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"The Challenges of the Canadian Economic Union"
Notes for an address to the
Canadian Chemical Producers' Association
Ottawa, Ontario
November 20, 1996
In many ways, the industry you represent resembles the Canadian federation. It
has grown by drawing strength from natural resources scattered throughout
different regions; it has overcome barriers posed by distance and climate and
has expanded processing and distribution networks throughout the country to
serve the host of industries manufacturing hydrocarbon- and mineral
resource-based products. By its very nature, the industry brings considerable
added value to raw materials through successive processing phases, until the
product ultimately reaches the consumer. It is difficult to imagine our
day-to-day lives without the thousands of objects manufactured from
petrochemical or mineral materials.
The chemical industry has an important place in our economy; it is now one of
the five leading industrial and manufacturing sectors and a major job creator,
because of the diversity of sectors it directly or indirectly supports. And yet,
it has not acquired that leading position without taking on major challenges,
including the energy crisis, environmental awareness, penetration by competing
products, and economic and market globalization. Because of those internal and
external pressures, the industry has undertaken major restructuring and
substantial investment in technology, research and development, and training.
Because of its high capital coefficient, its future and its position in the next
century inevitably hinge on achieving a better return on investment and becoming
more competitive.
As business leaders in the chemical and chemical products industry, you are
thus well positioned to appreciate that the Canadian federation is following a
similar path, and that it is up to us to make it more efficient so that it can
serve citizens and socio-economic sectors even better. Our federation has
demonstrated its ability to adapt flexibly as major issues evolve and generate
new needs. It is true that we have difficulties, which we cannot ignore; they
stem mainly from the risk of secession and the resulting socio-political
uncertainty. I am convinced, however, that we will overcome those difficulties,
because we have the ability and the will to do so, by working together -- all of
us, including not just the government and the public sector, but the private
sector as well, and all of civil society -- to convince all Canadians that they
will ensure the best possible future for themselves by building on the strengths
of our federation and remedying its weaknesses. We will convince them by making
changes to yield tangible results of prosperity and hope. That's why I believe
in the future of our federation and our country, just as I believe in the future
of an industry such as yours.
It is not enough to say that our federation has a promising future; we must
put every chance on our side so that that future becomes a reality. To do that,
we need to look at what Canada has become today, at the reasons for its success,
at its strengths, at the challenges facing it, and at what we can do to make our
federation better and keep our country united.
Canada: a model of human achievement
If we stop to measure how far we've come since Confederation, 129 years ago,
we see that Canada has become one of the greatest human achievements of our
century. You are aware, as I am, of the UN and World Bank indicators that speak
volumes of our collective wealth and give our country top marks among 174
countries in various aspects of socio-economic activity. We are number one in
terms of quality of life, number five among the industrialized countries in
terms of per-capita income, number eight in terms of life expectancy; our
inflation rate has been the second lowest among G-7 countries in the past three
years; the World Economic Forum ranks us eighth among the 48 most competitive
countries, and, according to a study by the KPMG firm, business can be done at a
lower cost in Canadian cities than in American cities. Moreover, that's not the
only advantage our cities have over our neighbours to the south. In an
international survey by the Swiss organization Corporate Resources Group,
comparing 118 cities in the world on the basis of 42 economic, social and
environmental indicators, the front-runners included Vancouver (in 2nd place),
Toronto (4th), Montreal (7th), and Calgary (12th). Our large urban centres have
their difficulties, and face major challenges, but they have succeeded in
becoming models of cultural co-existence, and they provide their inhabitants
with a level of security and a quality of life that are difficult to find
elsewhere.
We owe all these achievements not only to our resources, our climate of peace
and stability, our proximity to major world markets, and our traditions of
democracy and respect for the rule of law. We owe it also to the synergy of our
institutions, our social solidarity, our economic union, our harmonious
cohabitation of cultures within a common citizenship. That is what the Canadian
federation and Canada are all about.
It is true that we are still vulnerable in a number of fields. Our
unemployment rate is still too high, we have too much poverty. We have nothing
to be proud about, living in one of the wealthiest countries, to see ourselves
ranked one of the worst OECD countries with respect to child poverty. We still
have work to do to take on the challenges facing societies and economies in all
countries, and also to reach out to those excluded from economic growth and help
them to participate actively in our collective progress toward prosperity.
Looking at things in perspective, however, it is difficult to deny that
Canada ranks favourably against other wealthy countries and that it is still
responding to the aspirations and ambitions of millions of people in Quebec, the
other regions of Canada, and even abroad. Canada is also responding to the needs
of even the most mobile industries, in terms of socio-economic and cultural
environment, access to resources and major world markets, human capital, and
other factors of competitiveness.
The major strengths of the Canadian federation
It has always been noted that Canada's major strengths lie in its abundant
natural resources, its remarkable social mobility and its peace-driven economy.
In a context of opening markets, disappearing borders and a growing number of
countries entering the global economic system, we need to recognize that those
strengths, while still present, are perhaps less exclusive.
With today's transport means and infrastructures, natural resources are no
longer a dominant economic advantage. Moreover, as you well know, modern
products and materials are so composite that it is practically impossible for
producers to have all the natural resources they need within a close proximity.
They may have some, which they can always count on, such as electricity and
energy, but, more and more, they have to obtain the rest of them in different
regions of the world. Having natural resources is thus still an advantage for
Canada, and we must continue to invest in our resources, but we have to realize
that that advantage no longer carries the same weight.
Social mobility is an important factor, because it gives access to a larger
and richer pool of human resources. It is an advantage that traditional
societies, notably in Europe, did not enjoy for a very long time, because of
class barriers that prevented a large portion of talents from being expressed.
Such was not the case in North America, where societies were much less
hierarchical. Sociologists now tell us that social mobility is no longer
specific to our continent, and is thus no longer one of the variables in our
favour.
As for our choice to invest in a peace-driven, civilian economy rather than a
military one, that same tendency can be seen elsewhere. Many countries now
realize that the key to truly productive use of available resources, no matter
how scarce, lies in channelling military spending into economic and human
development infrastructures.
We thus need to keep in mind that other countries have the same advantages.
Dozens of countries, which, like Canada, can now enable the rest of the world to
benefit from their natural resources, have a comparable level of social
mobility, and are reaping the fruits of a civilian economy. And all those
countries, no matter what continent they are in, are now facing, perhaps to
varying degrees, the same socio-economic issues, the same inescapable forces of
globalization and interdependence. In that context, each country has its own
challenges to grapple with and must rely above all on its strategic strengths to
take on those challenges successfully.
One of the great strengths which Canada must build on, and which other
countries are seeking more and more in today's socio-economic context, is being
a federation. More than ever, we need to reconcile the global and local aspect
of things, and federal systems are meeting that need. Federations also have the
advantage of being more competitive than unitary systems, where the centre is
often suffocated by responsibilities. It's no accident that four of the five
richest countries in the world -- Canada, the United States, Germany and
Switzerland -- are federations. As a federation marked by solidarity and
generosity, the Canadian federation, which is one of the most decentralized in
the world, also builds on local strengths, on adapting to the needs of each
region and each province of the country. Three years ago, all of the provinces
had budget deficits. Each of them has dealt with that problem in its own way,
through its own strengths and its own culture. The method used by Conservative
Premier Klein has not necessarily been the one used by New Democratic Premier
Romanow or Liberal Premier McKenna. Today, seven provinces have balanced their
budget or are showing a surplus. Ontario and Quebec are also actively working to
put their fiscal house in order, each in its own way.
Thanks to the discipline and courage of Canada's citizens and their
provincial and federal governments, we are now able to take on major challenges
on solid foundations, with lower-than-ever interest rates, an almost
non-existent inflation rate, public finances under control, and a strengthening
Canadian dollar. We knew that any measures to preserve our gains and our social
programs would be futile if we did not get our public finances in order, and so
that is what we have done, as Industry Deputy Minister Kevin Lynch has so ably
illustrated.
And the outlook for next year is just as encouraging. According to the Bank
of Canada, the Canadian economy has sufficient additional capacity to absorb
strong activity and job growth in 1997. The OECD and the World Trade
Organization have given Canada very high marks for its reforms, which have
enabled it to improve the performance of the Canadian economy, especially in
terms of a lower inflation rate and deficit reduction, which has translated into
successive drops in interest rates and an appreciable improvement in Canada's
international competitiveness. The OECD predicts a rate of growth of 3% for
Canada in 1997, and an average of 3.4% between 1997 and 2002.
Clearly, those encouraging forecasts assume that we will continue to improve
our federation by building increasingly on our strengths and our potential. The
federal government is working to do just that, by implementing its plan for
reform set out in the Throne Speech in February. The plan is designed to clarify
the roles of the two orders of government, through reforms in a wide variety of
fields, including mining, forestry, social housing, labour force, and use of
federal spending power. First and foremost, our goal must be a federal
government that is strong in its areas of jurisdiction, provinces that are
strong in theirs, and a strong partnership among all of them.
The burden of uncertainty
All the conditions are in place for us to look to the future of Canada and of
Canadians with confidence. Now that we are getting our economy back on track and
preparing Canadians to enter the 21st century with the tools they need to
succeed, it is irresponsible for the Government of Quebec to perpetuate
uncertainty regarding the possibility of secession.
Uncertainty is hampering the smooth operation of business and the economy.
The business community has said so repeatedly, particularly during discussions
on the revitalization of Montreal at the recent Quebec socio-economic summit.
While celebrating the fact that some sectors are doing well and that Quebec's
metropolis has all the ingredients for success -- vigorous entrepreneurship, a
skilled labour force, abundant risk capital, and direct access to major markets
-- business leaders noted that Montreal was experiencing considerable difficulty
as the only major city in Canada and the U.S. that has to deal with political
uncertainty, which has a substantial impact on its competitiveness and,
accordingly, on job creation.
In fact, Montreal and Quebec are not alone in that regard. You yourselves, in
your report on Canada's competitiveness for the chemical industries, use factors
for competitiveness published in the World Economic Forum's annual report on
global competitiveness, namely economic and fiscal environment, reliability of
the financial community, physical and human infrastructure, research and
development environment, internationalization, and other similar criteria. You
conclude that Canada is in a very good position despite the unfavourable
exchange rate, and that governments have regained control of public finances. On
the other hand, however, you highlight the socio-political uncertainty
surrounding Quebec's future within the federation, from your vantage point as
investors.
It is not at all surprising that the threat of secession is a source of
uncertainty. Indeed, we are not the only ones to fear that uncertainty. Quebec's
separatist government acknowledged that itself, in its own fashion, by revealing
the existence of a "Plan O", under which it was prepared to use $19
billion of Quebecers' savings to try to buffer the effects of a vote in favour
of secession. Incidentally, it is very likely that the Parizeau government would
have failed. As Finance Minister Paul Martin and my colleague in the National
Assembly, Jean-Marc Fournier, have noted, trillions of dollars change hands each
day on currency markets; other countries' experiences with currency movements in
times of crisis have shown that a reserve of that size would not have been able
to stop or even slow down the devaluation of the dollar. What is even more
disturbing, however, is that, first, Quebecers' savings were jeopardized for a
political project, and, second, it was never revealed to Quebecers during the
referendum campaign that their savings would be put at risk in that way. That's
perhaps the worst example of intellectual fraud that the YES leaders committed,
and it must not be forgotten.
In spite of the palpable uncertainty imposed by secession, we will continue
to work in cooperation with Quebecers' legitimately elected government, and with
all partners, to get Quebec's economy back on track. That's what Finance
Minister Paul Martin, Human Resources Development Minister Pierre Pettigrew,
Secretary of State for the Federal Office of Regional Development Martin Cauchon
and Industry Minister John Manley, who all take Quebec's and, in particular,
Montreal's economic recovery very much to heart, are all doing.
Our $87 million repayable investment to Bombardier is an example of that.
That Montreal company is a world leader and a key economic strength for Canada
and Quebec. Aeronautics is a sector where companies have to be on the cutting
edge of progress to remain competitive. Even though Bombardier is profitable
today, you know that it is not in the type of industry where it can rest on its
laurels. Competition is fierce, and other countries strongly support their
economic powerhouses, much more than we do here.
As Mr. Manley has said, we will not turn our backs on Montreal, not just
because we want to help Montrealers and Quebecers, but also because Montreal is
one of the main engines of the Canadian economy. That repayable investment will
be profitable for the whole country, and we are happy to be doing this in
Montreal, a great Canadian city whose development is also profitable for the
whole country. As Prime Minister Jean Chrétien says repeatedly, it is
imperative that the federal and provincial governments work together to bolster
confidence and hope among all Canadians.
While it may not be the whole solution, part of the solution, at least, and
one of the ways to help bolster confidence and reduce uncertainty, would be to
convince Quebecers that their difference is fully accepted and recognized within
Canada. I hope that we can convince other Canadians to send Quebecers that
positive message of recognition, by telling them: "With your own culture
and distinctiveness, you are a fundamental characteristic of our country."
If we succeed in sending that positive message recognizing Quebec's
distinctiveness, we will have taken a major step toward reconciliation and
political stability. But this is not something that governments can accomplish
on their own; we need your help. As business people and opinion leaders, you can
contribute a great deal to the process of national reconciliation. Once we have
eliminated any threat of secession, we will have better conditions for dealing
with the challenges that will be the milestones along our path into the next
century.
Challenges
And there are many challenges. I could talk about the aging of the population
or the demographic explosion in Aboriginal communities, and the socio-economic
pressures exerted by those phenomena. I could talk at length about the growing
need for a highly qualified labour force, in the face of advanced technology and
international competition. So many developing countries now offer cheap labour
that our labour force must be trained accordingly if we want to be able to
remain competitive and continue to offer the wages and quality required by our
Canadian standards. That's why my colleague Doug Young established in May a
framework for action, which Pierre Pettigrew is actively negotiating with the
provinces, very successfully, I am sure.
I could also talk about environmental protection, which is a global issue,
for citizens and industry alike, especially yours. Environmental harmonization
is a key issue in that respect, and the federal and provincial governments are
now negotiating an agreement that will establish, among other things,
environmental protection mechanisms. What is important, above and beyond
questions of jurisdiction, is that government and business work together to be
effective, so that present and future generations have access to a high level of
environmental quality.
I could talk about support for exports, which we must strengthen in the face
of market globalization. I know this is in area which concerns you and makes up
a substantial portion of your production. When it comes to winning new markets,
such as Russia, or Asia, or Central and South America, embassies of other
exporting countries help their businesses in a very dynamic way. We are striving
to do the same in Canada. If you have any suggestions on how our embassies can
be more active in this regard, we're very interested in hearing them. Helping
you to export is a priority of the Government of Canada.
I could elaborate on all those issues, but I'd like instead to talk about
another extremely important issue, namely our economic union. What I want to
emphasize in the time remaining is the need for a solid economic union among
Canadians and for a reduction in interprovincial barriers and obstacles that
still exist despite our Agreement on Internal Trade.
Even though international trade is growing more quickly than internal trade,
an upward trend is being observed in interprovincial trade. Those two trends are
closely linked in terms of Canada's competitiveness: to maximize our export
potential abroad, it is essential that we be competitive and effective at the
national level. To give you an example of the dynamic nature of our economic
union, I would refer to a study by John Helliwell of the University of British
Columbia, which shows that a province trades on average 20 times more with
another province than with an American state, after the effect of size and
distance is adjusted.
Even in this era of market globalization, borders are still important, and we
owe our high degree of economic integration to our sharing of common public
institutions: an integrated banking system, a single currency, a common
regulatory framework, and well-established relations among provinces, businesses
and individuals. And we also have something called national solidarity.
We must therefore maintain our political union if we wish to keep a strong
economic union. And that economic union must be made even stronger. The trade
barriers that still exist among the provinces are undermining one of the
original objectives of our federation, which is to ensure the free movement of
goods, services, labour and capital throughout Canada. Indeed, they are
weakening our economic union and our international competitiveness. The Canadian
Chamber of Commerce estimates that internal trade barriers cost Canada 1% of GDP
a year, or close to $7 billion.
The Agreement on Internal Trade, which came into effect in 1995, is one of
the key elements of our economic union and of renewing the Canadian federation,
covering almost all sectors of the economic union. Nevertheless, there are still
too many barriers hampering its effectiveness. For example, we can do much
better in terms of harmonizing standards across the country; dispute resolution
procedures could be simplified and improved; and application of the Agreement
could be extended by using trade rules compatible with our existing
international commitments. To do those things, we need the provinces'
cooperation, and my colleague Mr. Manley is trying to make headway toward that
goal. Progress is being made, but there needs to be more, and it needs to come
more quickly. I know that your industry, like others, is counting on an even
stronger and more effective economic union to boost its national and
international competitiveness.
Conclusion
Those are thus the major challenges we must take on together if Canada is to
continue to meet the aspirations of 30 million Canadians and many peoples in the
world. Our country has become a model of human achievement because our
federation has shown that it can build on its strengths and adapt to evolving
national and global issues. Thanks to the work and perseverance of Canadians and
their governments, we have put our fiscal house in order, and our businesses can
now count on a more healthy economic environment that is more conducive to
growth and job creation. Economists' predictions for the next two years are very
encouraging, and we can look to Canada's future with confidence. But we must
look beyond our traditional strengths, and explore, as you are in your
businesses, new avenues that will enable our institutions to serve Canadians
better. The reforms the federal government is implementing to improve our
federation further are geared toward that goal.
I will conclude by noting that there are two ways to interpret the political
crisis we are currently experiencing. The first is that the existence of a
strong separatist movement in Quebec would indicate that the Canadian federation
doesn't work. The second, which I subscribe to, is that the Canadian federation
works well, although it can be improved, and that it would work even better if
Quebecers and other Canadians decided resolutely to look to the challenges of
the next century together, within a great, united federation. We would not be
subject to the tensions and costs of the political uncertainty linked to the
threat of secession. That threat will not disappear by itself; we must convince
Quebecers and other Canadians to achieve reconciliation. This is a process that
concerns not only governments, but you as well. It concerns all Canadians; we
all share in the responsibility for the future of our country.
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