full publication - Business Council of Canada

FROM TODAY’S CHALLENGES
TO TOMORROW’S OPPORTUNITIES
Notes for an Address by
The Honourable John Manley, P.C., O.C.
President and Chief Executive Officer
Canadian Council of Chief Executives
The Summit on New Brunswick’s Economic Future
Moncton, N.B.
November 30, 2010
CHECK AGAINST DELIVERY
I am so pleased to be here today to participate in this great discussion on New Brunswick’s
economic future. I have enjoyed many public and private visits here over the years.
My daughter Rebecca is a graduate of the University of New Brunswick, so as a private citizen I
came to know the highway from Rivière-du-loup through Edmonston down to Fredericton very
well.
En ma qualité de ministre, je me suis retrouvé ici à plusieurs reprises. Juste dix ans passés lors
de ma toute dernière journée à titre de ministre de l’Industrie, j’étais à Fredericton pour
annoncer la création de l’Institut de technologie de l’information du Conseil national de
recherches du Canada. Et en 2001, j’ai terminé le « Marathon by the sea » à Saint John par une
belle journée d’été, ensoleillée et cuisante! Un souvenir mémorable!
Je crois que vous avez fait preuve d’intuitions remarquables dans le cadre des préparatifs en
vue d’un évènement de ce genre puisqu’il se situe dans le sillage de votre dernière élection
provinciale. Il s’agit du moment idéal pour dresser un inventaire et pour s’engager à aller de
l’avant en profitant des occasions qui se présentent.
Le premier ministre Alward débute son mandat avec un capital politique à dépenser. C’est la
bonne nouvelle. La mauvaise, c’est que peu importe combien songé, judicieux et intelligent il
peut être, il assèchera ce capital un de ces jours, une décision à la fois. Par conséquent, il est
important pour l’avenir de son gouvernement et de sa province qu’il dépense ce capital politique
de manière à procurer des avantages à long terme.
May I begin my remarks today by telling you something you already know. These are uncertain
economic times – for the world, for Canada and for New Brunswick.
If you operate a business in New Brunswick, there’s a good chance you’re running fast just to
stand still. Your customers probably aren’t spending the way they used to, and the high
Canadian dollar is hurting your exports.
New competitors keep coming at you from every corner, determined to eat your lunch. And they
aren’t based in Moncton or Bathurst. They’re more likely from Shanghai or Mumbai or Ho Chi
Minh City.
If you’re a worker in the private sector, job security is something you can’t afford to take for
granted.
A third of all manufacturing jobs in the province have vanished in the past decade. New
Brunswick’s unemployment rate is 9.8 per cent, up one and half points in just the past year.
The public sector has arguably had an easier time of it, but that may soon change. As Don
Drummond detailed this morning, the provincial deficit is unsustainably high and New
Brunswick’s public debt is growing at an alarming rate.
One of the world’s biggest bond rating agencies, Standard & Poor’s, recently cut the province’s
outlook from “stable” to “negative”. If you have been following recent events in Europe, you will
appreciate how powerful an effect borrowing rates can have, and how quickly spreads can open
up if creditors smell trouble.
Sooner or later, something is going to have to give.
2
In some ways, the situation I’ve just described reminds me of the early 1990s when I first
entered the federal Cabinet. In those years, Saskatchewan and Newfoundland were each facing
a fiscal crisis. There was talk around Ottawa that one or both might have to default or ask for a
federal bailout.
It’s called federal trusteeship, and it means that in return for financial help, the province
surrenders a lot of its ability to make decisions for itself. Instead, people up in Ottawa would
start calling the shots.
Again, the parallel to current problems in Europe is striking. An even bigger problem was that in
1994, the federal government was not in very good shape either.
I shall never forget the day when, on my way into a Cabinet meeting, David Dodge, the Deputy
Minister of Finance, told me that the morning’s Canadian government bond auction had been
“no-bid” with 30 minutes to go!
The federal deficit back then was the highest in the G7, except for Italy (thank goodness for
Italy!) and more than 36 cents of every tax dollar collected by Ottawa went to pay the interest on
the debt.
Now, believe it or not, my intention here is not to spoil your lunch. Even if I wanted to, I’m
probably too late. In this morning’s sessions you heard enough gloom and doom to last you well
into 2011. This should be helpful to Premier Alward. The first thing you need to do upon forming
a new government is to say, “Oh my goodness – things are much, much worse than I feared or
expected!”
Instead, what I’d really like to do is to provide some context for your discussions this afternoon –
and maybe even some reason for optimism.
After all, Newfoundland and Saskatchewan have each staged a remarkable economic
resurgence since the mid-1990s. As has Canada’s federal government.
If it can happen elsewhere, it can happen here, too. I believe it, and I know you believe it, too.
That’s why you are here today, helping to build the foundations of a stronger, more prosperous
New Brunswick.
A process that starts by squarely facing the facts – by discussing honestly and openly the
problems confronting New Brunswick’s economy, and then working together on a strategy to
turn things around.
So let’s talk about the context for a few minutes. What’s happening in the world beyond New
Brunswick’s borders, and what does that imply for the province’s future?
La première observation que je ferai – et d’autres ont déjà abordé ce point – est que la solution
aux problèmes qu’éprouve le Nouveau-Brunswick n’émanera pas d’Ottawa.
Vous savez déjà qu’une somme de 4 $ sur chaque tranche de 10 $ dépensée par le
gouvernement du Nouveau-Brunswick provient des paiements de transfert fédéraux. Comme
David Ganong et Camille Thériault l’ont mentionné, le gouvernement fédéral est aux prises avec
ses propres difficultés financières, ce qui signifie, dans l’hypothèse la plus optimiste, plusieurs
années de compressions des dépenses et d’austérité à l’échelon fédéral.
3
Fiez-vous à moi, en tant que Canadiens vous souhaitez que les fonctionnaires fédéraux
témoignent d’une discipline financière et reviennent à une situation d’excédents budgétaires dès
que possible. Aucune province ne peut avoir une meilleure cote de crédit qu’Ottawa.
On top of that, the current federal-provincial accord on health funding is set to expire in 2014. If I
were a betting man, I’d wager that Ottawa isn’t going to be nearly as generous next time around
as it was in 2003, back in the days of big federal surpluses and solid economic growth.
So if you can’t look to Ottawa, what are the chances that New Brunswick can look south for an
economic boost driven by strong exports to the United States? Not great, I’m afraid – at least
not for the foreseeable future.
Leaving aside the exchange rate, the American economy is still dealing with a number of
extremely serious problems: huge fiscal and trade deficits, a depressed housing market and
chronically weak consumer spending.
Those problems, in turn, have led many Americans to turn inward. Protectionist sentiment is
running high. Conventional wisdom held that Republicans were more for liberalized trade than
Democrats, but the newly elected right-wing Republicans are actually more likely to make
common cause with the left-wing democrats on trade policy and be more protectionist than we
would like.
In the past, the U.S. economy has tended to come roaring out of recessions – to the very great
benefit of workers and employers in Canada. This time around, the American economic engine
is sputtering badly.
No-one should ever doubt the capacity of the United States and the American people to adapt
to changing circumstances and overcome difficult challenges. Uncle Sam will rise again. But it’s
going to take time. And that means New Brunswick exporters probably shouldn’t expect a return
to good times and healthy cross-border shipments any time in the near future.
S’il y a une leçon que les Néo-Brunswickois et les autres Canadiens devraient tirer de ceci,
c’est que la diversification commerciale prend de plus en plus d’importance. Voilà pourquoi
l’organisation que je dirige a été un si fervent défenseur des négociations actuelles en vue d’un
partenariat économique entre le Canada et l’Union européenne.
L’UE doit relever ses propres défis économiques ces jours-ci, mais ses 27 États-membres
représentent collectivement le plus imposant marché unique du monde entier et sa principale
source d’investissements à l’étrangers.
C’est, et de loin, la plus importante initiative commerciale que notre pays ait entreprise depuis
l’ALÉNA au début des années 1990, et la première fois de l’histoire que l’UE est disposée à
négocier un accord de libre-échange avec un pays développé. Il s’agit donc d’une excellente
occasion pour les entreprises du Nouveau-Brunswick et de l’ensemble du Canada.
Si vous exploitez une entreprise dans la province, je vous recommande vivement d’envisager
les possibilités que signifient un partenariat entre le Canada et l’UE pour votre entreprise.
4
Another potential source of new opportunity is India, one of the emerging economic
powerhouses of the 21st century. India is home to 15 per cent of the world’s population, has a
middle-class population of more than 250 million, and is on track to overtake Japan as the
world’s third-largest economy by 2050.
Here again, the potential for exporters in New Brunswick and elsewhere is huge. Unfortunately,
other countries are well ahead of us in seizing this opportunity. For example, Canada’s
economy is 50 per cent bigger than that of Australia, yet we do only one-third as much trade
with India.
That’s simply not good enough, as I am sure you will agree. For that reason, I welcomed Prime
Minister Harper’s announcement earlier this month that Canada has begun negotiations toward
an economic partnership with India.
It is my hope that these talks will not only address some of the impediments to closer CanadaIndia economic relations, but also will help to sharpen the focus of our business community on
the remarkable transformation that is taking place in emerging markets throughout the Asia
Pacific region.
I said that I wanted to provide a bit of context for your discussions today and tomorrow – to
highlight some of the domestic and international trends that will help to shape the future of New
Brunswick.
Without a doubt, the most important of these international trends is the momentous shift of
economic and geopolitical power toward Asia. Some have called it the most important
rebalancing of global wealth and power since the Industrial Revolution more than 200 years
ago.
The scale of this change is staggering.
Only a few decades ago, China, India, South Korea, Taiwan and Singapore were among the
world’s poorest countries. Today they are among the fastest-growing economies on earth. And if
current trends continue, by 2030 Asia’s economy will be larger than that of the United States
and the European Union combined.
We used to think of China as a largely rural country. In fact, the urban population has increased
from 254 million in 1990 to 633 million today. In another 20 years it will be close to a billion.
As recently as 2006, China was only the seventh largest consumer market in the world –
smaller than Italy. By 2014, it will be second only to the United States.
No matter what industry you’re in, the implications of this are profound. Already, China is the
world’s largest market for automobiles. Think about that: General Motors now sells more cars in
China than in the United States, and within a couple of years Audi expects to be selling more
cars in China than in Germany.
Procter and Gamble, the company that makes Crest, Tide and a wide range of other household
products, has set its sights on winning 200 million new customers each year for the next five
years, the vast majority of them in China and India. That’s more than half a million new
customers every day!
5
I could go on, but I think you get my point. The world’s economic centre of gravity is shifting, and
it’s shifting faster than most of us can comprehend.
So what are the lessons here for Canada, and for New Brunswick in particular?
The first, and in many ways the most obvious, is that none of us can afford to sit back and
ignore the rapid changes that are taking place in the international economy.
The good news if you run a New Brunswick company is that the number of potential customers
for your products is exploding. The bad news is that virtually all of those customers live in parts
of the world most of us know very little about.
We have got to change that.
New Brunswick needs to develop a strategy of economic integration into the global marketplace,
and New Brunswick companies need to reach out more vigorously to emerging markets such as
China and India.
Some can and are doing this directly, while for others the key will be to become a preferred
supplier to larger companies that are already engaged in global supply chains.
Here’s an interesting statistic from a recent study: currently, only nine per cent of Canada’s
small and medium-sized companies – firms with fewer than 500 employees – are involved in
exporting.
In Atlantic Canada, the number was even lower – eight per cent. And even that probably
overstates their international exposure because it includes firms that export only sporadically.
Economist Benjamin Tal of CIBC, who conducted this study, concluded that Canadian SMEs
“have not responded to globalization in a way that optimizes their long-term growth potential and
their contribution to the Canadian economy as a whole.”
He also pointed out that Canadian companies are well-positioned to take advantage of the
reorganization of production at the international level. The trend toward outsourcing and the
fragmentation of production creates new opportunities for SMEs, and provides them with access
to global markets at lower cost.
The key to success, Tal said, is specialization. Find your niche, embrace innovation and stay
flexible.
And yes, New Brunswick faces many challenges. But it can also lay claim to some significant
advantages.
According to KPMG, labour and total operating costs are as much as 20 per cent lower in this
province compared to the average costs across the G7.
I don’t need to tell you about another one of your advantages: the high quality of life in New
Brunswick. You also have one of the best high-school graduation rates in Canada, and a third of
your workers is fluently bilingual.
6
Your digital broadband infrastructure is among the most advanced in the world, a hugely
important consideration in an age in which speed, agility and innovation can overcome distance
to market.
New Brunswickers are also realistic. They know – and this summit is an expression of it – that
the future prosperity of this province does not depend on increased public spending.
Economic progress must come in large part from within. And in particular from the energetic
young entrepreneurs who choose to stay here while pursuing their dreams.
Entrepreneurs such as Greg Hemmings of Hemmings House Pictures, an international media
production company based in Saint John.
Or Isabel Gagné and Pierre Pelletier of Olivier Soapery in Ste-Anne-de-Kent, a family-owned
business that is in the process of going national.
Or Kevin Comeau of KLC Management in Bathurst, which has invested in a trio of companies
that together employ more than 125 people.
Ce ne sont là que trois exemples, mais il en existe évidemment bien d’autres. Des
entrepreneurs d’ici qui se retroussent les manches et qui bâtissent les entreprises de demain.
Des jeunes hommes et jeunes femmes créatifs qui portent un regard sur l’extérieur et qui
profitent des occasions qu’ils y découvrent.
Bien entendu, aucun discours comme celui-ci ne serait complet sans un commentaire sur le rôle
et la responsabilité du gouvernement. J’ai toujours été d’avis que les Canadiens sont beaucoup
plus portés à tomber dans le piège de croire que, en présence d’une difficulté, le gouvernement
serait là pour rectifier le tir. Mon expérience m’a dicté une leçon quelque peu différente. Le
premier défi de l’État est d’éviter d’empirer la situation.
J’estime que les principales responsabilités du gouvernement en matière de développement
économique sont l’aménagement et la tenue à jour d’une infrastructure, parfois en partenariat
avec le secteur privé, et l’enseignement public.
Last week I was in Germany where I was learning about the German system of innovation,
something we Canadians should admire and seek to emulate. The high quality of Germany’s
system of public education was emphatically a key factor in that country’s success.
While positively contributing through investments in infrastructure and education, it is also
important for government not to impede innovation and investment in the private sector. Low
rates of taxation on capital and corporate income are important if you hope to create jobs and
growth in your province. Predictable regulation that protects public health and safety without
stifling entrepreneurship is another factor.
Let me close by again quoting David Ganong and Camille Thériault: “It is the hard work and
ingenuity of New Brunswickers in every corner of this province that will create the economy we
want to share.”
Thank you, and I wish you success in defining a progressive, prosperous future for this great
province.
7