile discussions about this concept of productivity and bring the focus back to issues everyone understands, such as a reduction of the tax burden, easing of government regulations and user fees, which hinder productivity, and the job creation capacity of small firms.

Our productivity problems have evolved over a number of decades, and their resolution will require a concerted effort and the commitment of all stakeholders involved: governments; businesses, both small and large; labour; and ultimately all Canadians. We look forward to being part of that process.

Thank you.

The Chairman: Thank you, Ms. Swift. When we get back to you, perhaps when we're into discussion, we would also like to get a sense from you as to what firms at the micro-level could also be doing to increase their own productivity, because that's also important. We view this issue not just as an issue that government needs to deal with, but also one that the private sector needs to engage in a little bit more.

We're going to go to our third presentation, from the Federation of Canadian Municipalities. We have Mr. Jim Knight, executive director, and Monsieur Gilles Vaillancourt, mayor of Laval, Quebec. Welcome.

[Translation]

Mr. Gilles Vaillancourt (Mayor of Laval, Federation of Canadian Municipalities): Thank you, Mr. Chairman. The Federation of Canadian Municipalities welcomes the opportunity to participate in the Finance Committee's round table on productivity.

This brief presentation focuses on the need for long-term investment in municipal infrastructure to enhance community sustainability, productivity and Canada's standard of living.

FCM has been the national voice of municipal governments since 1937. Our 700 municipal members and 16 provincial and territorial associations represent almost 70% of Canada's population. FCM is an association dedicated to improving the quality of life in Canadian communities.

[English]

Mr. James W. Knight (Executive Director, Federation of Canadian Municipalities): There are over 4,000 municipal governments in Canada, from large cities to small remote and rural communities. We think collectively they have a very important influence on the Canadian economy, on our culture, on our quality of life, and ultimately on our productivity.

Municipal governments are significant players in the Canadian economy, influencing technology and innovation diffusion and, again, productivity. Through their investment in public services, transport, water supply, waste water treatment, and so on, they are in fact key players.

In 1996, municipal governments spent $39.2 billion providing community services to citizens and businesses, and employed over 400,000 Canadians. Municipal governments' expenditures constitute about 5% of Canada's gross domestic product. In addition to their sizeable share of public sector spending on goods and services, municipal government capital spending totals about $9 billion, equal to a third of all public investment, and about 6.5% of all capital investment in Canada.

Our theme today is that Canadian cities over the past few years have in fact become North American cities, competing with other cities in North America, particularly U.S. cities, for investment dollars, which of course are central to productivity improvement. If we allow our cities to fall behind in public services and urban amenities, investors will no longer find our cities attractive.

Now, for some time, U.S. cities were in crisis. We felt good about our cities because they performed typically much better than U.S. cities. What Canadians should note is that over the past few years, U.S. cities have undergone a remarkable renaissance. Part of that renaissance has been based on massive federal investment in transportation and transit and urban renewal and policing, core infrastructure and housing.

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In Canada the sole relationship today between the federal government and cities is that the federal government taxes cities. The federal government taxes fuel, for example, used in transit. There are no investment programs at the present time. We are therefore profoundly concerned about the long-term attractiveness to investors of our cities.

[Translation]

Mr. Gilles Vaillancourt: The FCM-inspired Canada Infrastructure Works Program was a major success for the federal government, provincial and territorial governments, municipal governments, and particularly for Canadians. The program, which expired March 31, achieved its dual objectives of job creation and infrastructure renewal and construction. Equally significant, the program offered a model for intergovernmental decision-making and co-operation.

A recent summary by Treasury Board puts total infrastructure investments over the six-year term of the program at more than $8.3 billion on a $2.4 billion federal contribution. More than 17,000 projects generated an estimated 130,000 short-term jobs. According to Treasury Board, the employment created contributed to upgrading of workers' skills, a critical element in improving productivity. Two thirds of all funds were invested in "core" municipal infrastructure such as roads, sewers and bridges, also critical to the effective movement of goods and services.

The Canada Infrastructure Works Program, however, did not address entirely Canada's longer-term infrastructure needs, nor did FCM expect that it would, given the extent of the problem revealed in various FCM's studies between 1985 and 1995. Various estimates put the need for infrastructure investment over the next 20 years at between 40 and 100 billion dollars.

A 1996 McGill University study concluded that public spending on infrastructure generates growth in the private sector. Infrastructure renewal is necessary for maintaining and enhancing prosperity and our standard of living. If Canada is to compete in international markets, infrastructure renewal is necessary. More than any other industrialized country, Canada depends on international trade for economic growth and prosperity. Around the world, governments in countries such as Germany, Japan, the US and Sweden are making enormous commitments to rehabilitate their infrastructure. Economic productivity and efficiency, along with public health, are linked closely to adequate transportation, water quality and waste disposal.

[English]

Mr. James Knight: The initial focus of a new long-term municipal infrastructure program would be on core infrastructure bringing innovation, environmental and health benefits. The brief goes into some detail about the the work we're doing with the National Research Council to ensure that investments are made using the best technologies, and indeed technologies that can increase our export potential. But fundamentally the program should be sufficiently flexible to accommodate equally the needs of large cities, rural and small communities, and focus on waste management systems, including waste diversion, product stewardship, upgrading of landfill sites, methane capture, upgrading of incineration, technology—particularly in light of new information on toxic emissions. Water systems are always central, water treatment conservation, sewage treatment, storm runoff distribution, and so on—again with a focus on eliminating what are proven to be harmful chemicals sometimes used in waste water treatment.

Other important consideration are alternative energy sources; energy efficiency; vehicle efficiency; public transit, which I mentioned; pollution reduction in areas affecting health and air quality; very importantly, mobility, including investment in road repair and upgrades, commuter rail and advanced technology public transit, using fuel cells, for example, but also improving health by improving air quality; and finally, core regeneration, maintaining the health of our downtown areas.

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We're looking, of course, at other funding avenues, including public-private partnerships, revolving funds, and, as I mentioned, the allocation of excise taxes on fuels.

[Translation]

Mr. Gilles Vaillancourt: Severe budget constraints have opened the door in many municipal governments to consideration of public/private partnerships for infrastructure investment. While private financing can help communities meet water and waste infrastructure needs, it cannot satisfy all requirements, nor cover all costs. There remains a need for financial commitments from all orders of government, particularly for the higher-cost, best-practice technologies.

[English]

Mr. James Knight: The brief goes into some detail about different financing mechanisms. I won't elaborate further on them. But we do see great opportunities to increase the efficiency of service delivery through incremental investment and therefore productivity enhancements.

I want to stress, though, transportation funding and to note, as we do, that federal government revenues from taxes on fuel amount to $3.8 billion, with an investment in transportation at the level of $400 million. We see a real need for a reinvestment of those funds in actual transportation services, and we specifically propose in the brief that a portion of federal excise taxes on gasoline and diesel fuel be directed toward investments in transportation systems, including public transit, as is done in the United States. We think if the federal government can show some leadership in this field, the provincial governments will follow suit.

[Translation]

Mr. Gilles Vaillancourt: In conclusion, Mr. Chairman, a nation's infrastructure is of critical importance to the productivity capacity of a region, and to the ability of its economy to generate sustained growth. Clean air, clean water and clean soil are essential to protect human health and enhance our quality of life. A national municipal infrastructure program focussed on investment in best-practice technologies will create jobs, accelerate innovation and technology diffusion, and upgrade workers' skills, which are essential to improved productivity.

FCM looks forward to working with the Finance Committee in the coming months as it continues to develop key details of its proposal for a new municipal infrastructure program for the millennium.

Thank you, Mr. Chairman.

[English]

The Chairman: Thank you very much.

I just want to bring to the attention of the panellists that as we hear from various witnesses, for example, the Chamber of Commerce and now those who are advocating an infrastructure program, the members of the committee often come up with lists of all the demands made on government and then try to figure out what in fact is reasonable to invest in. Perhaps later on we'll come back to the panellists and ask you which of the priorities you have cited should in fact be the ones we advocate as members of the finance committee.

We will now go to the Council for Health Research in Canada, Peter Glynn, member of the executive committee. Welcome.

Dr. Peter A.R. Glynn (Member of the Executive Committee, Council for Health Research in Canada): Thank you, Mr. Chairman.

The Council for Health Research in Canada is pleased to have this opportunity to participate in the standing committee's study of productivity, economic growth, and standards of living. We thank you very much for the invitation.

The issue of improving the economy today and in the future must be considered in the context of the challenges facing Canada in a globalized economy, one that is increasingly dependent on knowledge and innovation. Health and biomedical research contributes to the economy not just by creating jobs today but also by developing new knowledge to fight health problems and create jobs in the future. Health and biomedical research helps us, one, to fundamentally understand what creates health and disease; two, to identify effective interventions and programs to treat illness; three, to determine the best ways to deliver such programs and to promote health; and four, to create new techniques and technologies that will allow us to improve current practices.

In recent years the federal government has taken steps to create the environment for sustained economic growth. I would note, Mr. Chairman, that the government seems to have been listening to the Standing Committee on Finance with regard to your last report. Such measures include fiscal policy targeted at reducing the country's debt and a variety of strategic investments in knowledge creation, innovation, education, employment, and health.

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We feel that the standing committee's report in the fall of 1998 clearly captured the importance of health and biomedical research to quality health care, productivity, and a knowledge-based economy. We applaud the government for its recognition of the importance of health-related research and innovation in achieving continued economic growth in Canada. The establishment of the Canadian Institutes for Health Research and the increased funding in the budget for the centres of excellence in diabetes, aboriginal health, and nursing research are concrete examples of this commitment. We believe continued investment in knowledge generation and its dissemination and use is essential for continued economic growth and enhanced productivity.

Canadians are concerned about health. In fact, it is our number one concern. Generally, we value and recognize the role of the health care system in maintaining health. We are willing to devote large amounts of resources to support the health care system, and we are willing to contribute large amounts to the health charities in support of health research.

But health is more than health care. Good health requires adequate income, meaningful roles in society, good housing, nutrition, education, social support, and safe environments—indeed, much of what my colleagues from the municipalities have just been talking about. It is generally accepted that good health makes people more productive and reduces unproductive expenditures of resources. Access to adequate financial resources and the adequacy of education in the population can be a powerful determinant of good health. There is increasing evidence that problems in early childhood, if left untreated, will have long-term negative impacts on later health performance and behaviours.

Dr. Fraser Mustard's work and the work of the Canadian Institute for Advanced Research have shown quite clearly that brain development is vulnerable to environmental influences and that the effects are long-lasting. Indeed, I understand that Dr. Mustard is presenting to you this afternoon.

An investment in children is critical if we are to create an innovative and productive society. Economic growth that improves the standard of living and increases access to education, employment, and public health measures results in improved health.

The converse is also true: ill health and disparities in health status negatively affect productivity and increase demands for health care. For example, cardiovascular disease places the heaviest financial burden on the economy, accounting for $7.3 billion or 17% of the total direct costs of illness.

Indirect costs, including the value of lost productivity due to illness and disability and the loss of future earnings and purchasing power due to premature death, are even more significant. The indirect costs are enormous. Annual estimates of these indirect costs for the major disease categories are musculoskeletal disorders, $15 billion; cardiovascular disease, $12 billion; and cancer, $10 billion.

Only by understanding the underlying causes of disease will we be able to develop appropriate interventions to improve health and increase productivity. Clearly, health research that helps us to understand how we create and maintain health is necessary if we are to improve the health of the population. Only with improved health can Canadians become more productive and contribute to society.

The productivity covenant and framework for change, which the Standing Committee on Finance wrote in its 1998 report, describes five elements for the promotion of productivity enhancement. We believe, however, that one essential element is missing. The creation of a healthy population must be the foundation on which productivity is built. I believe that is what the Prime Minister was alluding to in his speech yesterday.

The health of the population and the economy are inextricably linked. Internationally, the health status of a country's citizens is strongly correlated with the health of its economy. A healthy nation is fundamentally a wealthy nation. The question for the government is how can we create wealth to improve health and, in turn, generate more wealth and a higher standard of living?

Health research encompasses a broad spectrum of research, from basic, biomedical, through clinical, evaluative, to health systems/health services research, and includes population and behavioural research. Its primary objective is to improve health. Health research improves and enhances the health of Canadians through improvements in prevention, diagnosis, and treatment of disease. It also improves the productivity of the health care sector. Health research reduces hospitalization and decreases the loss of productivity resulting from long-term disability.

However, health research offers more than the societal benefit of improved health and therefore productivity. Improvements to the knowledge and innovation sector of our economy mean that health research and biosciences research make a direct contribution to the economic health of our country. It is a key determinant of longer-term productivity, building human capital and enhancing technology transfer to business.

Mr. Chairman, you asked for an example of a company that has increased its productivity. Medtronic, what might be seen as a small “branch plant” in Mississauga of a very large multinational, has the world mandate for the production of pacemakers because over the last ten years they have increased their productivity by greater than six times. They've done that through a combination of research in robotics and health care and some innovative approaches to things. You may wish to talk to them about all of the factors, because it isn't just one that contributed to that.

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Assessments of expenditures in health research provide a conservative estimate of its true contribution to the economy. The Canadian Institute for Health Information estimated that in 1996, $800 million was spent on health research. Future growth in the health industry sector will rely upon today's investment in health research. The creation of strong, mature companies in the health sector depends upon a virtual cycle of growth and development. This cycle depends on basic research funded by governments and health charities to provide the new knowledge that can be utilized by start-up companies to grow into mature, established health industry entities. Today's investment in new knowledge and innovation can lead to value creation, improved health, increased employment, and technology development five to ten years from now.

Investment in health services and health systems research helps to control health care costs by improving diagnosis and treatment and providing sound evidence upon which to base care and decisions. Enhanced research capacities support positions in the delivery of evidence-based practice. New knowledge is translated into changed medical practice and new treatments, devices, and medications, ultimately improving patient care and outcomes.

The importance of translating health services research into increased productivity in the health care sector becomes more important when considering that almost 10% of our GDP is spent on health care. Government spending in health research aimed squarely at ideas generation, infrastructure, and people is an investment in productivity. Similarly, policies that support the creation, dissemination, and application of that knowledge are welcome investments in the future.

Enhancing productivity in the health research sector will require that the best research minds working on the best science have access to the tools and resources they need to support their work. The capacity to innovate resides in outstanding people. Economic growth will occur when the new knowledge created by the front line of researchers is converted into opportunities for health industry private sector growth.

Failure to enhance productivity and growth in the health research and health industry sectors will mean that Canada will continue to lag behind its G-7 partners in both health research investment and in the downstream growth of the health industry. Failure to adequately invest in health research will mean that the best and the brightest of Canada's young researchers will seek opportunities in other countries. The loss of young, educated Canadians will both increase the burden on the existing complement of researchers and, in the future when the existing research community retires, create a gap that we will be hard-pressed to fill. Further, the loss of individuals who generate the ideas upon which new knowledge is based is ultimately a loss of added value to future business development opportunities.

In closing, the Council for Health Research extends our thanks to the federal government for its reinvestment in health and health care in the last federal budget. The challenge is to put that funding to productive use. We are encouraged by the federal government's commitment to the establishment of the Canadian Institutes of Health Research. You have challenged the research community to take action to create a new approach to health research in the 21st century. The council is confident that we will rise to the challenge and prove the value of health research over the next three years. We believe that a long-term federal commitment to CIHR is critical. We hope the government will welcome continued discussion about the appropriate level of federal investment in health research over the long term.

Mr. Chairman, we have three recommendations. The first is that the federal government affirm its commitment to the Canadian Institutes of Health Research beyond the three-year timeline, contingent on the research community's ability to create a new approach to health research. In your report last year you suggested 1%, and we support that goal.

The second is to invest in young researchers, provide them with an environment that supports and rewards excellence, and invest in information systems to measure and evaluate the contribution made by health research to the economy and the delivery of health care.

The third is to facilitate an annual health research and the economy round table with key stakeholders from the health, health and biomedical research, government, and not-for-profit and private for-profit sectors, and to identify ways in which each sector working together can contribute to increased productivity and economic growth.

Mr. Chairman, I would just close with a quote from Paul Romer, who is an economist at Stanford and is also the Royal Bank fellow at the Canadian Institute for Advanced Research. The quote is from a current article in Entropy, which is a newsletter of the Founders' Network. Dr. Mustard can give you more information on that. The quote is as follows:

It's not the opportunities in nature that are scarce. It's the human talent to pursue the many opportunities we face. Hundreds of examples show that we make progress in almost any area we put our minds to. Moreover, we don't make any progress if we don't put our minds to it.

Thank you, Mr. Chairman.

• 1025

The Chairman: Thank you very much, Mr. Glynn.

We'll now hear from the Health Action Lobby, Dr. Mary Ellen Jeans. Welcome.

Dr. Mary Ellen Jeans (Executive Director, Canadian Nurses Association; Co-Chair, Health Action Lobby (HEAL)): Thank you, Mr. Chair and committee members, for the opportunity to appear before you today as part of your hearings into productivity, economic well-being, and the standard of living.

As many of you know from our previous appearances, the Health Action Lobby, or HEAL, as we are known, is a coalition of some 30 organizations. We're dedicated to protecting and strengthening Canada's health care system. HEAL members represent more than half a million providers and consumers of health care. HEAL is committed to working with other organizations and governments to ensure an effective health care system that meets the needs of Canadians.

You have asked that witnesses respond to a series of questions regarding productivity. I know that during the initial period you heard from a number of witnesses who have described and defined productivity and explained why the issue is important and how it affects Canadians. We've certainly heard some interesting presentations this morning.

What I'd like to do is talk to you about health and the Canadian health care system, and how they relate to productivity. In a recent presentation about public opinion and productivity, Michael Marzolini, chairman of Pollara, makes a point that Canadians haven't yet made any linkage between the issue of productivity and health care. He said increasing the nation's productivity would produce new money for the health system. This suggests that the common view of the health care system is one of expenditure, a drain on the economy, as it were. We suggest otherwise.

Canadians are our most valuable resource to maintain a healthy economy. As individuals, they in turn must be healthy, developed, and supported to ensure the positive linkage between health and productivity. Although it seems obvious, the direct relationship between the overall health of the population and productivity bears repeating. We continue to learn more about what makes and keeps a population healthy. Certainly Peter Glynn alluded to some of the recent evidence that supports this view, and I would also refer to the World Health Organization's annual report on the linkage between health, economy, and productivity.

We know that those at the upper end of the socioeconomic and education ladders have better health. We know, for example, that there are serious physical and mental repercussions from unemployment, not only for the individual but for the family. And as we've already heard this morning, there are specific impacts on children, who represent the future prosperity of our country. Poverty in the early years has long-lasting and significantly detrimental effects on the productivity and health of the nation.

We know about the relationship between literacy and health, both at the level of the individual and of society as a whole. Employers and researchers understand the relationship between healthier work environments and productivity. For example, a number of employers, including Nortel here in Ottawa, are implementing health promotion and employee wellness programs. Health Canada and the National Quality Institute have joined together to establish an awards program to honour healthy Canadian workplaces.

At the level of societies, the relationship between income and health status is becoming clearer.

Our message is that to gain a more productive country, we need to work toward a healthier country. We need to invest in health as part of an overall strategy to increase productivity.

What about Canada's health care system? From a structural point of view, studies have indicated that a well funded, sustainable public health care system is an important contributor to Canada's economic competitiveness. The Conference Board of Canada and KPMG have recently done some work in this area.

• 1030

As HEAL has argued in the past, and in previous briefs to you, health care expenditures are under control. In 1997, health care expenditures as a share of GDP have returned to 1990 levels, and Canada now ranks fifth among OECD countries for health spending, behind the U.S., Germany, Switzerland and France.

A number of researchers have made the case that a publicly funded single-payer system is more successful in controlling health expenditures. A. Charles Baillie, the Toronto Dominion Bank chairman and CEO, pointed out in a recent speech to the Vancouver Board of Trade that moving away from the single-payer publicly funded system might cost the government less, but it would cost the country much more.

From a business perspective, a well-funded sustainable health care system can be viewed as an important component in the decision-making processes of businesses to locate in Canada. It therefore attracts future long-term business investment, nurtures the development of value-added jobs, generates new income and societal wealth, and contributes to Canada's tax base.

A well-funded health care system that is readily accessible allows Canadians to be treated and returned to work quickly following illness or accident. They return to the workforce and are productive members of society. This also minimizes direct costs in terms of drawing disability insurance and other publicly funded social programs. A quick return to work also reduces the burden placed on family and others who provide convalescent and informal care.

It's also important to keep in mind that the health care system employs a significant proportion of Canada's workforce. The health care system is an important, and sometimes the major, employer in many of Canada's smaller centres. The health care workforce is a highly educated one. We've already heard today that a number of our well-educated people leave Canada for a whole variety of reasons that have been pointed out. I would say in the last three years thousands of physicians and nurses have left Canada to go to other countries, primarily the United States. This is a significant problem, and one we should not ignore.

The health care system is viewed as an integral component of Canada's short-, medium- and longer-term industrial strategy when it comes to fostering economic development, sustainability and productivity—for example, the development, implementation and exportation of health research, biotechnology, human genome and other products of health research and knowledge.

Others are speaking to you about the contribution of health and medical research, and about higher education and its contribution to productivity. In HEAL's view, it's important for the committee to consider the positive relationship between health and productivity, and the contribution Canada's social programs, including health care, make to this issue.

Last year, in our presentation to this committee, HEAL asked you to do two things. We asked you to reinvest in the current health care system, to restore it to a healthier state of function. We also asked for an investment in the expansion of the health care system across the continuum of care, with emphasis on health promotion and disease prevention.

On the budget, again as members of the health community we were thankful for the investment in health care, but there was no additional investment into health promotion and disease prevention, which is absolutely essential for the ongoing productivity of Canadian society.

I thank you for the opportunity to make our views known to you today. I look forward to the discussion.

The Chairman: Thank you very much, Dr. Jeans.

We'll now hear from Dr. Barry McLennan, from the Coalition for Biomedical and Health Research. Welcome.

Dr. Barry D. McLennan (Chair, Coalition for Biomedical and Health Research): Thank you, Mr. Chairman. Thanks for giving me an opportunity on behalf of the Coalition for Biomedical and Health Research to make a presentation to your standing committee.

As most of you know, the Coalition for Biomedical and Health Research represents a broad spectrum of Canadians. This includes the 16 medical schools and the academic health centres they represent: the faculties of agriculture and veterinary medicine; the clinical investigator community; the Canadian Institute of Academic Medicine; the Royal College of Physicians and Surgeons of Canada; the Health Research Foundation of PMAC; the College of Family Medicine of Canada; and the Canadians for Health Research.

• 1035

I believe your committee members have copies of our brief. I will refer to it a little as I go along. I've organized the brief along the lines of the questions you asked us to answer in your letter to us dated April 21.

I will start by reminding us of a comment Finance Minister Martin recently made. He said it is “crucial that Canada reverse its long-term decline in productivity through continued tax relief, debt reduction and investment in research and development”. Other witnesses have spoken to some of those issues already this morning.

At breakfast this morning I picked up the National Post, and the headline said “Productivity report delayed by two months”. The report has been delayed but they seem to know what's in it. They comment that the report is believed to show virtually no further growth last year with respect to Canada's productivity. It simply underscores a problem others have mentioned here this morning, and one we've reported on earlier, that we really must come to grips with our decline in productivity.

The introductory paragraph of our brief explains the various ways to define productivity, but one of the ways is to define it as an increase in real gross domestic product per capita. Last October, the economic and fiscal update identified improvement in productivity as the key challenge for Canada. So we are aware of it; we just haven't done much about it yet.

We must remember that innovation drives productivity, as others have mentioned this morning. One of the most important assets we have in Canada for supporting innovation, and therefore enhancing productivity, is our public research investment.

The key role of research and development, especially in the life sciences sector, is clear. There's a chain of causation that starts with the creation of knowledge. The knowledge leads to increased productivity, and the increased productivity leads to an increase in gross domestic product. In other words, investing in research leads to knowledge, which leads to productivity, which leads to a change in the GDP, which is what we're all about here.

A study that is still valid was done by the AUCC, the Association of Universities and Colleges of Canada. In 1993 they found that for each dollar spent on university research and development, there followed 7.5 dollars of real increase in GDP.

It's very interesting to know what's happening, if you tease that out a little. About half of that activity is on research expenditures in Canada's medical schools and academic health centres. From that simple comparison you can conclude that the health science research activities in 1993 provided a supplementary GDP of about $37 billion. That's 5% of the total GDP that year or, putting it another way, about 100,000 jobs. That's from 1993 data.

I look forward to an update on that, but interim reports I've seen suggest that figure is still valid. It's absolutely true that the activity in the health research sector is the new economic engine.

Other witnesses this morning have talked about the fact that small businesses are the hub of our economic activity. That's absolutely true. If I just take a subset of that and look at the growth of small business firms in the health research sector, the economic activity associated with that is tremendous.

So we know increased gross domestic product is a key measure of productivity. Investment in health research has proven to boost economic activity. As Peter Glynn said a few minutes ago, investing in biomedical clinics on health research offers a double bang for the buck. First you get increased productivity, and second you decrease losses in productivity by keeping people healthier. Healthier workers are more productive; it's very simple.

The burden of illness estimated in this country is absolutely staggering. I detail this on page 4 of our brief, where we estimate it costs us $38.3 billion in Canada to have poor health among our workers.

As Minister Martin stated in his speech on February 16, “Research is at the core of a quality health care system”.

• 1040

In our brief we detail an important sector that is now contributing dramatically to economic activity and productivity. I refer to the table on page 3 of the brief that talks about the life sciences sector and the employment growth potential.

The employment growth potential in the life sciences sector is truly amazing. The life sciences industry in Canada today employs over 86,000 Canadians, and is much greater than the aerospace sector, with its well-known achievements in this country. Employment in the life sciences sector is estimated to increase to over 136,000 jobs by 2003. We have an opportunity in this country to really take advantage of this fact. In the next couple of decades the growth in the life sciences sector is going to be absolutely phenomenal. Economists estimate this number to be anywhere from 10% to 20% per year. We simply cannot afford as a nation not to be on that train, moving down the tracks and improving productivity in this country.

Let me give you an example. Others have mentioned examples this morning, I'll give you another one—the story of Biochem Pharma. Biochem Pharma started out with a research grant to a couple of scientists from the Medical Research Council a number of years ago. That company today employs over 1,000 people. It makes successful drugs for the treatment of AIDS and hepatitis B. It's an excellent example of growth and enhanced productivity in the biotechnology sector. That's just one example.

Today across this country there are over 300 firms, many of them small businesses, employing over 25,000 individuals in the biotechnology sector alone. The growth rate in this sector is estimated to be 10% to 20% per year. Here's another way to look at it: in the last year, over 50% of the new drugs submitted for approval to regulatory agencies came from the biotechnology sector.

Canada is the number two country in the world in biotechnology, in terms of absolute numbers of companies. This to me is absolutely staggering. We're a small country. We have one-tenth the population of the United States, yet they're the only country in the world ahead of us in terms of the number of companies in existence. We're tied with the U.K. We have a tremendous opportunity to push that button and use our skills and resources in biotechnology to increase our productivity and improve the health of Canadians.

You also asked us to consider whether it matters if we don't increase our productivity. Well, it certainly does. The consequences of failure to enhance our productivity are many. Some of the witnesses this morning have addressed this. I will focus on two of them.

The economic burden of illness has been referenced by a couple of witnesses this morning. In 1993—again data of a few years ago—this burden was estimated to be 22% of our GDP or, to put it on an individual basis, over $5,000 per person. That's the economic burden of illness. Obviously we must improve our health care and our productivity to make sure Canadian workers are healthy.

Reference has been made this morning to the brain drain. It's a tremendous problem for this country. Our own surveys show we are losing five well-trained health researchers in this country to the United States alone for every one that comes back. We have actual names and addresses of people. These are live, breathing bodies.

The churning cost of this loss to this country is estimated to be over $500 million a year. Let me explain what that means. If we tried to replace and retrain every person we lost, the total cost, the churning cost, would be that amount of money. We simply can't afford to let that continue. Other witnesses have commented on that this morning. I'm just talking about one sector—the health research sector alone. We're losing people in other jurisdictions as well. We must turn brain drain into brain gain for this country.

Government has an important role to play in ensuring Canada provides a competitive environment. There are many factors involved in providing this competitive environment. If we want to attract foreign direct investment into this country, we must have an attractive arena. We must make sure our regulatory rules and provisions are fair and competitive with other countries. We must make sure the time and cost of obtaining a biotechnology drug approval are competitive with the U.S.A. and Europe. There are some recommendations in our report to that event.

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We must make sure we have a cadre of well-trained scientists and researchers in this country to do the research that is expected and needs to be done by the investor. As I have just mentioned, we must capitalize on our biotechnology skills in this country. I will give you one specific example. The Government of Canada has a technology partnership program, TPC, which was set up a number of years ago to commercialize knowledge in strategic innovative areas. In the last few years they have funded 70 different projects. This is good news.

What I want to bring to your attention is that of those 70 projects only two have been in the biotechnology sector. We must focus on this biotechnology sector. It's the new kid on the street. It's where the action will be in the next couple of decades. One of our recommendations in the brief urges that Technology Partnerships Canada realign itself to focus on this biotech sector. It's a new and growing area and we must take advantage of that.

As Peter Glynn commented a few minutes ago, I also want to congratulate and commend this committee for the recommendations it made last fall, and indeed years before that, to the Government of Canada to invest in health research. I want to commend the committee and the Government of Canada for moving ahead and funding a bold new initiative, in launching the establishment of the Canadian Institutes for Health Research.

That was only one item in the federal budget. There were other health research measures we were all very happy to see. Reference has been made to those this morning as well—the nursing initiative, the additional funding for the Canada Foundation for Innovation, the diabetes funding, etc. These are tremendously good news for health research in this country.

I happen to be a member, as are others, of the interim governing council for CIHR. We had a few meetings recently, and I'm pleased to report a tremendous level of excitement, encouragement and renewed confidence among health researchers in Canada. We've even had some calls from Canadians in the U.S. wondering if they could come back. Now, isn't that exciting! There's tremendous enthusiasm about this new initiative.

We're also keenly aware, Mr. Chairman, that you've put a tremendous responsibility on the interim governing council to get it right, to deliver the promises and the faith you have put in us. CIHR will work, I'm very confident. It will increase our economic activity. It'll increase our productivity. It'll work toward reversing the brain drain, and most of all, it will improve the health of Canadians at a reduced cost. All of these things are very desirable.

Our main recommendation this morning—I won't read them all, they're in the brief—is that the government must stabilize its commitment and sustain health research funding, as Peter Glynn mentioned, so the expected increase in productivity will follow, for the benefit of all Canadians.

Thank you very much.

The Chairman: Thank you very much, Dr. McLennan.

Now we'll hear from the Canadian Association of University Teachers, Mr. James Turk.

Dr. Jim Turk (Executive Director (Canadian Association of University Teachers): Hello. My name is Jim Turk. I'm the executive director of the Canadian Association of University Teachers. We're an organization that represents 30,000 faculty members, librarians and researchers at most of the universities across Canada. I'm joined today by our senior economic adviser, David Robinson.

As I'm sure this committee is painfully aware from all of us who are appearing before you on this issue, there remains considerable controversy about whether Canada's productivity levels have fallen relative to other industrial nations. We're all faced with very different numbers produced by the U.S. Bureau of Labor Statistics, the OECD, and Statistics Canada.

One set of statistics suggests the differences between Canada and the United States in the period from 1989 to 1997 are negligible; the rate of change has been an identical 0.9%. When you calculate that on an hourly basis, the difference shifts into Canada's favour.

The real difference between us and the United States is in manufacturing, but even that difference disappears when you pull out two industries that account for virtually all of the difference in the United States: industrial machinery and other electronic equipment. The point is that this gets into very difficult and complicated matters, and we need to set the statistical record straight before we talk about a crisis in productivity.

• 1050

Nevertheless, one thing is clear. Like most other industrialized countries, Canada's productivity growth has fallen off significantly since the early 1970s. This is largely a result of the oil shocks of the mid-1970s and the ebbing of the impact of the historical factors that had boosted productivity growth in the post-war period, such as the growth of the public sector, the introduction of new technologies, and a shift of the workforce out of low-productivity agriculture.

Productivity growth has slowed even further in the 1990s. Notably—and this is really important for this committee—this decline is despite all the measures Ottawa has taken to allegedly improve productivity: free trade, zero inflation targets, and public sector downsizing. Despite all of that, in fact, productivity has declined even more dramatically in the 1990s.

The productivity issue is now becoming another platform in some circles for more of the same proposals—and you've heard some of them today—that got us into the current economic mess: more deregulation, privatization, and public spending cutbacks. And at the top of the agenda is the call for tax cuts as a cure for all that ails us, including our productivity woes. The evidence supporting a causal link between higher productivity levels and lower taxes, however, is virtually non-existent. Productivity levels amongst the industrialized countries show no correlation to tax rates. Moreover, effective corporate tax rates in Canada are already low from an international perspective and competitive with those of the United States. It's very important for those facts to be considered by this committee.

Three principal reasons for weak productivity growth in the 1990s are: macroeconomic stagnation; weak business and government investment, particularly in research and development; and a weak labour market and the growth of part-time and self-employment. Let me spend a moment on each of those three factors.

In terms of macroeconomic stagnation, high interest rates and fiscal cutbacks have slowed overall economic growth. Canada's average real GDP growth in the 1990s ranks near the bottom quarter of all industrialized countries. The situation is even worst than these figures imply since Canada's population is growing faster than that of many other nations. Relatively slow GDP growth of, say, 2% a year after inflation still translates into rising living standards in countries with slow population growth, such as most European countries and Japan. In Canada, however, where the population grows by 1.5% per year, growth of 2% implies virtually no improvement in living standards at all. Measuring GDP on a per capita basis, then, Canada has experienced a decline in living standards in the 1990s.

The second factor is weak business and public investment, and this is terribly important. Net investment by Canadian business in fixed capital—machinery and equipment—has averaged just 5% of GDP in the 1990s, the lowest in 60 years. This is alarming since true productivity growth comes from using more efficient production techniques, assisted by new technology and equipment. The latter is linked to investments in research and development.

On that mark, the proportion of GDP that Canada devotes to research and development, despite generous tax subsidies for private R and D activity, has been consistently low by international standards. To a large extent this is due to the high and increasing level of foreign ownership in Canada's advanced manufacturing sector. The record is very clear on this: foreign companies tend to conduct R and D activities in their home country rather than in their branch plants. Cuts to public funding for education over the last six years and a long-standing underfunding of research threaten to make matters worse.

Since the 1970s, the steepest decline in investment has been in the public sector. Measured as a share of GDP, public investment fell by almost 30% between the 1970s and the 1990s. This severe underinvestment in our public infrastructure is now becoming readily and painfully apparent in the form of deteriorating schools and campuses, hospitals, libraries, and other public facilities.

The third factor is a weak labour market. Despite the recent decline in the official unemployment rate, Canada's labour market remains weak. Self-employment has accounted for almost half of all new jobs created in the 1990s. Most of these positions are marginal, low-productivity occupations undertaken by people downsized out of the public and private sector. Some evidence suggests that the average labour productivity among self-employed Canadians is as little as one-half of the level among employed workers. The rapid growth in self-employment is therefore pulling down the productivity of the whole economy.

• 1055

Data from 1998 highlights those concerns. Real GDP growth in 1998 was just under 3%, and average employment grew by 2.8%, meaning the labour force productivity output per employed person increased by just 0.2%, meaning that the problem is quite a serious one. This reinforces the suspicion that while jobs have indeed been created in recent years, they have not been good jobs. With growing part-time work, self-employment, and other lower-value occupations, the rising employment numbers are not translating into higher productivity and higher living standards.

We have several proposals. Research suggests productivity is determined by three interrelated factors: physical capital, human capital, and technical progress. This implies a three-pronged approach to increasing productivity.

First, on physical investments, both the private and public sectors need to increase their fixed capital investments. The private sector in particular must increase investments in plants and equipment. There's absolutely no convincing evidence that lowering corporate taxes would achieve that goal. Canada's effective tax rates are already low by international standards, as I have said previously. It has been the high interest rate, low-growth macroeconomic environment of the 1990s, not allegedly high taxation, that has slowed private physical investment. Higher levels of investment are better guaranteed if real interest rates remain low and governments make use of their fiscal powers to foster stronger growth in aggregate demand and to reduce the output gap in the economy.

With regard to investments in people, the second factor, greater public spending on education, health care, and other social programs is also needed to address the productivity problem. By contributing to the development of a healthier, better educated and secure workforce, these programs are vitally important for many reasons, including their role in improving living standards.

If you just look at the university sector, Canada's research universities operate on about half the revenue per student of their public American counterparts. However, investments in people will only pay off when the job climate has been improved, and this is very important as well. A taxi driver who possesses a Ph.D. is no more productive than one who doesn't. The payoff from education depends heavily on the existence and creation of good jobs.

The final factor is research and development. Learning how to produce new kinds of goods and services more efficiently is a crucial part of increasing our productivity and living standards. However, Canada's poor record of R and D has hampered our economic progress. Again, the tax system cannot be blamed. Despite generous tax subsidies for private research and development, Canada has by far the lowest rate of research and development investment of any major economy.

Solving this problem will require the government and governments across Canada to address the growing levels of foreign ownership in Canada's high-tech and advanced manufacturing industries. If historical trends remain true, higher levels of foreign ownership in these sectors will lead to even less research and development activity in the future. Given the failure of the private sector to invest in research and development, governments must play a more active role in this area.

The recent report of the expert panel on the commercialization of university research, which was just given to the Advisory Council on Science and Technology yesterday, is an example of bad advice this government is receiving. In its zeal to promote innovation and focus funding on research that promises short-term commercial gain, the expert panel threatens to kill the very kind of basic research—that is, research driven by scientific inquiry—that accounts for most of what has been of commercial and social importance to us as Canadians.

What the committee is faced with are very difficult matters. There's conflicting evidence, conflicting claims by economists. The differences in their positions and what you're being told hang on very technical and often arcane details that economists debate interminably, and if you allow it, they will subject you to that interminable debate.

You have witnesses today suggesting different things. Your challenge, as we see it, is not whose wish list you should choose. Your challenge is not, well, do we want a few of his and a few of hers? Your challenge is whose analysis is right, because what you do depends on the analysis you start with, and I think that's the challenge that's before this committee today and in the future.

Thank you very much.

• 1100

The Chairman: Thank you very much, Mr. Turk.

Now we'll proceed to the question and answer session. Mr. Solberg.

Mr. Monte Solberg (Medicine Hat, Ref.): Thank you very much, Mr. Chairman.

I appreciate the presentations we heard today. They were very instructive.

I must start by addressing something the chairman said earlier when he suggested that one of the things we needed to look at was what business was doing to improve its productivity. But I want panellists to know that the official opposition doesn't feel that's the issue here. We're content to let business look after business. What I want to scrutinize is government policies. I think that's the critical issue.

I want to start by pointing out that the government says that really there isn't that much of a problem. For instance, the Prime Minister and the Minister of Finance have said we've been cutting taxes, that we cut $16 billion in taxes. They've cut employment insurance premiums. My question is, if that's the case, why are we having these meetings? What complaints do you people have? If the government has done such a wonderful job of cutting taxes, why isn't the economy just shooting forward and the standard of living rising and exceeding that of the United States? That's my question.

The Chairman: Mr. Turk.

Dr. Jim Turk: I suspect many of us would like to have a go at that.

The argument we were trying to make is that you don't solve the productivity problem by cutting taxes. Canada already has low corporate taxes, effective corporate taxes, on an international basis.

Mr. Monte Solberg: Mr. Turk, let me just respond to that. My understanding is that Canada is really in the middle when it comes to corporate taxes. We're in the high end, I think you'd agree, on personal income taxes in the G-7, and our payroll taxes are on the rise. I think we also have some of the highest municipal taxes in the world, at least in the industrialized countries.

Ms. Catherine Swift: Number one in the world.

Mr. Monte Solberg: So while I appreciate what you're saying, I think the very fact that we do have a problem with brain drain, that we do have all kinds of evidence that people are leaving.... We heard that from Mr. McLennan. I would suggest that we do have a tax problem, and I think that's just borne out by the evidence.

Ms. Catherine Swift: I think something we should acknowledge here as well is that corporate income taxes are often referred to as being low. As we mentioned in our submission, they are the least problematic, because at least you only pay them when you're making money. All of those profit-insensitive taxes that we illustrated in that one chart that came out of that Mintz report from the Department of Finance show that.... Those profit-insensitive ones include payroll taxes, property taxes at the municipal level—I acknowledge that it's not at this level of government—fees that are increasingly levelled by all governments, which have increased dramatically, and I think also all the income tax increases. I guess that is why we focus not on any one individual tax but on the overall burden. Even at the federal level, we know that's been increasing dramatically.

I find it significant that people like the Canadian Council for Social Development have come out recommending getting rid of bracket creep. There's a social policy group that says, yes, there's a serious problem there; you're making the poor poorer by bracket creep, which has cumulatively put billions of dollars into federal coffers since the early 1990s.

So it's by no means just a business position we're talking about here. It's quite broadly based, and business taxes are one element. But personal income taxes...in fact, our business members prioritize personal income taxes right up there with payroll taxes.

Mr. Monte Solberg: So you don't buy that taxes are going down in the federal government?

Ms. Catherine Swift: No, they're factually not. I mean, they have been growing cumulatively for a period of years now.

Mr. Monte Solberg: Despite what the government says. I just want to point out, along those lines too, that the federal government now takes $6 billion a year from Canadians earning less than $20,000 a year.

The Chairman: Mr. Solberg, Ms. Anthony would also like to jump in there.

Mr. Monte Solberg: Absolutely.

Ms. Nancy Hughes Anthony: I was trying to jump in here, Mr. Solberg, because the question is such a good one.

I would also stress to Mr. Turk, and for the benefit of members of the committee, that the chamber is talking at the moment about giving a high priority to personal taxes. They're talking about the taxes in the pockets of Canadians. I'll just give you an example.

I was in the area of Kitchener, Waterloo, Guelph, Cambridge, Woolwich just a couple of weeks ago. There is a business community there where the chambers are getting together and trying to put together a kind of consortium through which they are going to emphasize the technology ability in that community. They have excellent health care; they have tremendous universities in that part of our country. They can't get the young people to stay in the Kitchener, Waterloo, Cambridge, Guelph area to work in the the kinds of companies that are prospering in that area.

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They also find they cannot get investment from outside to come into that area, and they point to personal taxes as being one of the major disincentives to this kind of growth.

So while I appreciate the government's saying it has made strides on personal tax reduction, given the kind of surpluses we are looking at, it's the time for them to take a brave step and really make a significant impact on the competitiveness of our personal tax system.

The Chairman: Mr. Turk.

Dr. Jim Turk: Mr. Chair, you invited some interchange amongst the panellists. I'll try not to abuse that, but I can't resist a comment in light of what's been said.

When one's looking at tax levels, one also has to look at what one is purchasing through those tax levels. That is, Canadians, like all people, need a variety of goods and services, and we can either pay for them through prices to the private sector or through taxes. So when we're comparing tax levels with the United States it's also important to look at what we get for our tax money, which I would suggest is significantly greater here than in the United States. And if one looks at the various Fortune rankings of ideal climates for corporate investment and so on, Canadian cities often rank near the top because of all these things that our tax money buys.

I think it's just an example, again, like the discussion on productivity, that doesn't lend itself to simplistic reductions and simplistic comparisons. The brain drain is yet another area of the same sort. We in fact, if you look at the data, have a brain gain in Canada, not a brain drain.

We have a comparison with the United States of people going out.... In the university sector the majority of people I know who leave—in our surveys of our members who leave—are not leaving because of high taxes. They're leaving because there's inadequate investment in research, they aren't able to get the labs, they aren't able to get the research grants they can get in the United States. That's what driving it.

All this brain drain stuff, it too, like productivity and like taxes, is much more complicated, and on balance many more people come to Canada than leave.

The Chairman: Mr. Solberg.

Mr. Monte Solberg: Isn't it true, though, that it wasn't that long ago when we had tax levels that were comparable with the United States yet we had our distinctive approach to things? We had our own social safety nets and we had a standard of living actually that people would argue was as high or higher than the United States.

Now you have the industry minister saying our standard of living has fallen below that of Mississippi and Alabama and the poorest of the deep south American states. So how do you reconcile what I believe to be a fact with what you've just argued?

Dr. Jim Turk: I haven't been in Mississippi and Alabama recently, but I would love to go there with the industry minister and have a visit. I think a claim that our standard of living is at the level of Mississippi and Alabama and Louisiana would not stand up to any kind of empirical or physical visiting scrutiny.

Mr. Monte Solberg: Well, this was evidence that came from Statistics Canada, so it wasn't something that he made up.

Dr. Jim Turk: I haven't seen that evidence. I would like to see it. I can't quite believe it's true.

Mr. Monte Solberg: I just want to follow up, if I could, with the gentleman representing municipalities.

One of the concerns people have is that if we engage in another infrastructure program we're going to see politics colour some of the decision-making. And I think even the Auditor General suggested that in some cases, during the last infrastructure program, we ran into different examples of how money was really misused—I think up to a third of it. I wonder if you could comment on how we could eliminate some of that, the politicization of the decision-making, when it comes to allocating money toward infrastructure.

Mr. James Knight: Certainly no program is perfect. I would say the infrastructure program, however, in allocating over 70% of its resources to core infrastructure, was pretty clean.

In Ontario, for example—and that's 40% of the program—the dollars were allocated on a purely per capita basis. There was no politicking in Ontario at all. It was pure and clean and the money was divided in that fashion according to population.

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Overwhelmingly, that was the experience in Canada. The extraordinary cases that were sometimes highlighted were the exceptions, but the Ontario experience was quite interesting.

Mr. Monte Solberg: But if it was a $6 billion program and a third of it was misused, that's $2 billion. That's a lot of money.

Mr. James Knight: That is certainly not what I said. I said 70% was used for core infrastructure, meaning roads, sidewalks, sewers. There were other types of investments that were equally justified and were supported by the federal, provincial, and municipal governments working together, so to suggest that 30% was wasted is nonsense.

Mr. Monte Solberg: Let's refer to the Auditor General's report. It is the Auditor General who made that observation.

Mr. James Knight: With respect, the Auditor General did not state that 30% of the money was wasted. In general, the Auditor General felt the program had worked quite well, and at present he is working on recommendations that would guide a future program.

The program did materialize quite quickly. It was implemented almost immediately. The bureaucratic infrastructure needed to support it was a bit lagging at times. The Auditor General will release a report on what lessons were learned from the first program, which he in general thought was quite positive—what lessons could be used to inform a subsequent program. That report is expected relatively soon, I think this year, so we should all have a look at it.

Mr. Monte Solberg: I have just one final question with respect to the infrastructure program. One of the components of the formula for the infrastructure program was the unemployment rates. I think that comprised about half of the total formula. The other half had to do with per capita weighting.

So I guess my question is, if the idea is to put infrastructure where it's needed, what place is there really for a formula that includes unemployment rates?

Mr. James Knight: The program was intended in part as an employment generation program. From the municipal perspective, the outputs were primarily hard services. That is what municipal governments were seeking. But the federal government, having an interest in unemployment, did make marginal adjustments to allocations in order to perhaps increase the number of jobs available in areas of higher unemployment. Those were relatively marginal adjustments. They were percentages of two and three and four, and not greater than that.

The Chairman: Thank you, Mr. Solberg.

Dr. Bennett.

Mrs. Carolyn Bennett (St. Paul's, Lib.): Thank you, Mr. Chair.

Last week it was clear that the way we measure productivity does exclude the free lunch of health and education, and that therefore there is some concern as to whether GDP per worker, or whatever formula you want, is actually going to tell us if we're going to be better in terms of progress in this country, whether this actually needs to be redefined and whether disposable income...or is there some other way of talking about that.

I guess I'm disappointed that both the chamber and the CFIB...that even the chamber's report says the key drivers of productivity growth are capital investments, a skilled and educated and flexible labour force—whatever flexible means—and open markets, but it says nothing about a healthy workforce. When we actually look at the SME productivity priorities from CFIB...if one in five Canadian women are looking after an elderly or disabled person, and some data I've looked at says 46% of absenteeism is because somebody actually has to take time off to look after somebody.

We have companies that are doing really well on this stuff. When we look at the Canadian workforce, the auto workers come here because the workers here aren't doped up and they actually do the job.

So when you look at some of the areas we could be doing better, perhaps home care, substance abuse programs. Even places like VIA Rail...I was surprised last week when Jim Stanford didn't celebrate the companies that are doing preventive back programs rather than waiting for people to go out on WCB. If they have a gym and can get workers healthy so they don't go out, we know those companies actually do better. In a productivity discussion, why does the private sector never come to us with the kinds of things that actually recognize the free lunch part, the health and education piece, and what we could be doing better in that piece to actually help?

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On health research, everybody knows I'm sold on that, and that's not a big deal. I do think research is being increasingly financed by the pharmaceutical industry or the private sector. However, I do want to know what we as government can do to make sure that instead of research into treatments, we get research into vaccines. How do we direct research dollars so that, ultimately, we stop people from getting sick? With regard to AIDS research, in terms of productivity the drug cocktail is never going to be as efficient as a good vaccine.

Those are my questions.

The Chairman: We'll start with Ms. Hughes Anthony, and then we'll go to Catherine Swift or Mr. Whyte.

Ms. Nancy Hughes Anthony: To respond to that, the Chamber of Commerce, as you know, represents people in every part of this country, in every community and in every riding, and these are people who have children and who have health concerns. So definitely—

Mrs. Carolyn Bennett: I don't think the word “health” is mentioned once in your report.

Ms. Nancy Hughes Anthony: In the time allotted to us today, we couldn't talk about absolutely everything. I think that health is obviously a part of the productivity equation.

Mrs. Carolyn Bennett: What about absenteeism?

Ms. Nancy Hughes Anthony: I don't understand your reference to this so-called free lunch piece, because the fact is that there's only one taxpayer at the end of the day.

Mrs. Carolyn Bennett: I just mean it's free in the productivity equation.

Ms. Nancy Hughes Anthony: I thought, Mr. Chair, that the role of the committee was to look at building the economic pie so that Canada grows and not necessarily to argue about divvying up the little pieces of the pie. We know Canada's economy is not growing at a competitive rate internationally. We know we are falling behind. I thought the work of this committee was to look at how we could grow that economy, grow the pie larger, for the benefit of everybody so that we would have healthy and well-educated Canadians who would be able to work in Canada. There would be incentives for them to stay in Canada and work in growing firms and work in firms where foreign investment—

Mrs. Carolyn Bennett: But when we measure productivity, we don't measure the health care sector or the education sector as to how productive they are. That doesn't get factored in.

Ms. Nancy Hughes Anthony: But I didn't think that was the mandate of this committee today.

Mrs. Carolyn Bennett: But shouldn't the Chamber of Commerce be worried about productivity within these areas that aren't at the moment being measured in the averages?

Ms. Nancy Hughes Anthony: Perhaps I could ask my associate to comment on that.

Mr. Dale Orr (Member, Economic Policy Committee, Canadian Chamber of Commerce): I have just a couple of points. Certainly if an unhealthy population reduces the ability of workers to produce, that's going to be measured. So it is measured.

While there have been some disagreements on data, a couple of things are pretty clear. Our productivity has been much weaker in the 1990s than it was in earlier years. That's not because we're less healthy. Our standard of living has fallen significantly in the 1990s relative to the Americans. That's pretty clear. That's not because we're becoming less healthy relative to the Americans either.

Mrs. Carolyn Bennett: What data are you basing that on?

Mr. Dale Orr: That is data that would have been agreed upon by virtually everybody who was here on the first day of these hearings.

The Chairman: Thank you, Dr. Bennett.

Mr. Whyte or Ms. Swift.

Mr. Garth Whyte (Vice-President, National Affairs; Canadian Federation of Independent Business): Thank you, Mr. Chairman.

First, I have to put on record that we came here at your request to talk about productivity. This is your agenda, not ours. I encourage all panellists not to get involved in an argument. It seems they want us to debate amongst ourselves and to say, you want this, you want that, what can we do? We're concerned that this is turning into a political process.

All members here know full well what we did on health care. All members know how we lobbied to get a tax deduction for the self-employed. They know about the health benefits plan we worked on with the Canadian Life and Health Insurance Association for our members.

We had 10 minutes to present here. We didn't want to argue over how you measure it. We said that's your problem. We also said with regard to productivity that it's the end we're looking for, not the means to the end. We're looking at how we create a better life for all Canadians.

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If you want to know where we stand on health care, look at our pre-budget submission, which included a whole section on health care in which, I remember, we strongly supported increasing transfers to the health care system. This “pocketbook versus heart” issue won't work when it comes to small business.

We care about the issues. If you want to talk about youth employment, you all have a copy of our youth employment study, which shows how we're trying to help the unskilled get training. Again, that's part of the productivity issue.

It's not in our presentation. All we gave you was a question we asked our members: what would it take to help your firm to do more or produce more with the resources it has?

However, if we did ask that question they would say, how does the federal government do it? That's provincial and that's municipal. So we asked, what active federal government measures would help your firm to do more or produce more?

The federal government tends to focus on increased grants and subsidies. Twelve percent of our members said that. They tend to focus on improved access to government procurement, which is an important issue, but only 10% of our members said that. We asked them for a list, and we vetted it through Finance and through your officials as to how we should do this, and these are the questions we came up with. Our members are saying reduce payroll taxes and income taxes, pay down the federal debt, and ease the burdensome regulations.

What can small business do? They can help train their employees and provide a healthier workplace. We have people dealing with workers' compensations commissions across the country—we've never had this committee deal with that—and trying to develop preventive measures to help reduce injuries. So we're very much aware of that.

I don't want to get into an argument over productivity because you have a political agenda.

Mrs. Carolyn Bennett: But I think absenteeism is a serious problem.

Mr. Garth Whyte: I agree. Sure it is.

Mrs. Carolyn Bennett: It wasn't on the list you asked your members about.

Mr. Garth Whyte: We're dealing with that at the provincial level. I don't know what you can do about absenteeism. What program can you provide?

Mrs. Carolyn Bennett: There's home care, because 46% of absenteeism is because somebody has stayed home to look after a sick kid or a sick parent.

Mr. Garth Whyte: But when you're asking how it improves their productivity—

Ms. Catherine Swift: We haven't talked about the fact that Canada leads the world in days lost due to strikes. Do you think that's not a productivity issue? A lot of things haven't been on the table here that could be if we wanted to touch on every single aspect of this.

We're trying to talk about priorities. We're getting priorities from different elements of the communities here, which is what we thought we were supposed to be doing.

The Chairman: Dr. McLennan, followed by Mr. Glynn.

Dr. Barry McLennan: I would like to respond to Dr. Bennett's question.

I think you asked whether we should be concerned about the amount of pharmaceutical investment in this country, and I'd like to try to answer that. As you know, the investment by the global industry in Canada is approaching $1 billion a year. Only about 24% or 25% of that is research and development investment, so it's not a large part of that. However, I don't have any problem with the health research community doing business with the industry provided the rules are clear, provided we understand what their bottom line is and they understand what our obligations are. If you can't agree on that, then you don't do business with them.

Mrs. Carolyn Bennett: I think it's fabulous that we have this money from the pharmaceutical industry.

I want to know if there should be a pocket of money for stuff that is viewed as being of urgent public importance.

Dr. Barry McLennan: Let me comment on that. As I mentioned in my comments, we're excited that the government has endorsed the launching of CIHR. One of the things you should understand is that this is a new, transformative way of doing health research in this country. One of the great strengths of this program is that we will bring together the folks in the community health groups, the groups that are concerned about child poverty, home care costs to the individual, and so on. We're going to bring together groups that share common themes as researchers and concerned citizens, both from research funders and research performers, under an umbrella of virtual institutes.

So I think we're going to see a focus on this very issue you're asking about. I think it's important. I think we need to do it, and we need to bring our collective wisdom together to do this.

If I may, Mr. Chair, I'd like to comment on Mr. Turk's comment about brain drain. It's a complicated issue. But I would refer you, sir, to our brief, where there are three bits of evidence that show that brain drain is real in this country.

I have the same debate with our own university minister of finance. I've lost five researchers from my faculty since December 1, good researchers, high-quality people, very productive people. He says, you've replaced them. That's true, but I haven't replaced them with the same quality of person, and this is the difference. A bean counter will lose one, gain one, zero balance. This is not what this is, and this is terribly important.

What the brain drain is costing us in Canada is the fact that we're training and educating people and losing them. In this sector we have hard numbers. I refer you to the C.D. Howe Institute data, our own survey, and others that show this is a real problem. Now, I'm not saying you can't go out and find somebody else to sit at the desk. The point is, you're not replacing the person you've lost with the productive, experienced individual with the proven track record. This is the cost, and this point often escapes people who simply count numbers.

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Thank you.

The Chairman: Mr. Glynn.

Dr. Peter Glynn: Thank you, Mr. Chairman and members. I think we have to understand that there aren't any simple or instant solutions to these issues. What we're talking about here is building over time an environment that is supportive of research in this country, that is supportive of health and social progress in this country, that is supportive of investment and all of those things working together.

The issue of people wanting to stay here is a combination of a number of factors. Taxes may be one of them, but as Jim Turk said, the major issue is a job in a university that has funding for health research, with external funding for that. That is probably, quite frankly, more important than the tax rate. The environment of being able to do what you want to do is part of the issue.

On Dr. Bennett's issue of how to get important public policy issues dealt with in health research, I'm also on the interim governing council of CIHR, and as Barry said, we have an opportunity to create much more vibrant programs of research on important public policy issues, and maybe a little less investigator-driven research, although that's still important.

The thing that really worries me is this search for instant solutions. If we could just commercialize everything tomorrow, it would be fine. Again, I'll go back to Jim Turk's point, which is that basic ideas have to continue to flow forward. And those are not funded by and large by industry; they are funded by governments and health charities. We need to ensure that's a vibrant way, and that over the years people get a sense that this is a country that values young people moving into research or making a career of it for 30 years. We destroyed that in the late 1980s and early 1990s. It is going to take us a decade to rebuild it, if not longer. It takes about three years to destroy it. It takes a lot longer to increase it.

On a bit of a light note, Mr. Chairman, the May issue of Atlantic Monthly has an interesting article called “The Great Disruption, Human Nature and the Reconstitution of Social Order”. Maybe this committee is working through that: “The shift to the information age has been accompanied by social disorder throughout the industrialized world.” So you're not alone.

The Chairman: We feel much better now.

Dr. Jeans.

Dr. Mary Ellen Jeans: I would also like to reinforce what my colleagues are saying about pitting us against one another. I think it's clear that most Canadians have certain values that are important to them, and that together we can probably find solutions to even very complicated problems in an equitable sort of way. It would be nice. I think Peter Glynn referred to working together in a broader way.

I represent 30 health-related and consumer health organizations, but we don't work on a day-to-day basis together with other sectors as much as we should. That's one comment.

I do have a challenge, though, for Mr. Orr, who says our health has not declined. I think one of the big problems—one that, as we move into the information age, will be addressed—is how you measure health. Gross measures such as longevity really don't tell you a whole lot.

If you look at children in our country right now.... I was talking to a colleague last night who reported to me sixteen suicides in one town in New Brunswick in the last six months. We know that drug abuse is on the rise. We know that emotional and psychological problems are on the rise. All of us know that ten or fifteen years ago you had a school nurse in every school; today, one nurse covers seventeen schools. You can't tell me those kinds of cutbacks have not made a difference to the more subtle aspects of health in our country.

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So I think we have to look at the bigger picture in order to come up with reasonable kinds of solutions in terms of productivity in the future of Canada.

The Chairman: Thank you, Dr. Jeans.

I just want to clarify something here. We took on this issue and we knew full well it was going to be a difficult issue. The easy thing for us to do, as members of the committee, would be to fold the tent and say that the finance committee really doesn't need to deal with productivity. It's a really tough issue. Most people, even the economists who have appeared in front of us, have disputes about measurements and that kind of thing. But that's not what this committee is about. This committee is about taking on the difficult challenges, and that's the reason we have different individuals representing different sectors.

Let me make it quite simple for you here. We want to find out how we generate wealth, greater wealth, for this country. How does that happen so that we can all benefit? It's not a question of pitting one person against the other—far from it. As a matter of fact, it's actually the opposite. It is about finding out how we can create the type of environment where prosperity, with a cause, is the result, and what the government's role would be in making sure this environment is created. That's the issue.

Ms. Anthony.

Ms. Nancy Hughes Anthony: I totally agree with you, and I appreciate these remarks, because I think that's where the discussion should be.

I'll go back to the question I posed earlier, which was that I would assume that in your work, all solutions, all options, and all avenues are on the table. As I said, I was concerned to see the Prime Minister apparently—I wasn't there, but I've been reading reports—close the door to certain avenues in a speech he gave yesterday. He seemed to suggest there was no issue with tax levels and that everything was fine. So I wonder whether that does affect, in any way, the mandate of this committee.

The Chairman: It doesn't, because the country still has to generate wealth so that we can address the concerns that you and previous panellists have all cited. So I just want to be very clear on this, okay?

Mr. Turk.

Dr. Jim Turk: What I think we all share is a desire to raise the living standards and quality of life for all Canadians. I disagree with some of my fellow witnesses, however, in the notion that you're pitting us against each other. We came to appear before you, and we have very different analyses of the problem and very different recommended solutions. In fact, some of our recommended solutions are exactly the opposite of each other's. So I don't think it's that you're pitting us against each other. We're bringing different perspectives.

From our perspective, as we argued, investment in human capital, in people, is very important if you're going to have a higher level of productivity. That means a good health care system and a good, strong educational system. Proposals to cut taxes in other things means there will be less money for that necessary public infrastructure that we see to be central to enhanced productivity. So there are some fundamental differences in analysis, and as I tried to suggest in my concluding remark, the challenge for this committee is to decide whose analysis you agree with, because the recommendations flow out of it.

Unfortunately, we're not in that happy situation where you can just put us all together and out of that we'll all find a happy way of working together. Every organization here is very serious, I'm sure, as we are, about wanting to solve the problems, and is very confident that it is recommending to you sensible ways to do that. It's just that we profoundly disagree with each other about what some of those sensible ways are.

You had asked the question, for example, on investments in research and so on, and I made reference to a report that was to be tabled with the Advisory Council on Science and Technology yesterday. I'd really encourage this committee to look at that report. It has an objective that flows out of what's been discussed here, and that is how we can commercialize university research in order to increase innovation and productivity. And I think it's a disaster, because what that reports says is that the kind of research the federal government should be funding is research that leads to commercialization in the short run.

Increasingly, research money in Canada is tied to having a private sector partner, and private sector partners increasingly, in the competitive environment in which they operate, are interested in research that is likely to generate some revenue for them in the immediate future. So there's very little support for basic research, other than what's publicly funded.

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Here we have a report recommending we narrow that even further and tie it to being commercially viable. The danger is that most economic gains, let alone social gains, have come from basic research. We know how to cure ulcers, but the researcher who found the cure and was convinced there was a bacterial cause was treated as being so kooky no one would give him any money. He even had to ingest the bacteria himself to prove he was right and his treatment was right. So if he had been required to have a private sector partner, we wouldn't have a cure for ulcers. The list, from health to lasers, is very long.

So there has to be a window. We have to recognize that in order to achieve long-term productivity, the government must have a view as to what policies will underscore that effort. Often it's not what leads to the most apparent short-term gain. There has to be a vision here, and that's where issues of home care, funding of universities, funding of health care, supportive basic research, municipal infrastructure and other things are crucial if we're going to achieve what we want.

The Chairman: Thank you.

Ms. Swift.

Ms. Catherine Swift: I think one of the fundamental things we've been trying to get across for some time now is that there don't have to be trade-offs between lower taxes and lower health care. Anybody who looks at federal finances knows there are billions and billions of dollars. For years we have recommended reducing, in fact eliminating, subsidies to business. To some extent there's been some action on this, and I think your committee has recommended this in the past as well. That might not be realistic in the extreme, but the notion that you can have either more health care or tax cuts just isn't on.

I might comment on one thing. Everybody here seemingly agrees with each other, except Mr. Turk, so I don't think we're all coming from drastically different points of view. As you know, our data's based on surveys of many—often tens of thousands—small business owners in Canada, which tends to be pretty representative data. So to denounce it or imply it is incorrect is really questioning this major component of the Canadian economy, which I find a little difficult to buy.

The fallacy that we have had policies of tax reduction and deregulation in this country is defied by the facts. We've all seen them and they're government statistics, often from Finance, StatsCan and what not, showing we have had anything but those trends in recent years.

So the problems we've had in the 1990s with productivity—upon which there might not be 100% consensus, but there does seem to be quite a body of research to support—would suggest there hasn't been so much a departure from policies in the last couple of decades as that they've caught up to us in the 1990s.

I would argue that mostly we have come under the gun for a lot of international reasons. Our tax policies, internationalization and what not have put Canada under more pressure than it faced 20 years ago, even though we had relatively high taxes and what not 20 years ago as well. We haven't fixed those problems.

Productivity, like most things, is a relative concept. Whatever we've done in Canada with regulatory systems, taxes, social systems, etc., has to be considered relative to those other countries, because of course nothing is absolute in the measurement of productivity. So if we've done something but another country has done it either more or less, that's the reality and not whether or not we've done it.

I'll leave it there.

The Chairman: Mr. Glynn.

Dr. Peter Glynn: Mr. Chair, in direct response to your question, one of the problems we've had in the past is that the public sector expenditures have been seen as expenditures, i.e., a drain on the country and everything else. I would suggest we need to—and maybe your committee can help—have them seen as investments, and as legitimate as the private sector investments. Somehow we need to have the public sector understand the private sector and the private sector understand the public sector.

Let me just take Dr. Jeans' example of the public health nurse visiting schools. I have never heard the private sector say that is wrong, that we really should go back to at least, if not better than, what we used to have for the growth and development of children, so we have educated workers who are innovative and people with incomes who can afford to buy our products. The public sector must be viewed as an investment and not an expenditure and a drain. We need to bring the two together.

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The private sector needs to get much more involved locally in the effectiveness, efficiency and productivity of its health care system. It tends to stand aside, and that's not helpful. These two solitudes need to start meshing. Maybe, Mr. Chairman, your committee can figure out how to have them mesh a little better.

The Chairman: Thank you, Mr. Glynn.

Mr. Szabo, then we'll go to Mr. Brison.

Mr. Paul Szabo (Mississauga South, Lib.): Thank you, Mr. Chairman.

One of the things that concern me is that there seems to be a range of opinions with regard to the subject of brain drain. It appears there is empirical evidence that everybody should be able to use as a foundation for their positions. We were presented with some information on April 28 by Statistics Canada, which I found very enlightening.

One of the statistics—let me just give you a couple—showed that in the period 1990 to 1996, which was the latest period in which it was reported, emigration of Canadians to the U.S. averaged 21,731 persons per year. Immigration into Canada averaged 230,581, so in fact there was over 10 times more immigration than emigration. That ratio was the highest since 1955. We're getting a lot more people in than out. That's important to know as a foundation.

Then they go on to look at individual professions, to try to give us an idea of magnitude, and that's also important. With medical researchers and physicians, etc., in 1990 to 1996, 307 physicians on average left Canada. There were almost 60,000 physicians in Canada, so in other words, about 0.5 of 1% on average left, to give you an idea of dimension. For nurses, 0.3 of 1% on average left Canada during that period. With computer scientists it was 1 out of 1,000; with engineers it was 3 out of 1,000; and with managerial workers it was 1 out of 1,000. So in terms of the magnitude of who left, relative to the stock of the labour force, you get an idea we're not talking about massive migration away from Canada of our qualified labour force.

University graduates are another important area people look at. Who are we losing? Between 1990 and 1996 there was an annual outflow of university graduates of 8,500. The estimated annual inflow of university graduates to Canada was 33,000—more than three times more. Of new Canadians or people coming into Canada from 1990 to 1996, 27.9% had bachelors degrees or higher, compared to only 17% of those born in Canada. In fact, immigrants were better educated. At the masters and Ph.D. or medical degree levels, 9.2% of the immigrants had those degrees, compared to only 3.1% of those born in Canada. It's kind of interesting.

The final point, based on the current U.S. population survey, is that only 15% of Canadians working in the U.S. made more than $50,000. I really want to know why everybody wants to latch onto the anecdotal statement that we're losing our best and our brightest, when in fact it is only with respect to physicians and researchers that we have a net drain.

The point is—and I'd like the comments of the panel—if in fact it's not brain drain across all sectors, and we have net gains if you take into account those coming into and going out of Canada and their qualifications and professions, why would we reduce the taxes for everybody in the labour force simply to try to stop the net drain of medical and research professionals? Why wouldn't you target limited resources and focus them to make sure you get the best value for the invested dollar?

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Ms. Catherine Swift: First of all, the brain drain is so-called, and,frankly, this has never been a huge small business issue with our membership. I think we've had more feedback from the Northern Telecoms who say that if this continues.... They're obviously experiencing this. I don't think they're dreaming it. Many companies are experiencing it, but we haven't found it be huge with our members. That's not to say there aren't some, but we haven't found it to be a huge issue overall with our membership.

But obviously the reasons for reducing taxes are not all brain drain related. It's a great way to give poor people more income, as we know, because many of the social groups have said we have serious tax problems that are happening at the lower end of the income scale as well. As we've seen, the two most robust economies in the country right now, in terms of job creation, are Alberta and Ontario, two governments that have put a focus on reducing taxes. Obviously that's not the only reason, by a long shot.

I know a number of academics and others...I know at the C.D. Howe Institute, for example, they tried to do a comprehensive review on brain drain and ended up not able to do it because the data are terrible. As a result, there are a lot of problems with data in the whole area of this, and C.D. Howe, which has a pretty good reputation for good research, ended up not doing a quantitative report for that reason. There is a huge data problem in this area.

But these people from the health care—

Mr. Paul Szabo: You're skeptical about the brain drain scenario.

Ms. Catherine Swift: Yes, I'm skeptical, because there has never been a good comprehensive study that—

Mr. Paul Szabo: Okay. So Statistics Canada is not—

Ms. Catherine Swift: As I say, at least in the small business community it has never been a huge issue.

Mr. Paul Szabo: Okay.

The Chairman: Dr. Jeans, followed by Mr. Whyte.

Dr. Mary Ellen Jeans: I'd be very interested actually to read this report, because certainly those numbers don't resemble some of the numbers we've been collecting. But I think what's important is not so much how many leave and how many come, it's who's leaving and what the impact is on quality. For example, if 300 physicians leave, the ratio of physicians per population is then diminished. The other thing is who is leaving. The C.D. Howe work that was done in 1991 for nurses in Canada showed that 40% of all new graduates left. It might have been a small number, but they were the new graduates. This has a long-term, significant impact on the quality of care.

But I'm pleased there is a report. It will interesting to respond to it. We all have a responsibility to improve the data.

The Chairman: Mr. Whyte.

Mr. Garth Whyte: Thank you, Mr. Chairman.

That's why we came here serving our members. We can get into a definitional fight, but we want to talk about what our members are saying about productivity, what they're saying would help them create their standard of living and their employees' standard of living in their community. And that's why your government asked us to participate on this, because every year up to last year, they have been noting the importance of small business and job creation to Canada's economic growth and local economic development.

I'd have to take some exception with some of the commentators. We are working with your government. Minister Bradshaw said that if we're going to deal with child poverty and the working poor, we have to work with small business. And we've been working with her.

I find that hard to take, to swallow, because we're here to try to solve some problems and deal with the issue. We asked our members what the issue is. Yes, there are statistics and you can measure those statistics, which can be delayed, they can be a couple of years old, but we're here as an organization that does 3,000 small business visits a week. We talk to them day in and day out. We call them the canaries of the economy. They feel it. They're saying that they're feeling a heavy tax burden. You may not want to hear that, but that's what they're saying.

Is that important? Mr. Chairman, you were at a speech that I was at by the minister of state for the Economic Planning Agency for the Government of Canada. I don't have to go through his credentials.

Ms. Catherine Swift: It was Japan.

Mr. Garth Whyte: Japan, sorry.

I want to quote him, because we feel under siege a little bit because people are saying things such as that these are meaningless jobs, and that self-employment is not a trend that Canada should be looking at in the productivity issue. Japan was identified by the Department of Industry of Canada, in their brief on productivity, as having the highest level of productivity of all the countries.

So the minister of economic development from the country with the highest productivity states: “Japan is an oddity among the industrialized nations in that the number of self-employed workers outside the agricultural sector is declining.” And the minister of economic development for Japan then says they believe they have to have a transformation with the Japanese economy. He says that “...now is the time for Japan to free itself from the bonds of bureaucratic regulations”, and they have to help “countless new enterprises that create value from diverse wisdom to arise”. This is the most productive country saying, we need self-employment and small business to diversify and to grow.

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So this is why we get into problems with the productivity debate and statistics, because once we get into those statistics and they start pointing fingers and we talk to the countries that are seen as the most productive and ask them what they are doing, they're saying we need thriving small and medium-sized enterprise. Then we go to the small and medium-sized enterprise in Canada and ask what would they need to be more productive, and we present it to the committee. You may not hear this, but it's what our 3,000 visits per week are telling us. And we're saying there's a potential problem.

That doesn't solve all the other issues, because we have experts in other areas who say what would help them. We're saying in Canada, with the small business sector, if it's seen as important, this is what they're identifying to help their productivity.

The Chairman: Yes. And, Mr. Whyte, if it's any consolation, when I speak to small businesses in my riding across the country, I get the same feedback from them, and that's the reason we also invite you to come here, so you can tell everyone in fact what your constituency is telling you. There's not a problem here. But we need to listen to various sectors because, quite frankly, the Canadian economy and Canadian society is made up of various individuals with different perspectives—

Mr. Garth Whyte: We don't argue with that.

The Chairman: —and we have to be open to the various points of views.

Ms. Hughes Anthony.

Ms. Nancy Hughes Anthony: Of course. Just to add to this discussion, I think you're right, Mr. Szabo. There are a bunch of statistics that don't necessarily hit the qualitative side of this discussion. We may have quantitative statistics, so many bodies out and so many in. But I think what we're hearing today is that there is enough evidence from businesses that are concerned, from health professionals who are concerned, from educators who are concerned, to say this is a problem we have to work on as a country.

Somehow we have to put together a package of, if you will, incentives so that people, yes, want to come into Canada, but those who are here want to stay and want to prosper. That's the job of this committee, and we would argue that it's a combination of a number of things that you're hearing today, including making sure that Canadians are competitive in terms of the after-tax income they have in their pockets.

Once again, I don't want us to set up a situation here of one or the other, but rather a combination of factors. This is a hard job for you, and I commend your committee members for tackling it.

The Chairman: Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC): Thank you, Mr. Chairman.

Mr. Paul Szabo: Mr. Chairman, could I ask one last question, please?

The Chairman: Yes, sure.

Mr. Paul Szabo: It's about the chart on page 3 of the brief from the Canadian Federation of Independent Business, which shows government revenues. I think in the text it shows the federal tax burden has increased over the past five years. Is this normalized to take into account that there were, over that period, several hundred thousand more people working and that federal revenues have increased not because personal taxes have increased but rather because more people are working?

Mr. Garth Whyte: I'm glad you brought up the graph, because we have a whole presentation behind the graph. But again, we had ten minutes.

This shows, first, that no one's here arguing that government's dependency on revenues hasn't gone up. Now, the issue is how did it get those revenues? The economy grew, so there are some more revenues there.

But then we have a lot of other graphs that layer on top. We say there were cuts in EI, but the aggregate federal payroll taxes have gone up because CPP has gone up more than the cuts to EI. There were cuts to personal income tax, but when you layer income tax bracket creep, the next year 50% is eroded away and the year after that two-thirds of it's eroded away, and the year after that virtually all of it's gone.

Then there are fees. Government fees have gone up.

Mr. Paul Szabo: Excuse me, but CPP isn't government revenue, is it?

Mr. Garth Whyte: No, I'm saying the payroll tax burden has increased even though EI was cut.

Mr. Paul Szabo: Yes, but CPP would not be reflected in your graph, would it?

Mr. Garth Whyte: I'll cut to the chase.

Mr. Paul Szabo: No, I really would—

Mr. Garth Whyte: I'll cut to the chase.

Mr. Paul Szabo: You said CPP revenues or rates have gone up, but CPP rates or revenues would not affect this curve, would they?

Ms. Catherine Swift: No, they wouldn't.

Mr. Garth Whyte: No.

Mr. Paul Szabo: Yes, thank you.

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Ms. Catherine Swift: In other words, this actually understates the actual burden on business. You're correct, this actually understates the increase on business, because of course that increase has been levied.

Mr. Paul Szabo: That's an investment. It comes back to the employee.

Ms. Catherine Swift: It comes back to the employee? No, the employer.

Mr. Paul Szabo: The CPP contributions come back to—

Ms. Catherine Swift: The point was that while the employer...and the self-employed, of course, pay twice, so that group has a double whammy, and only half comes back, if you want to call it that way, to them. Of course the employer pays half for the employees, as you probably understand the CPP system.

Mr. Garth Whyte: I have one observation. What we're trying to say and what we could do with further graphs, which I'd like to talk to you about, because the people are feeling it and that's why people feel.... Our representatives are trying to do things and break down tax cuts, but at the same time, the burden keeps increasing. The Ontario Bond Trading Association—and you can get the parliamentary research staff to check it out—said the federal tax to GDP has gone up from 14% in 1994 to 17% in 1997. In other words, the federal tax burden has increased. Even though they were announced and they were trying to have targeted cuts, the overall tax burden has increased.

Mr. Paul Szabo: Is this for all taxes?

Mr. Garth Whyte: It is for the federal level.

Mr. Paul Szabo: So how much is corporate? There were a lot of corporations losing money and using loss carry-forwards after the recession, and therefore it is really distorted by the fact that you have loss carry-forwards for corporations.

Mr. Garth Whyte: If you make zero profit, you can't—

Mr. Paul Szabo: Why don't you tell the truth?

Mr. Garth Whyte: That's why we include the next graph by the Mintz report.

Ms. Catherine Swift: You should understand the system a little bit better, actually.

The Chairman: Mr. Solberg.

Mr. Monte Solberg: I object to this badgering of people. They're trying to answer and he jumps in on them. I would ask the chair to allow the witnesses to answer. They have a point to make, and I think Mr. Szabo could show a little courtesy for a change and wait till they're through answering.

Ms. Catherine Swift: It's unfortunate, because what it demonstrates is that we're trying to identify a problem here and a lot of people really have their stake in proving there is no problem. There clearly is a problem here. As Garth said, you might not want to hear it and you can protest all you want, but the views of the various groups here suggest there is a serious problem, despite how you might want to use some selected facts and figures to pretend there isn't.

The Chairman: Thank you. Thank you, Mr. Szabo.

Mr. Brison.

Mr. Scott Brison: Mr. Chair, first of all, I want to welcome all presenters here today. Some of you have divergent opinions, and I think that's valuable to us.

I have to say I have a personal bias relative to the tax issues, because having studied the issue and having compared the Canadian tax burden to that existing in other countries, particularly that of our largest trading partner, the U.S., I feel it's an issue that needs to be addressed very much in the short term.

It's not a zero-sum game, first of all. The C.D. Howe Institute has been referred to a couple of times here, based on...we can have program spending growth in Canada that keeps pace with population growth and inflation and still allow for a fiscal dividend that grows by about $4.6 billion per year. So these are not zero-sum games. There's no reason why we would want to, or anyone should try to, pit one group against another.

Further to Mr. Szabo's comments and also Ms. Swift's comments, I do think we in this place devote inordinate amounts of effort to trying to disprove truisms that should seem very, very obvious. When companies like Nortel are saying they are losing 400 to 500 highly trained engineers per year to the U.S., we should be concerned as legislators.

If the Canadian government is ingenuous about playing a role in a global knowledge-based society, we should be concerned about who we're losing, not just in terms of aggregate numbers but who we're losing. I hear that from the medical community, I hear it from the research community, and I hear it from the high-tech sectors. And those are very important sectors to Canada.

Certainly we can become a nation of shlumpy, dumpy people if we have all our highly trained, motivated, productive people who are poised to participate in a global area leave and we keep everyone else. We can become the Manchuria of the 21st century and produce virtually nothing in terms of value added. But I don't think that's really what we want.

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On the issue of measuring productivity in areas of the public sector, I know we've touched on this a little. In Canada 40% of our economy is public sector. Arguably, there's a significant diminishing return beyond 30%. I would argue that there should be a significant concern about the level of public spending we have in Canada if we are not going to try to quantify results, both in terms of health care and in terms of education. I recognize I'm getting into an area of provincial jurisdiction, but if we're going to talk about productivity, if we take education out of it I don't think we're doing our jobs here.

That's my first question. I'd appreciate your feedback on how we can improve our measurements in public spending in terms of productivity, in health care, in education, and in other general government services, and whether or not we should be looking at private delivery of public services or at least an incorporation of market forces and competitive forces within the delivery of public service as a vehicle to create more productivity. That's my first question.

The second thing is, we're talking a lot about tax reduction in Canada. We've had some very good reports on tax reform. There doesn't seem to be a political will to really do much with them, but the Mintz report talked specifically about taxes on capital, earnings on capital, but also just taxes on capital, which we do have in Canada, particularly in the financial services sector. I would appreciate your views on tax reform—not just tax reduction, but tax reform in terms of the areas we have to target first. I know there's more political appetite for the personal income tax side, and for obvious reasons, particularly the marginal tax rate disparities with the U.S. But I would argue as well that on the corporate side there are significant disincentives to productivity inherent in our tax system.

So those are the two general areas—tax reform and measuring productivity in public sector areas.

The Chairman: Who would like to begin? Mr. Orr.

Mr. Dale Orr: Yes, thanks.

There have been a couple of points made stressing the importance of the relationship between productivity and tax reduction. From the point of view of the analysis it's pretty clear. If personal income taxes are reduced, GDP will be higher than otherwise, and employment will be higher than otherwise. As well, if EI premiums are reduced, GDP will be higher than otherwise, and employment will be higher than otherwise. So in each case, whether we have reductions in personal income taxes or reductions in EI, we would be creating wealth, which is really what it's all about here, as you mentioned, Mr. Chairman.

I appreciate Mr. Brison's comments on tax reform. I guess the moves toward reductions in PIT and EI so far have been so meagre that's why we're emphasizing those, because we feel that's the highest on the agenda. And as for the $16 billion the Prime Minister talks about, it's very important to note that's what it is, it's talk. We haven't had $16 billion of tax reduction. He's saying we might over the next couple of years.

On the business tax reform, yes, there was an excellent report, the Mintz report Mr. Brison referred to, filled with a lot of good ideas, and it's unfortunate that it still sits in the top drawer. From our point of view, if we could move on PIT and then on EI, there are a lot more good ideas in that report waiting for the government.

So there's an awful lot that should be done on tax reform.

Ms. Catherine Swift: I have just a couple of quick comments. As you can see from our most recent survey data—and this has been the case for over a year now—our members have put income tax right up there with payroll taxes. Previously payroll taxes were higher, so I think that reflects their view that the shifting focus should be on the income tax side.

In terms of specific measures, getting rid of bracket creep, reindexing the system entirely to inflation—that's a stealth tax, as we all know. I find it interesting and very well founded that a number of the social policy groups are in agreement with the business community on that one, because everybody, every taxpayer, will gain, the low end as well.

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We also feel complete elimination of the surtaxes is in order. They were supposedly deficit elimination surtaxes and we feel they should be gotten rid of. I think those two measures, while maybe not seeming huge, would go a long way toward increasing the equity of our tax system.

I have just one more really brief comment about timing of tax reductions. We found this back in the late 1980s and there's a parallel happening now. In the late 1980s our economy was quite strong in this country, as you may recall, and a lot of governments increased taxes at all levels. We saw EI premiums actually increase at that time, we saw a lot of provincial governments increase taxes—on and on. That recession we had, which hit hard in the early 1990s, we very much believe, in terms of lost jobs, lost companies due to bankruptcy, was much more severe than it had to be because of those tax actions on the part of governments.

People will squawk less about taxes when the economy is good. Our economy is still pretty good right now, thankfully. We see our members quite optimistic about the next year or so, which again is obviously a very positive thing. Do you think that will be the case forever? Not true.

The best time to reduce taxes is a time when you're getting the extra revenues into the government coffers, which is now, and we feel that situates ourselves in every part of the economy better for the invariable slowdown that will happen sometime down the road, and we economists can debate that one, but it will undoubtedly happen at some point. So timing is important.

The Chairman: That is something that as a finance committee we actually took note of in the last pre-budget consultation. It's for that reason we advocated the elimination of the 3% and 5% surtax.

Mr. Whyte, followed by Mr. Turk.

Mr. Garth Whyte: We've worked with your government quite a lot. We're going to continue working with you. We've worked on youth employment; we worked on health. We know the spending targets for health for the next five years. We know the debt, the GDP targets. Just to answer your question rather than getting into specifics, what's the federal tax-to-GDP target? Why can't we have a target? Even if it's ever so slow, why can't you give us a target? When it comes to taxes it seems to fall off the table. We're picking things off, but what's the overall tax burden? That's what we're trying to have stay on the table.

The other thing on productivity, which I thought would come up but it didn't come up, is that we do have fewer medium-sized businesses in Canada than we do in the United States. One of the reasons we do is the notch issue. The notch is the $200,000 small business threshold. If you get beyond that, all of a sudden you get into a huge tax issue. Or you get into labour or other regulation thresholds—over 50 employees, 20 employees at the provincial level, then you don't expand. Or we're finding that a lot of members just won't use a bank for financing because they say they don't need to expand; they don't want to re-mortgage their house, they don't want to jeopardize their family and their employees and go through it, so they won't expand.

We actually have the opposite trend happening. We have many members who have said they are downsizing and going to a one-person operation because it's just not worth it. That's an issue we have to look at. Again, that's why we want you to revisit the report you got us to do. There are some good low-cost initiatives in here that should be looked at. If you want to deal with productivity from the small business perspective, here's one of the things to look at.

The Chairman: Mr. Turk.

Dr. Jim Turk: Mr. Brison raised two questions that could take the rest of the afternoon. I'll try to respond to each in about 30 seconds per question.

First of all, I remind the committee that the agenda here has shifted to how we cut taxes rather than what I take to be the operative question: will cutting taxes increase productivity? I will repeat what I said in our presentation and I will be happy to pursue this with the committee afterwards: the evidence supporting a causal link between higher productivity levels and lower taxes is virtually non-existent. Productivity levels among industrialized countries show no correlation to tax levels. That is point number one.

Secondly, with regard to private delivery and turning public services over to market forces, I'll give two quick examples. If one looks at the private for-profit deliverers of post-secondary education in this country, one finds a consistent pattern. They pay attention exclusively to what will generate revenue rather than what is needed. There is no longer-term vision of what's going to be good; it's what will bring in the highest bottom line. So we have a proliferation of people being trained in these private institutions to be security guards. There's a disinclination to invest in high-capital-intensive training in the medical sector and otherwise because it doesn't provide the return. So to the extent that we turn it over to them, we pay a social cost.

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The best example, however, is to compare the health care systems in Canada and the United States. Theirs costs substantially more, and many of the residents of that country don't have access to decent health care. Moving in that direction is precisely the recipe to undo the last 40 years of gains.

The Chairman: Dr. McLennan, followed by Dr. Jeans.

Dr. Barry McLennan: Thank you, Mr. Chairman.

I want to return to a comment by Mr. Szabo. I have a great deal of difficulty trying to decipher StatsCan reports for one simple reason: they tend to blend data. I'd be very interested in seeing the report to which you just referred, and I apologize that I haven't seen that one.

But that's why we did our own survey a year ago, and that's why I think the C.D. Howe Institute, which is one of our leading economic policy research institutions, released their report last October. We need to debate this further, obviously, but their report and our own data show very clearly that the brain drain problem is real and costly to Canada with respect to health research. There's no question about it.

So we need to look at that, and I would caution the members of the committee that the StatsCan reports that I've seen tend to blend numbers. It goes back to the comment I made in my remarks, that you can lose a person and replace them with someone, but it's not a zero sum, because you've lost someone who is productive and at the peak of their career and replaced them with someone who is new. Their potential may be great, but you're not going to know for 10 years whether they're any good or not. In the meantime, there's a cost to this country, and that's what I was referring to.

So I caution that we have to be very careful in interpreting numbers with respect to people crossing the border.

The Chairman: Thank you.

Dr. Jeans.

Dr. Mary Ellen Jeans: I will comment briefly on the public-private mix in what is known as our publicly funded system, and a little bit in relation to how we count some of these things.

You have an example right now in Canada that reinforces what Dr. Turk has said about the education sector. We have home care going on right now in this country, with various models being used in different provinces. Much of it is being delivered by private sector companies, and it's done on the backs of patients and workers. Salaries are lowered. People are put on part-time and casual employment, which ultimately diminishes their spending power in terms of the overall productivity. Standards of care are not accountable. It's very difficult to regulate an industry that has different people working in it. Moreover, if you ever want to study the outcomes or even what you're spending on home care in the country, it will be much more difficult to standardize that information. So I think we have to be extremely cautious about going down that road.

The Chairman: Ms. Redman.

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you, Mr. Chairman.

I don't look upon this as an occasion where we're pitting witnesses against each other, but rather an opportunity for cross-pollination. So I really do appreciate the differing points of view that have come to the table.

One of the things I've come to realize about studying productivity is that, to my way of thinking, it's a very useful tool, but it's not a means to an end. What we're trying to do is raise the standard of living for Canadians, not unlike paying down the deficit. The real impetus behind that was to free up money so we could reinvest it as Canadians wish us to, and that's what this government has done.

I want to talk for a minute about the cross-pollination and hit on some of the things that Ms. Hughes Anthony touched on. I represent Kitchener, and I think you referred earlier to the Cambridge area. It is officially underserviced. It has been designated as an underserviced area by the Province of Ontario, despite the fact that it's a very desirable place to live. It thrives economically; we have huge players like Toyota and ATS that are investing, and we have a high-growth sector in the high-tech industry.

The Chamber of Commerce, the CTT, which is an organization that's made up of both the Waterloo region and the City of Guelph, and Communitech, which is a public-private sector organization, got together not only to promote the community but also to address the fact that we are officially underserviced medically in the health department, because they saw that as an economic issue, and it's something that the chamber and the municipalities in the region continue to have going on to recruit medical people.

So I think there is a cross-pollination, despite the fact that we have a thriving economy. I hear from the chamber what their membership would like to see have happen. I would tell you that there still is work to be done, and there are issues besides income tax and whether or not we lower it for productivity.

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The question I'd like to get at is this. If we're going to look at productivity as a tool, which I do believe is what it is, we hear differing scenarios and different perspectives. I guess I would ask both the chamber, CFIB, and actually Mr. Turk, because it was your comment that sort of put me on this line of thinking, should we be looking at short-term or long-term goals when we look at productivity? What's the best way to frame this so that we'll get some gains for the Canadian public and not get mired in which statistics we're using?

The Chairman: Ms. Hughes Anthony, followed by Mr. Turk.

Ms. Nancy Hughes Anthony: I just want to say that I totally agree with your example. In the area you're talking about, the Chamber of Commerce and other organizations are very concerned about the fact that they can't keep medical professionals in that community. So they're looking at the reasons why. Some of it is after-tax income. Some of it may be access to other kinds of facilities and research, etc. It is all part of the productivity picture. That's why I'm encouraged to hear us saying that we do need to work together on that.

On the second point, I guess the chamber would say—and this has been echoed by others today—that this is the time, when the government is anticipating surpluses, to make a difference. This is the time to actually move the yardsticks for the Canadian taxpayer. Part of that equation, I think we would also feel, has to be dealing in a committed manner with Canada's debt-to-GDP ratio, which, as you know, kind of reduces the flexibility of the government to put money into the economy as it might want to do.

I don't know if my colleague Mr. Orr has any further comments on the timeframe. I guess we would say it's an urgent issue.

Mr. Dale Orr: Yes, just to support that the forecast for economic growth for Canada for this year and next is pretty reasonable. There's no time like the present to make these moves.

Ms. Catherine Swift: I guess I heard your question a little bit differently. I heard trying to focus on a short term, something that would have impact in the short term versus the long term. I think any really enduring solution on the economic front happens on a more long-term kind of basis.

A prime thing from business's standpoint, and probably anybody's standpoint, is to be able to plan. As my colleague Garth mentioned earlier, we have seen from the federal finance department a plan on some of the expenditure side, some of the debt side, and so on. We haven't seen a plan on the tax side at all. That is a big mystery item out there.

I don't think anybody's trying to get into unreasonable solutions. I think we're trying to get into balanced, workable solutions both for government and for Canadians. The question, of course, that arises is, do governments really feel they can spend Canadians' dollars better than Canadians themselves can? When we're taking in multiple billions of dollars of surplus now—and as Dale said, two economists agreeing with each other is kind of worrisome; our prognosis for the Canadian economy is similar. Our members are actually a reasonably good predictor, we've found, over the last little while.

I would think to act now not only will have a benefit in terms of hopefully extending our current period of economic growth, but it will situate Canadians better. Canadians are carrying a lot of debt right now as individuals. More money in their pockets will help them to regulate their own personal finances, so we'll see less trouble when things do get a little slower down the road.

So I think action now, but not the sort of knee-jerk reaction.... No good economic policy is ever going to have its benefits in a year or so. It's just the way history has been. So we would recommend, I guess, the kinds of stable policies over a period of years that would both give people confidence, consumers and businesses, and have some real, enduring, positive economic benefits.

Mrs. Karen Redman: If I can, just to clarify, what's the compelling reason for tax cuts? Is it to free up money for investment, for expenditure?

Ms. Catherine Swift: All of the above, basically. Consumer spending, as you probably know, is about 60% of the economy. We currently see consumers in a pretty good mood. We've seen pretty decent levels of spending. That's a huge boost. A lot of our job growth lately has been a result of consumers getting back into the spending mode. So there's one argument.

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Obviously from a business standpoint it's also continued investment, continued job creation, and so on.

We know our savings rate is at a historical low right now, which is very worrisome again for the future. We don't want people on the state payroll, hopefully, or we want to at least minimize that to the extent we can.

So all of these factors come in, in terms of the arguments for tax spending.

Obviously our work is to work with government on different departments, different policy issues, at all times. We see the government getting into big-time spending mode again at the federal level and we find that really worrisome. We see that's what caused a lot of our problems back in the late 1980s, indeed since about the early 1970s, when we started building up and accumulating our current $600-billion debt, which we spend $40 million a year just servicing. I'm sure we could all find a lot better way to spend that $40 billion.

So I guess what we'd like to see, again, is some medium-term planning here that gives Canadians a few dollars back, for all of the purposes you mentioned.

Dr. Jim Turk: In answer to your question about short term or long term, most of the actions that we think the federal government needs to take to deal effectively with the productivity issue are, for the most part, long term, even though you need to act now on them.

Investments in physical infrastructure of sorts that have been talked about here are necessary in our colleges, our universities, in municipalities, and so forth. Investments in human capital—I don't like that term particularly. The payoff for investments in people is longer term, but the need to do them is now. The quality of the education that our young people are receiving will pay dividends in the future.

In terms of research and development, we applaud, as others have, the initiative of the federal government in funding the Canadian Institutes for Health Research. Other kinds of research efforts and more direct government R and D, given the very low level of private sector R and D in this country, is important to do now, although the payoff tends to be longer term.

From our point of view, and I guess this would be our concluding remark, the issue isn't the level of government spending; the issue is what you spend it on. When you invest in the future of Canadians, it's an expenditure that will return dividends to all of us.

Thank you.

[Translation]

The Chairman: Mr. Vaillancourt.

Mr. Gilles Vaillancourt: This morning, some very competent people have come before the committee to express important opinions, contribute explanations and make a highly useful contribution, which will help its members when they have to make choices. I would like to comment on some of the observations that we have heard this morning, in no particular order.

There was talk of cutting taxes and paying down the debt. Any efforts in this direction would certainly not be a mistake for anyone in Canada. By leaving more money in the hands of taxpayers and by allowing Canadians a little more freedom in expressing their consumer choices, we would certainly not be making a mistake.

It was recommended that you invest in infrastructure for conducting research in the fields of health, biotechnology in particular, and education. This is definitely very, very important, just as important as tax cuts. Everything that people have told you has some undeniable importance.

But I would also point out that all these people conducting research, all the members of this social elite, live in communities. Canadian communities do not get the attention and the capital investment that they deserve from either the provincial or federal government.

In terms of population movement, the United States is our main competitor. At one time, American municipalities did not receive the attention and funding that they deserved from their States either. And so, we didn't look so bad then. But the situation is different now, because the American federal government has adopted a targeted strategy to develop certain cities, including Boston. Certain American communities are now being completely transformed, and we are now facing incredible competition, so that it would be pointless to invest mainly in research.

What I've heard this morning confirms the importance of keeping communities healthy, renewed communities, communities that are able to create a place to live that is interesting and meets the expectations we have expressed. That is why we should develop a municipal infrastructure program that is largely subsidized by our federal government, focussing on such vital sectors for development as public transit. We would of course be willing to give you any number of suggestions.

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However, it would be wrong to believe that all the proposals we have heard this morning could be implemented if our local communities are not first well equipped to take up tomorrow's challenges and if we are unable to come up with short-term policies and goals for investment.

[English]

The Chairman: Mr. Glynn.

Dr. Peter Glynn: Thank you, Mr. Chairman.

One of the things the committee might want to pursue is the notion of productivity in the public sector. A good part of the Canadian economy is publicly funded, whether it's education, health care or public services and municipalities. And one of the dilemmas we face is that our ability to invest in technology and in facilities that lead to productive advances in productivity is, to say the least, hampered. Again, we need to find some ways of engaging the private sector and we need to find some new ideas for using the private sector. Maybe it's leasebacks for hospitals, quite frankly, rather than expecting the community to raise 30% of the investment.

We have a public sector that can't respond fast enough to technology, and that's going to hold back the productivity in the public sector, which is going to lead to demands for more money rather than better use of the existing money.

The Chairman: Mr. Discepola.

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): Thank you, Chair.

Most of the questions I had have been answered. But since I was there last evening, I would like to clarify—and I've not had the benefit of reading any newspaper, because I left very early this morning to get here for 9.30 a.m.—that the message I heard last night was that the Prime Minister said personal tax reductions would not be on the table if it jeopardized our social safety net. I interpret this to mean that they would only occur if we did not put at peril or at risk our health care, our education, that we would invest it again.

He also went on to say that it's unfair to compare our tax level to the United States because you have to factor in everything. And when we take a look at medicare, when we took out the quality of the standard of living we have and enjoy in Canada, it's very difficult to compare tax levels. Therefore his message, as I understood it, was that if a business community or anyone else is expecting that tax levels will go down to the level of the Americans shortly or in the long term, that's probably off the table.

I'm getting very confused, and I think my colleagues are too, because the testimony I heard last week was that productivity is very difficult to measure, that we should not include the contribution of the health care sector, the education sector, the public service sector, because somehow it all washes out in the end. It's not to say that this contribution is insignificant, but the expert said that you should exclude it from any productivity measurement.

When I go to my riding, and I hear the small business communities every day—I'm one of them—personal tax breaks are definitely key. I don't hear the business community clamouring over business tax breaks, for example.

But productivity itself is difficult to define, and if I measure it in terms of the reaction from my community people, they fear it. The worker who's working in the plants says, oh, that means I have to work harder and get less. This is the mentality that seems to be prevalent out there, and I'm glad that at least there's—I think—a consensus here today when I listen to Mrs. Hughes Anthony, or the chair, say it's wealth generation for all Canadians. You used the term that we must “expand the pie” so all Canadians benefit.

Mr. Whyte, I'm quoting you here. You asked how we create a better life for all Canadians. I think if you'd asked that question in your survey, you might have got a different answer.

Ms. Catherine Swift: We have asked that.

Mr. Nick Discepola: That's what we're here for. There's no political agenda here. This committee was established after a time of reflection months ago, when we said as a finance committee, hell, we're always studying bill after law, after law, after law, after law. We're always engrossed in pre-budget consultations from May all the way down to October or November. Let's step back a bit and breathe. And it was unanimously decided that productivity would be a key issue.

So I wanted to put that on the table, and if you want to react, you can.

But I'd like to talk to the issue that I believe Mr. Turk touched on, and which hasn't been addressed by the other questions that were asked. It's the question of the tremendous tax benefits, especially in Quebec, for example, where the provincial governments as well as the federal government have targeted certain sectors for R and D. You said, and I think the evidence is there, that it doesn't seem to have paid off.

I'm wondering if it's the tax system itself that's inhibiting more R and D. Why is it that Canada is not participating in as much R and D? Maybe we should be focusing as policy-makers on two key issues.

One is that maybe we shouldn't be helping R and D because there's a widget or mousetrap that's already been invented somewhere, and maybe we should encourage Canadians to import that technology or use it. Maybe it's not known to them, for example.

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The other comment most experts have made is that if we're going to improve productivity, we have to help business improve in fixed capital. And you've referred to plant and equipment. I think that governments traditionally, and I know ours over the past four or five years, have shied away from financing the bricks and mortar of the plant and equipment. I look at an example in my own riding, where the previous government did that eight or ten years ago. The company was able to buy a $500 piece of equipment, and today it's producing incredible things with it.

So should we, as a government, be going back to maybe financing more of the traditional plant and equipment initiatives? Would you like to answer that question and the one on the R and D.

The Chairman: Mr. Turk.

Dr. Jim Turk: With regard to support for R and D, Canada has amongst the more generous research and development encouragements for the private sector of any industrialized country. It hasn't worked particularly well, and this is a problem that has been discussed a good deal. A lot of the cause goes to a relatively unpopular argument these days, and it's one we mentioned in our presentation to you.

Canada has a very high level of foreign ownership, and there's a lot of evidence to suggest that the major expenditures in research and development tend to be done in the home country of the corporation. Even in the pharmaceutical industry, if one looks at what research and development is done here by the major pharmaceutical transnationals, it's basically clinical trials, it's not a lot of the fundamental discovery. Most of the new drugs that have been introduced are minor variants of other existing drugs, not wholly new therapies.

Mr. Nick Discepola: Are you saying we should reduce or restrict further the foreign ownership?

Dr. Jim Turk: I'm saying that you can't separate the two questions, so in looking for a solution you have to address this very difficult issue, very difficult reality. It's not unrelated to another factor—and, again, it's an unpleasant one to raise here, but it is a reality—and that is that the research and development expenditures are greatest amongst the larger corporations. A very high percentage of Canadian business is small business, and the level of R and D expenditure, the level of use of new technologies, in most small businesses tends to be much less than in larger businesses.

So this is another factor that enters into it. A lot of innovation can occur in the small business sector—in biomed and in others there are possibilities—but in terms of an aggregate research and development view, the disproportionate number of foreign-owned businesses and of smaller businesses makes it harder, even with generous government policies, to make R and D expenditures a reality.

So the question then is, what do you do? I don't think the solution of just importing it from others is likely to work. Most of the patentable inventions that are of commercial value are relatively minor improvements on a pre-existing process or product that tends to be of interest to the corporation that developed the original process or product again, which are often foreign-owned or foreign corporations. So a lot of the expenditure in innovation can leak out of the country.

In the final minutes of a finance committee, you raised a really important but very difficult question that lends to no easy solution. The one clear piece of advice we would give this committee is, in the face of all this, it makes it more important than ever for the Government of Canada to invest in research and development and underwrite research grants and expand the resources of the granting councils, because for all these other reasons we can't count on the private sector to take the lead in much of this in the way that one would be able to in Germany or the United States or Japan, and therefore the role of the public sector becomes more important in Canada. So I think that's the place to start in finding a solution to the problem.

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The Chairman: Ms. Swift.

Ms. Catherine Swift: I have a couple of comments.

It's true that the high foreign ownership element in the Canadian economy generally is an issue. Of course, it has been an issue throughout our history, and a challenge, because on the one hand we're bemoaning that our low productivity means we're getting less foreign investment, and on the other hand we're saying we have a high level of foreign investment. You can't suck and blow at the same time, although I guess we'd like to sometimes, but of course that foreign element does provide a lot of employment.

I might note that as far as the small firm sector goes, actually there have been a number of studies by StatsCan over the years that show, proportionate to their asset size, small firms actually have higher average R and D levels than a comparable large firm. Again, I'm sure it's the ownership structure that's at issue, because so many of our very large firms have their head offices elsewhere and—Mr. Turk is right—that's why they do their R and D wherever their head office is, or at least most of it. But relatively speaking, the R and D in the small business sector is actually disproportionately high relative to their asset base, compared to the large businesses.

I'm trying to look for solutions. It's a tough issue. We don't necessarily want to limit foreign investment, because there are a lot of pluses to foreign investment for us. So that's not a winner for us; it's cutting off your nose to spite your face. But I think also it's worth while to think from an employment standpoint. The data show that 50% of the employment that was created over the last ten-year period came from firms that didn't exist back in 1989.

In other words, if you're trying to subsidize businesses and use the grant/subsidy approach as your only approach, how do you do that to a firm that hasn't even started operations yet?

So we feel that measures should maybe focus more on encouraging young firms to start up—and a lot of those tax measures do have that beneficial factor. And financing is key. We've been before this committee on the financing issue many a time. I won't reiterate it now, but we do feel there's a lot that could be done on that front to help businesses of all sizes, for that matter, as well.

The Chairman: Dr. McLellan.

Dr. Barry McLellan: To pick up on the two points just made, Canada is a small player globally as far as the international pharmaceutical community is concerned. We're about a 4% player. You can say, well, it doesn't matter; we won't worry about it. I don't think we should ignore that 4%, because the international pharmaceutical industry wants to do business in this country and they are doing business.

But what's very fascinating—and I've elaborated on this in our report, which I'm sure no one has had time to read yet—is that the biotech companies that I referred to are small companies, and the small companies are able to respond and innovate much better than the big ones. That's why I was making the point that the foreign ownership issue is not a problem for us, because most of our activity now in the biotech sector, for example, on health research is happening right here in Canada with small companies.

So we're no longer being imprisoned by this branch plant economy argument to the extent that we were twenty years ago, or even ten years ago. Things are happening in this country now, and I would suggest that we need to look at that and nurture and facilitate that process, and increase the productivity of those companies, just as has been suggested here. These are small businesses, and that's where the action is.

Part of doing that is promoting an environment that allows these companies to flourish. Taxation issues have been mentioned, and regulatory issues, and so on, and it ties right back into the brain drain.

We're not going to agree today on what the numbers are, obviously, but wouldn't it be nice if we could create an environment in this country so that our sons and daughters would stay in Canada and have jobs in our own communities? That's what it's about. If we could create an environment to keep our young people in our communities, in our own provinces—or at least in a province in this country—and have them not leave, we would enhance our productivity.

The Chairman: Thank you.

Mr. Whyte.

Mr. Garth Whyte: I would like to make a comment. It hasn't been brought up, but I think it's a good question. Let's try to link it to health care.

The issue of cost recovery, the government's cost recovery strategy, is now being studied, and I think that's an issue the committee could be involved with or at least recommend on.

We have a coalition of 31 business groups and organizations, so it's an issue. A gentleman who has a large corporation in health care said the fees are the same; if they're going to pay fees and they're going to do development, they might as well do it in France or in the United States, because it's triple jeopardy if they pay a fee there and then pay a fee in Canada.

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According to our study, which has not been refuted and has gone right through Treasury Board, the fees in Health Canada over the last three years have gone up by 502% and are growing. How does that enhance our productivity? How does that enhance our R and D? How does that enhance increasing health care work and trying to do the actual research here in Canada?

As the gentleman said, our company might as well do it in the United States. We have better economies of scale. We'll do it there and pay the fees there. We can justify it. We can't justify it here.

So I think we have to look at our fee policies—are they a fee for service or are they just another fee? Why can't we accept, say, the kind of regulatory reviews of Germany or the United States or France? I think that's an issue we should look at.

Mr. Nick Discepola: Yes, I would like to also reassure the Chamber of Commerce and the Federation of Independent Business. One other comment the Prime Minister did make last night was that we will not return to deficit spending again. Now, you might see the spending going up, but I think that's a clear-cut, targeted area such as health care in the last budget, etc. But there will not be deficit spending, which is more of a concern, I believe, for you than to see increased spending.

Thank you.

The Chairman: Thank you, Mr. Discepola.

On behalf of the committee, I'd like to thank you very much. This is going to be a challenging issue, particularly from a communication point of view. One thing I notice when I discuss with ordinary Canadians who get up in the morning, work hard, and play by the rules and come up short at the end of the month is the fact that there's really no clear understanding of productivity per se. But what I found works a lot better is that when you explain the benefits of productivity vis-à-vis a more efficient economy, higher incomes, they have a clear understanding of that.

We, as members of this committee, can make some recommendations relating to fiscal monetary policy, tax policy, support for education and research and development. Another area we need to look at is, of course, how we let the market work better. We have to look at the issue of regulation and deregulation. We need to look at things and make the system a little bit more efficient. It's not to forget the fact that we do live in a global environment vis-à-vis trade, and that's also an issue that speaks to productivity. As other countries become more and more specialized in areas, the only way they can specialize and gain market share is through higher productivity and indeed specialization itself.

So we knew what we were getting ourselves into. This panel has obviously proved the fact that this issue is going to be an interesting one to look at.

On behalf of the committee, thanks again. The meeting is adjourned.