What's wrong with Canada? A business view.
Most of us don't often get a chance to hear business people talk about their work and beliefs in a relaxed and informal atmosphere. For Inroads' fifth roundtable, we assembled six business people, four from the dot-com world, to talk about doing business in Canada. The following is an edited version of a discussion that took place in Toronto, on January 18, 2000.
Inroads: What's wrong with Canada?
John McCallum: I think most things are right about Canada. You can question this thing you hear about Canada being the best country in the world, but we certainly are one of the best. That having been said, I think the challenge is to preserve a distinct identity when below us is this colossus with its huge magnetic power to draw our people and companies southward. Our challenge is to remain competitive with that country while at the same time not being gobbled up by it. So, we can't let the gap in taxation between Canada and the U.S. get bigger and bigger. But we do, finally, have some money in Ottawa with which to address that issue, so I think the outlook is fairly positive.
Dan Richards: I agree, but I think there are risks if some of the trends continue. We have a social safety net that most Canadians would not want to give up, but we suffer from a growing perception -- in which the media is playing a role -- that we're a boring backwater and that people who stay here can't make it in the U.S. I think it's a fallacy, but ultimately perception becomes reality.
Barbara Moses: I work a lot with young knowledge professionals and I don't hear them expressing a desire to go to the States. For the most part, they like and value what they have in Canada. My concern about this country is homelessness and child poverty.
Morgan Smyth: Canada compares to any country in the world, but it can be better. We live in the shadow of a giant. We need to instil more self-confidence, we should be proud of who we are, and we should cultivate elitism and heroes like the U.S. does. There are a lot of greatly talented people here, but we're too quick to criticize and very slow to praise. I've gone tot to toe with Americans in business and, on a per-capita basis, we are probably more competitive. We're better educated overall and we have a more consistent standard of living.
Colleen Moorehead: I would say we need to do more incenting of people and business to foster an entrepreneurial environment where business can grow. We have to do some of the things we see in the U.S. The government has talked about stock options for high-tech companies and that's a positive step, but irk a long way from what needs to be done. We need to change the tax regime to allow people to make and keep personal wealth.
Moses: I think it's our role to contribute back to society. I'm actually happy to pay taxes and I don't feel it's a disincentive to success. I've received tremendous benefits, like a subsidized education.
McCallum: Barbara may not feel overtaxed, but the gap between Canada and the U.S. is getting larger, and the U.S. is going to cut taxes, so if we don't do anything it will get larger still. It's true that the brain drain is no larger than it's been in the past, but if the gap gets much bigger, you risk the exodus of many of our brighter people. I also agree that most Canadians, including myself, want to devote significant resources to major social problems like helping the homeless. The good news is that we can do both. We're accumulating surpluses in Ottawa -- I don't think we have the money for a national pharmacare program, but we do have enough money to address issues of the homeless and Aboriginals, and we would still have enough left to reduce the tax burden.
Richards: When you talk about the brain drain and punitive taxes on stock options, you're talking primarily about the high-tech sector -- which is not trivial, but it's still by far the smaller part of the economy in Canada and the U.S. The media is so focused on that particular group it's created a distorted perception that we pay an egregiously high price for staying in Canada. When you look sector-to-sector, the gaps are much lower, much more manageable. A lot of Canadians are prepared to make a sacrifice of 10 or 20 per cent. When differentials reach 50 to 80 per cent, then it's tough to resist going south.
McCallum: You're in high-tech, but I tend to think it's a little more important than you say. For all but two industries, our productivity growth has been, on average, a bit higher than in the U.S. But if you look at productivity growth in manufacturing and in the information-related industries, we've been lagging quite badly. These two industries explain more than all the gap in productivity growth between the two countries.
Moorehead: Our organization is continually losing people to the U.S. for better salaries and better equity participation packages.
Richards: I suspect the same is true for virtually any country. Silicon Valley is a magnet. The question is, is the problem primarily a tax gap or an opportunity gap?
Moses: Silicon Valley represents the pinnacle of research. Money is part of the picture, but it's also about challenge and opportunities for development. We tend to micromanage people. When someone wants to take a course, they have to go begging cup in hand.
Richards: Is it any different at Wells Fargo or City Group?
Moses: I would say that, overall, American organizations are a little more creative in providing non-traditional perks or rewards for young workers.
Smyth: They have to attract employees, so they treat them like customers. Right now, something like 10 per cent of all the high-tech jobs in the U.S. are unfilled -- and the average tech in Silicon makes about $250,000 U.S. It's not so much the volume we're losing, it's the quality. We're losing the brains of our country.
Evan Solomon: Is it taxes, or is it things like profit-sharing and stock options? If I'm getting paid 100 grand at 49 or 52 per cent tax here, and I am offered 100 grand at 37 per cent tax in New York or California, I'm not going to move. There has to be something else, a stock option or a potential for an IPO [initial public offering].
Moorehead: There's also more venture capital in the U.S. I don't think that's an issue our government can solve, but there are things we can do to help create a better environment for technology startups in Canada.
Smyth: It's also that, if you get the opportunity, you want to play with the A-Team. We're in Toronto because it's more challenging, stimulating and competitive than, say, running a fishing lodge in Kapuskasing.
Solomon: Why don't you move to New York?
Smyth: I've been asked to several times. We just won a major contract in New York equal to our whole year's revenue. The talent in our company is extremely high -- we were just honoured with two awards by IBM Canada for being their best partner in the world. We're 17 people and we beat out EDS and Systemhouse. We may move to the U.S. If we took our talent down there we could run circles around them.
Moorehead: The question is how to create the A-Team here.
Moses: I think we are an A-Team.
McCallum: The challenge is to create an environment hospitable to more A-Teams.
Moorehead: But what can the government do? It can cut taxes -- then what? It's easier to get venture capital in the U.S. Something that would be valued here at $100 million would be valued at $800 million there. And the person who is offered an $80,000 salary to move down there will get stock options. So it's quite an easy decision to make.
Solomon: The business culture here is so conservative, so risk-averse. Shift had to raise a fair bit of money -- it was a nightmare: "You're young. What do you guys know? What's this Internet stuff? Get suits on. What's your track record?" I have a friend who does really well on Wall Street. I'm pretty successful here; he is wildly successful there. He says, "I couldn't do this in Canada because they hate youth. In America, no one cares that I'm 30 years old."
Richards: I've run my own company for 10 years. Four years ago we wanted a $100,000 line of credit from a bank that we'd had a relationship with for six years. They asked for financials going back five years, cash-flow projections, and on and on. At the same time, Wells Fargo offered us a line of credit, no questions asked, based on having been in business for five years or longer, and meeting a certain revenue sum. All we had to do was sign it and send it back.
Moses: I know many people who run small businesses who end up saying, "I can't continue, I'm not getting money from the banks, no one is prepared to take the risk."
Solomon: All my friends have moved to the States. I own a house here that is twice the size of their apartment in downtown Manhattan. But their opportunities are just more exciting. So why should we stay? We look for answers every day.
Moses: Why do you stay?
Solomon: I have a group of about 10 friends, all young entrepreneurs who have started pretty successful companies. We've outgrown Canadian investment. Every one of us has gone to the U.S. to get money. But in my business, them are freedoms I would not have in the U.S. I just did some programming at NBC. They have to appeal to six million people and I have to appeal to 600,000. I can be really smart here, they have to dumb down. That's not a satisfying job experience. My partner in the magazine lives in Manhattan, but he hasn't pulled up his roots. Why? Loyalty to Canada. The opportunity to change Canada.
McCallum: We have less crime, we have our health-care system, we don't have capital punishment, we have fewer gated communities -- those are the reasons I choose to live in Canada. But I'm not sure the younger generation shares my generation's reasons for preferring Canada, and, if you read polling evidence, they don't to the same extent. When I was 18, if someone mentioned the United States, I thought of Vietnam or race riots. My son is 18 and he'd probably think "opportunities" or "cool." His generation has a more global orientation, has information from every part of the globe at the touch of a button, and doesn't share the anti-Americanism of many older Canadians.
Moses: I do a lot of work with younger people. They certainly have a global perspective, but when they think about education or safety or raising a family, they prefer Canada. My son is 17 years old and sees himself as neither Canadian nor American -- "globalish," he says. He loves what would be available at Columbia or NYU, but there's no way he would go to school in the States. He prefers the values he would find in Montreal or Toronto.
Solomon: I think values are underrated as something that motivates people. It's really hard for me and for a lot of my peers to work for a company like Nike that is paying workers in Indonesia 37 cents an hour while the markup on their sneakers is 450 per cent. That's hard money to take. One of the reasons for starting a company is to make sure that the values where you work match the values inside you.
Moorehead: But the reasons you stay -- the education system, the medical system, Canada's quality of life, all the things that you value -- do you think they're sustainable? Will they exist for our kids, given the wealth creation coming out of the private sector? Or are we all going to slowly sneak away?
McCallum: Let me give one statistic. In 1990, personal disposable income per capita, adjusted for purchasing power, was maybe 80 per cent of what it was in the U.S. It's now about 63 per cent. We can't go down that path for very long without running into serious trouble. And let me quote John Kenneth Galbraith -- hardly a raving neo-conservative. He grew up in southern Ontario and he wrote that their idea of Canadian patriotism was limited to a $5 monthly wage gap. Anything more than that and you went to Detroit. So I don't think we can be complacent about allowing the gap to grow.
Richards: There are young people like Barbara's son who are proud to be here, but I'm not sure they typify the best and the brightest -- who are by definition competitive and want to play in the big leagues. If you have ambitions in film, you end up in L.A. If you have ambitions to play a major league sport, you're going to end up, not in Flin Flon, but in Toronto or New York or Los Angeles.
Moses: His friends are extraordinarily talented. Some of them will get accepted to places like Harvard, but they don't want to go to schools in the States. The idea of going to a university where people are paying $40,000 tuition makes them uncomfortable.
Moorehead: But are these things we love about Canada sustainable given its level of wealth creation?
Smyth: Not for long.
Moorehead: It's serious if young risk takers feel they have to leave the country to create wealth.
McCallum: We have to create an environment in which ambitious, competitive people will be able to make it here. We have to tilt a little in the U.S. direction by lowering taxes, including taxes on high-income people. But we have to be more imaginative. Rather than copying the U.S. in health care and education, etc. -- where we could do better than we have -- we need to capitalize on our advantages in those areas.
Solomon: Especially since with the new technology we don't have to move to make money. We can capitalize on the decentralization of capital. We should be able to stay here, like our company is trying to do, pay taxes to support the things we believe in, and have our main markets in the States.
McCallum: Some of the brightest people will go -- the U.S. is always going to be a drawing power -- but we want to at least have niches where we can be the best in the world.
Smyth: Look at Ireland's outstanding performance. Their GNP has gone through the roof, basically because they're trying to attract industry.
McCallum: There are two reasons for Ireland's success. It got a lot of subsidies from the European Union ,which it used to lower corporate taxation and lure companies to Ireland. But it also put lots of money into a first-rate education system. If you have the education system and high taxes, you'll educate people and they'll leave. But if you have just the tax incentives without the skilled people ...
Smyth: We have a relatively good education system but we have very high taxes so people leave.
Moses: People are motivated by a range of things. If you give people an environment where they feel they have ownership of their work, where they are going to be challenged and can get the training they need and want, where they are not going to be micro-managed, you'll be amazed at the number of people who would choose to stay in Canada and work for half the money they could get in the States. You need to create environments that recognize the needs of younger workers. Money is important, but it will be often outweighed by other variables.
Moorehead: Our company has 150 employees. Maybe five are over the age of 35. I think they're happy. They want a good work environment, they want free pop, they want to dress casually, they want to chat with each other. They don't want to work in a bank where someone is not going to let them surf on the net during the day. But every couple of weeks we lose one to Boston and one to New York. And they always seem to be the really smart guys. They like the good work environment, but they go -- because they're getting 85 thousand in the U.S. and I'm paying 50 -- and that's 85 U.S. and 50 Canadian.
McCallum: You have to think about this as if you're a government. What do I control? I can't control how exciting Silicon Valley is. I have little control over the currency. I have no control over the pre-tax salaries Americans pay, and not much over what Canadians pay. In the longer term I might be able to do something about the environment for investment, but the only real lever I have as a government is taxes. So even though taxes isn't the only thing -- it may not even be the most important thing -- it is about the only thing that government policy can control.
Moorehead: It has to start with taxes. But you can also create environments to promote investment. Look at some of the startups in Canada. The big funders of Internet companies in Canada are American companies.
Richards: The change has to start with entrepreneurs. If they're serious about building a future in Canada, successful people have to invest in the next generation of entrepreneurs. I have some sympathy for the banks. Small business lending is not profitable -- you have small accounts to manage, you have higher risk rates. To make it feasible, banks would probably need to charge 13 to 15 per cent. But for the average entrepreneur, the issue is not the cost of capital, it's access.
McCallum: American banks lend at prime plus 4 to 6 per cent.
Richards: We were delighted to pay 15 or 16 per cent.
McCallum: Imagine what our MPs would say.
Richards: Or the Canadian Federation of Independent Business. Catherine Swift would be pounding the pulpits, screaming about how unfair the system is for the small business, but she would be doing her constituency a huge disservice. That's a perfect example of the dog-in-the-manger mindset we have in Canada.
McCallum: Evan [Solomon], just out of curiosity, when you raised this venture capital in the U.S., where did it come from?
Solomon: VC [venture capital] companies.
McCallum: I don't want to sound defensive, but it's really not so much about Canadian banks as about the shortage of venture capital operations in Canada.
Solomon: I'm about to start up a Web-based company and we have to raise a fair bit of money. We talked to mutual funds here and were told, "Get a strategy, get a business plan." I had a phone conversation with an American VC and they e-mailed us: "We're prepared to wire you $500,000 tomorrow. Just send us a two-page outline and the legal docs." They're excited because they liked our ideas. What they want more than anything is your brain.
Smyth: That's the kind of confidence Americans have.
Moorehead: I would bet that at least a third of the VC money in the U.S. is coming from people who have built companies. But in Canada, it's coming from merchant banks -- owned by banks -- and from brokerage firms -- owned by people who worked in banks.
Richards: Peter Newman said, on the CBC the other day, that as recently as 10 years ago all wealth in Canada resided with the great families -- the Steinbergs, Woodwards, Eatons, etc. There's been a huge shift in wealth, but we're stuck with that stodgy, fusty, inherited wealth mindset. I suspect you would hear the same thing in many European countries.
Solomon: In Canada we invest in businesses. We're spitting managers out of MBA programs left and right; they know how to do business plans, they know vertical integration and how to do marketing and branding. But in the U.S., they invest in people with ideas -- that's why they keep their talent. Why does Michael Eisner make $100 million? Because Michael Eisner has the best ideas. It bugs me that Disney underpays other people, but they invest in ideas. Canadian business doesn't do that. I don't know why Keith Kocho isn't hit up by every single company. Bell did it, to their credit. They invested in Extend because they want his brain. That's what we have to do. Where's the talent? Give them money.
Moses: People don't trust their intuition. Banks are really bad at that. "Explain this and explain that," and, by the time you get to the end, no one has any interest in anything.
Solomon: Of course, if the markets crash in two years, the banks will be saying, "See ..."
Moses: But we're talking about $100,000 ideas. And the amount of money spent second guessing the idea far exceeds the amount of money you're asking for.
McCallum: I think the banks -- Royal Bank is the only one I can speak for -- have made strides. We have our knowledge-based industries section, KBI. We have huge increases in loans to knowledge-based industries and media and telecommunications. But it's a just a little pin prick compared with the massive venture capital companies in the U.S.
Moorehead: But that means wealth creation isn't working right.
Smyth: We can't look to the banks.
McCallum: You have to go beyond banks to get the kind of venture financing system the Americans have.
Moorehead: Where is the beginning of the thread? If government lowers taxes to create environments where people will invest in Canada, then we can take care of the rest.
Richards: Let's for a moment talk about something other than the high-tech sector. If you go back to the late '70s/early '80s, U.S. companies -- the General Motors and IBMs -- were just as inefficiently run as in Canada. Then there was a decade of absolutely wrenching change, driven by junk bond capital and corporate raiders with a whole new aggressive mindset. There was a complete shift in the management of a lot of companies.
McCallum: The value of the U.S. dollar made them grossly uncompetitive. You had the rust belt in the mid-west -- all these huge problems to which they responded. We had our own crisis in the early '90s, when our dollar was up at 90 cents and we had just entered free trade. That should have goaded us into a corresponding crisis response.
Richards: But it didn't to nearly the same degree.
Solomon: Define "crisis response." Do you mean radical downsizing, outsourcing ...?
Richards: Or restructuring. Bringing in a more aggressive management mindset.
Solomon: An "Al" kind of mindset?
Richards: Jack Welch is a better example. Here is someone who says, "We are going to be number one or two in every business or we are not going to be in that business. We are going to drive ourselves, not to a 5 per cent increase, but to a 25 per cent increase." Al Dunlap [also known as "Chainsaw Al"] is an extreme response and, I think, the exception. The Jack Welch mindset is closer, but you don't seem to have that kind of psyche among the corporate leadership here.
McCallum: You have a few. Nortel has really transformed itself. The banks tried to transform themselves through a merger but that didn't get through.
Richards: Moore Forms is a classic case. Twenty-five years ago it was a worldwide leader; now it's marginal. How did that happen? Institutional shareholders in Canada are not nearly as aggressive as in the U.S. We didn't have a Calpers [California Pension Fund] banging on the table, saying, "Turn it around or we'll put in a new management team." Perhaps the Caisse [de depot et placement du Quebec] and teachers [Ontario Teachers Pension Plan] are starting to play that role, but we've got a lot of catching up to do.
Solomon: The American economy has turned around, but there was a cost to it. They have lower unemployment but a much higher level of temporary employment. They're willing to accept workers with no health care and temps without any guarantees of work. They busted the unions under Reagan or got around unions by outsourcing to Indonesia or Vietnam or Haiti. You have to weigh those kinds of management tactics with their effect on the population. You end up with a have and have-not society. Are we prepared to accept that?
Smyth: It goes against our culture.
Richards: Forty years ago, you'd come in at 9 and leave at 5, and you'd have security for life. Was that better or worse than today? That's not the question. The real question is: What choice do we have? There's a lot of fuss about Canadian companies being taken over by U.S. companies. But more and more we're seeing multinational management teams -- like Jacques Nesser at Ford -- that have no loyalty to any country. And more and more we have to compete for the best jobs if we want to attract investment. So in part it's the infrastructure and the work force, but it's also work ethic. And we have a culture where people are not prepared to put in the extra hours.
Smyth: It's a different mentality down there -- they know they have to perform or they're out the door. I can phone someone in the U.S. at 7:30 in the morning. You're lucky if you find a Canadian worker at their desk by nine.
Moses: I'm not concerned that people aren't working hard enough. I see tremendous levels of anxiety.
Solomon: I don't know the stats on work ethic, but I know they show that, on average, people are working longer hours.
Smyth: I'm not sure they're working as hard as they used to. It's more of a social thing now.
Moses: I'm concerned that we're equating competitiveness with goodness. There are extraordinarily talented people who make a contribution in other ways. Some people will be happy with just enough money to live on. Others want to create huge empires and export all over the world. We have to allow for a society that doesn't value only competitive people.
Moorehead: No one is denying Michael Ondaatje's talent. But the question is: What are the things that would make our economy healthier?
McCallum: I don't think it's a competition. If we have a very healthy economy, then government revenues are higher, there's more wealth in general, and we can spend more on the arts and the important things in life. In general, the richer the country is, the greater the opportunities -- not just in the economic sphere, but in life in general.
Inroads: What else should government spend money on?
Moses: One out of five children in this country are living below the poverty line. And it's not only the poor kids: 20 per cent of middle-class kids are not achieving their developmental potential. We can have all kinds of incentives for entrepreneurs, but if you have a generation that is not receiving the support it needs ...
McCallum: Are you saying middle-class children are living in poverty?
Moses: I'm saying we have two problems. One is that one out of five children is living below the poverty line.
McCallum: How do you define the poverty line?
Moses: I'm quoting statistics. It doesn't really matter if the poverty line is defined at $17,000 or $19,000 a year. The second is a conceptual issue. There are more middle-class people than poor people.
McCallum: Depends on who's poor and who's middle class.
Moses: Let's lighten up. We're intelligent people and we can all get the point.
McCallum: You say lighten up, but the statistics are cooked by people who keep talking about child poverty.
Moses: As defined by academic performance indices, 30 to 35 per cent of working-class kids, and a full 20 per cent of middle-class kids, are not achieving their developmental potential.
Smyth: How do we compare with other countries?
Moses: We're worse off this year than last, and some people think we're getting worse relative to the States. If 20 per cent of your son's friends weren't able to contribute meaningfully to society, would you think that was a bad thing?
McCallum: What does "meaningfully" mean? How was it 10 years ago? What is it in other countries? All these words can mean whatever you want.
Moses: Okay. Here's a concrete way to look at business's role. Some parents are working 60 to 80 hours a week. That obviously has an adverse impact. If we are not spending time with our children, then obviously we are not giving our children the necessary support to get them to the future safely.
McCallum: More flexibility in terms of working hours and place of work, when it's technologically feasible, would partly address that issue. Royal Bank has done some of this, but if you're an executive and you want to work 20 hours a week, it might affect your career negatively, so I don't know if there's any real solution.
Moses: The problem with working part time is that three days a week become four days a week. We should value different ways of working in a much more profound way than simply introducing a flexible work week.
Richards: There has been a shift. As recently as the late '60s, you could be told, "You're moving to Regina two weeks from Friday." That wouldn't happen today. You can't just tell people to work less hard, so where I work, we're introducing a policy of sabbaticals -- every four years you'll get eight weeks off. But there are some hard realities: it's an increasingly competitive world and it's not going to get less competitive.
Moses: I don't buy that you have to work 80 hours a week to be competitive. There are places where senior managers say, "It's six o'clock, I'm out of here." I've worked for organizations where at five o'clock the CEO said, "Excuse me, I have to go to my kid's baseball game." We can figure out ways for people to have a life.
Solomon: I agree. Increasing productivity often comes from having people not work 80 hours a week. We all know that the third 80-hour week is a write-off. At our magazine, we were staying 24 hours a day, we'd just cut a vein if we needed to. But we realized that we burned people out. So we tried flexible hours, we tried to force people to take sabbaticals; sometimes we just give them a company weekend away. Let's face it: happy workers are productive workers.
Moorehead: But that's probably easier for our companies than for the Royal Bank. They have a rule book.
McCallum: Apart from the rule book, it depends upon how intensely people are competing with their co-workers. If you have a whole bunch of people who want to be senior vice-presidents ...
Moses: That presupposes all those VPs want to be SVPs.
McCallum: Most of them do.
Moses: I don't think that's true. A lot of people are saying, "I don't want to be like that guy who's 40 pounds overweight, never sees his kid, and works 100 hours week.
Inroads: Some of you said that what keeps you in Canada is that this is a "kinder, gentler society." Do you think that's true of a significant number of business people? And does it mean that, as social programs deteriorate, they're less likely to stay?
Richards: Most people would say that health, education, the safety net, etc., are deteriorating.
Solomom: Frankly, wealth creators don't care.
Smyth: They don't. They're immortal at that age.
Solomon: Let's be honest. I feel good that my money is going to poor people, but I drive a good car and I have a nice house. And I could pay for health care. Education? I'm going to send my kids to a private school. We're the rich people. We're immune because we can get health care anywhere.
Moses: But it does make a difference to you.
Solomon: The idea makes a difference.
McCallum: But the idea is very important, isn't it?
Smyth: Not enough to keep the talent here.
Solomon: A lot of people think we can't afford that idea anymore.
McCallum: If you have enough money in the U.S., you can immunize yourself physically from the huge inequalities. But are you immunized mentally?
Moses: Ten years ago I had all kinds of offers to go to New York. But you say to yourself, "What's the difference if I have two houses or three?" And more importantly, I do not want to be living in Manhattan and, in those days, stepping over homeless people.
McCallum: Now you can do it in your own backyard.
Solomon: But when we talk about lowering taxes and performing these Jack Welch operations, we're saying, "Let's make Canada more like the States." So we're paying less tax, but we can't invest as much in our health care, and our crime rates go up and we have more homeless people on the streets. So we end up saying, "Canada is like New York; I might as well go there."
McCallum: The ultimate objective is to preserve and promote the kind of society we have here. A very high priority should go to those areas with obvious and pressing social need. Homelessness is a national disgrace, and it wouldn't cost that much to fix the problem. But we can't afford to let the gap in income get bigger and bigger. All these things have value -- but there's a price above which most people won't pay.
Richards: The issue is: How do we keep the economy healthy and growing? I think there's a limit to what government can do. The government's biggest attempt to build our high-tech industry was the Scientific Research Tax Credit back in the '80s. It was well intended, but the big Bay Street firms and the accountants and lawyers and investment dealers poured through the thing, found the loopholes, and turned it into a farce. It cost the taxpayer about $5 billion and it was probably the single biggest scam ever in Canada. But one thing the government can do is make it easier for entrepreneurs from around the world to find a home. The Wall Street Journal recently contrasted immigration systems and they held up the Canadian system as a model. I'm not saying we want to go to developing countries and grab their best talent, but their best talent is going to go somewhere.
Moorehead: It would be great for business to take a more active, direct interest in social issues. When the government does it all, they're spending your money. A lot of younger companies have employees involved in decisions about charitable contributions. But it's been hard for the business community to feel it's their job. A lower tax rate would allow us to be more actively involved.
McCallum: Banks are not too bad at that kind of stuff. But Americans have developed a habit of charity -- for centuries they've supported private universities and hospitals. Here, people ask, "Why should I give to the hospital or university when it's paid for by taxes?" But do we want to have government give less money to universities and hope the void will be filled by the private sector? That's a bit risky.
Moses: It's incredibly risky because these organizations will start writing the curriculum.
Moorehead: But it's scary when the government takes care of all these things.
McCallum: Universities are becoming more dependent on private fundraising, but it's a pittance compared to what the Harvards raise.
Solomon: Jeremy Rifkin talks about this in The End of Work. Americans are by far the most philanthropic nation in the world. But it's not the amount that matters, it's the distribution. Harvard and Yale raise an enormous amount of money, but the state universities and inner city high schools are starving. The problem with philanthropy is that the rich give back to the rich. At least the government distributes money equally.
Moorehead: We can't, as business leaders, argue out of both sides of our month. We've said we want lower taxes, and that means that we're going to have to pick up the slack, because it has to come from somewhere.
McCallum: Lower taxes doesn't mean you have to have less government spending on education.
Moorehead: Then you're going to have to come up with a new spending model, because the amount of money will be smaller.
McCallum: In five years, we will have a surplus at the federal level of something like $30 billion. You can get a lot of tax cuts out of that, and still have some for more spending. But if I were the God in Ottawa, I would add two percentage points to the GST, hide it like they do in Europe, and augment the GST tax credit so it doesn't hurt low-income people -- you could even make them better off. And I'd use the extra money for income tax cuts.
Solomon: With that kind of platform, it's a good thing you don't have to be elected to your job.
McCallum: But wouldn't it be a good idea? Lower-income people would be at least as well off, and you reduce our income tax, which is way higher than elsewhere. But obviously the Liberals have some political baggage on that issue ...
Solomon: This discussion is about a vision of the country. In other words, what are we fighting for? Why stay here with the snow and the taxes and all the things that are difficult and frustrating about this place? If all we cared about was the economic climate, we'd go to the Cayman Islands for our taxes and we'd live in New York. Business leaders have to be nation builders. We can't just think about profits for our shareholders. We have to have a social vision. I would like to hear business leaders not talk just about business solutions, because the cold reality is that the business solution is to go to New York. But what keeps me here is a vision of a country. There's a phrase from Nietzsche: "People will suffer through any `how' if you give them a `why.'" And the "why" is the vision. And that has to come from entrepreneurs. From people like you.
Smyth: The unfortunate thing is that we're all so critical of each other. Like Jean Chretien, when he said, "Let the brains go, who cares." You can't have that kind of mentality. You can't have him blocking the Conrad Blacks. These are our leaders and we should be proud of every one of them. Instead we find ways of bringing them down. Americans don't think that way.
Solomon: It's about leaders. Our politicians are now economic micromanagers, tinkering a bit, stopping mergers. But what about leaders, visionaries, that tell us why we're here and what we're fighting for?
Smyth: You try to get that but you get the government intervening. The bank merger is a prime example.
Richards: There's a huge divide between business and government in Canada. In the U.S. you have a steady movement back and forth from business to the highest levels of government.
McCallum: We don't have that partly because it's such a pain to run for Parliament, and in the U.S. they don't have to.
Richards: In the '60s many more successful business people moved into government. It's much tougher today because of the process of getting a nomination. And you're under such brutal scrutiny if you're an elected official. Who needs it?
Solomon: Public office is seen as a place for losers -- real people go into business, because business runs things.
Richards: But there used to be a stronger sense of Canadian nationalism. I don't think we have the leaders now. When was the last time that business unified behind a grand vision?
McCallum: Are you talking about something like Trudeau's "just society"?
Solomon: No one believes in Trudeau's "just society" or Johnson's "great society" anymore, because things have changed -- we all know the realities about work, that you don't get jobs for your whole life. But a business vision is not enough. We need a vision about values.
Smyth: Our job is to create a culture that keeps people. Three things motivate a person: job satisfaction, recognition for a job well done, and money -- in that order. If you give people a stimulating job and you tell them that they are doing a great job, odds are they'll stay for less money. I think you just take that to a bigger scale in Canada.
Inroads: Does business have too much power?
McCallum: When I was in the academic world, I thought that a bank chairman could lift up the phone and politicians would jump. If anything is supposed to be corporate power in this country, it's the banks, right? So why didn't the merger go though? That's what the banks wanted more than anything else. And why does the government not let banks sell insurance from branches? We're walking on water there -- why deprive the consumer of that choice? The banks have financial clout, yes, but if you think they have political power, how do you explain our failure on every issue that's important to us?
Richards: There is this myth of corporate power. Business in Canada does not have a fraction of the influence that you see in the U.S., or in many European countries which have a more corporatist model.
Solomon: So who does have influence? The Ontario government toes a very pro-business line: if you argue that business should pay taxes to support social programs, you're considered out to lunch. I'm not saying it's a puppet regime and that John Cleghorn picks up the phone and says, "Let's wipe 10 per cent off taxes," but the business lobby has an enormous amount of power.
McCallum: Banks lobby Ottawa because Ottawa runs the banks. I don't think they have that much to do with the Ontario government.
Solomon: Who does then?
Smyth: It's Mike Harris' mindset.
Richards: In the election in which Hams first came to power, the actual level of business support, of writing cheques, was pretty limited. He was seen as a kind of a fringe candidate -- a former golf pro from North Bay.
Inroads: Where are we going to be 10 years from now?
Smyth: I think it's going to get worse. Our productivity isn't there. We're not investing in ourselves. The population is aging and the number of producers is shrinking.
McCallum: If we continue with status-quo policies, I think it's going to get worse. The Americans are going to cut taxes and that will widen the income gap. And, in recent years our productivity performance has been quite poor, especially in the new economy. But I don't want to be pessimistic. With the looming surplus, we have the money to do something on the tax side and, like the Irish, to improve our education system.
Richards: We need more pro-active leadership from the business community Successful entrepreneurs have to create an environment that makes Canada a desirable place for the best and the brightest, but if CEOs define their mandate narrowly, as maximizing the profitability for shareholders, then you may not see fundamental change.
Smyth: It's a combination of business and government. You can't have business trying to create wealth and government spending it. They both have to be accountable.
Richards: The worst thing is that dog-in-the-manger mindset. In Canada, if you're too successful, everyone pulls you down. In the U.S., people say, "Great. I'm as smart as you and I can be that successful, too." Look at what Terrence Matthews has achieved at Newbridge. He's made a tremendous contribution by spinning off a lot of start-ups. If he were in the U.S., he would be as well known as an Andy Grove [of Intel] or Larry Ellison [of Oracle].
Smyth: He doesn't want to go out front.
Richards: And he's probably smart, because we have such a negative media.
Smyth: Our whole society is negative. If anybody goes above the norm, they're shot down.
McCallum: That guy at Corel.
Richards: Mike Cowpland.
Smyth: They bash him. In the States he would be treated differently Larry Ellison isn't much different in character and behaviour and ego.
McCallum: But it's hard for business to say we should celebrate success. Who is credible with that message?
Moses: It depends on who you're communicating to. Twenty-somethings want to hear about success, but they need to have it packaged differently than 40-somethings.
Solomon: To create an environment that keeps people, we can't just celebrate successful CEOs who got $100 million in stock options. The new leaders will be people who transcend being profit makers and employers, and are leaders in an older sense -- social leaders with a vision that includes issues like child poverty or welfare or the integrity of the education system.
Smyth: Role models.
Moorehead: There's not that much wealth creation here so there aren't that many people to choose from.
Solomon: What business leader is a role model outside the business community? Ken Thomson [of the Thompson Corporation and the Globe and Mail]? Frank Stronach [of Magna International]?
Richards: Jim Pattison [of the Jim Pattison Group], maybe. But it's interesting; you would probably find more people in Quebec. Laurent Beaudoin [of Bombardier]. Pierre Peladeau [of Quebecor] before he passed away. Andre Chagnon [of Groupe Videotron].
McCallum: Quebecers certainly admire their business leaders. And the anti-bank sentiment is far less strong in Quebec.
Solomon: That's what Quebec nationalism does there. Business and social visions almost merge.
McCallum: Quebecers admire the big institutions. Unions and companies and government tend to come together; each is respected.
Solomon: Because there's a vision of society. I lived in Quebec for five years. You can't be just a successful business person, you have to be a successful Quebec business person. Here, you don't have to be a Canadian -- no one is going to ask, "What's your position on pornography, or on child welfare?" My worry is that we will no longer have a vision distinct enough, dynamic enough or charismatic enough to make people care about the idea of a nation. Robert Kaplan says that the nation state is a passing phase. In a borderless world, the good things about borders and nations disappear -- it really becomes the libertarian, every person for themselves, the rich get richer, the poor get poorer. That is my fear, unless we step up with a vision of what is worth protecting about this nation.
Moorehead: Maybe our national vision is to protect what we have and to maintain it for our children. But with our current political approach that's not going to occur, so it will be easy to decide to move somewhere else. There are a lot of optimistic Canadians, ready to help out in small ways. They just don't know how. We need to be marshalled better, and we need to be marshalled by business leaders, not by someone who tells us to go stand in that line over there. We need to create an environment that makes us all want to be on our A-Team.
Moses: My concern is that wherever you are in the world you see increasingly little difference in terms of culture. Do we value having something distinct? Are we going to protect our culture? That's going to be an issue. My final thought is that if we don't put more money into education, and if we don't solve the issues related to the health and well-being of children, we are not going to be very happy 10 years from now.
Inroads: Thank you.
John McCallum is chief economist for the Royal Bank. He holds degrees from Cambridge University, Universite de Paris, and McGill University, and he taught at McGill, Universite du Quebec a Montreal, Simon Fraser University, and the University of Manitoba before joining the Royal Bank in 1994.
Colleen Moorehead is president of VERSUS Technologies and is responsible for the company's strategic direction. VERSUS is a leading provider of electronic securities trading services to the Canadian marketplace, and develops, distributes and provides access to securities trading services and related products through its electronic trading network, The VERSUS Network.
Barbara Moses, PhD, is president of BBM Human Resource Consultants, a firm specializing in career management. She has degrees from McGill University, The London School of Economics, and the University of Toronto. and is the best-selling author of Career Intelligence and The Good News About Careers: How You'll Be Working In The Next Decade (both Stoddart).
Dan Richards is the founder and president of Marketing Solutions, a leader in investor research and business development programs for the investment industry. He teaches financial services marketing at the University of Toronto and is the author of Getting Clients Keeping Clients: The Essential Guide for Tomorrow's Financial Advisor.
Morgan Smyth is the founder and president of Braegen Group inc., a computer consulting firm specializing in Internet integration, including security, e-commerce, Web site design and development, and collaboration. He holds a business degree from Ryerson Polytechnic University and has authored two books on computer languages and several business articles.
Evan Solomon is host of CBC Newsworld's Hot Type with Evon Solomon and author of Crossing the Distance (McClelland & Stewart). He is the co-founder and former editor-in-chief of Shift Magazine. He has a joint BA in English literature and religious studies and an MA in religious studies from McGill University.
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|Author:||Arthur Milner, and others|
|Publication:||Inroads: A Journal of Opinion|
|Date:||Jan 1, 2000|
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