Proceedings of the Standing Senate Committee on
Social Affairs,
Science and Technology
Issue 18 - Evidence, October 27, 1998
OTTAWA, Tuesday, October 27, 1998
The Standing Senate Committee on Social Affairs, Science and Technology met this day at 10:00 a.m. to consider the dimensions of social cohesion in Canada in the context of globalization and other economic and structural forces that influence trust and reciprocity among Canadians.
Senator Lowell Murray (Chairman) in the Chair.
[English]
The Chairman: Colleagues, this is our fifth meeting in pursuance of our mandate on social cohesion. We will divide our 90 minutes into two more-or-less equal segments of 45 minutes each.
Our first witness is Mr. Courtney Pratt. Mr. Pratt is the President of Caldwell Partners International Inc. He started management consulting in 1974 with Touche Ross. As sometimes happens in that business, in 1984 he was recruited by one of his clients. He joined the Brascan Group to lead the human resources side of this major holding company. Later, he moved to Noranda. He was President and then Chairman of Noranda, and played an important role in executive selection and leadership transition as the group implemented new strategies. Those are the bare bones of his business and professional career. There is much more to it than that, but I will not take up your time with it at the moment.
He has been extremely active in the voluntary and charitable sector both in the Canadian community and in the communities in which he has lived. He has written and spoken extensively on the question of the accountability of businesses, of the corporate sector. He is eminently well-qualified to speak to us on this subject today, and I am extremely grateful that he has agreed to appear here to make a brief statement and answer some questions.
Mr. Courtney Pratt, President, Caldwell Partners International Inc.: As has been explained, I bring to this session a background in business and community involvement. In particular, I now chair an organization called Imagine, which has, for the past 10 years, been dedicated to increasing the level of corporate contributions to society. I have a business background. I do not pretend to speak for all businesses, but I do believe that what I will say is representative of much of the thinking in the business world.
About a year ago, I gave speeches to the Canadian Club in Toronto and then in Montreal outlining some thoughts on this issue. I began by asking two questions that to me are fundamental to the whole issue of corporate citizenship: Do directors and CEOs of corporations have a responsibility only to shareholders? Or do they have a responsibility to a broader constituency of stakeholders, a constituency that includes but is not limited to shareholders? By that, I mean groups like customers, employees, and the communities in which they operate. To me, that is the concept of corporate citizenship.
There are two key points when you look at this issue. First, every business must focus on competitiveness, profitability, and the creation of shareholder value. That is a given. Without that, the business will not endure, and it will not be in a position to make any kind of contribution to society over the longer term. However, as a corollary, in today's world, if a company does not focus also on a broader constituency of stakeholders, then it will not, in the long run, be successful and create shareholder value. I do not believe it is an either-or situation; I believe it is both.
The success of a business is ultimately determined by the success, strength, and optimism of the society in which it operates. In that regard, business has a responsibility to take an active role in shaping that society. That is true, in this era of globalization, not only here in Canada, but wherever business operates.
Charles Handy, an important writer on business for many years, talks about this in an eloquent way. He says that profits are a necessary but not sufficient condition of success. There is a striking difference between just making money and creating wealth. I know that Judith Maxwell has appeared before you, and I like her term, "the responsibility to create social capital."
If we take that as a given, that business really has a broader responsibility than just to maximize profit on a short-term basis, what are some of the areas that business should focus on in terms of corporate citizenship? Three come to mind, and the first is employees. How do you think of business as a corporate citizen with respect to employees? To me, it is by taking an approach of investing in employees.
In this new era of competitiveness, business can no longer guarantee lifelong employment, if it ever could, but it should be able to guarantee employability through the investment it makes in the development of employees. Business can help its employees deal with the increasing tensions and stresses in business and family life by creating family-friendly workplaces. That is one area.
A second area, not surprisingly, given my time at Noranda, is the environment. Sustainable development, in my view, is fundamental to the notion of corporate citizenship.
Third, and the area people think of most often when they think of corporate citizenship, is the community. That is the focus of the organization that I mentioned earlier, the Imagine program.
I mentioned that I spoke at the Canadian Club last year. Subsequent to that, in January of this year, we put together a round table of business people to talk about the issue of corporate citizenship and how to move to the next steps. We prepared a white paper, which I believe the chairman has seen but I am not sure all the other members of the committee have. I would be happy to make it available to you. It outlines a new agenda for Imagine and talks about corporate citizenship. We circulated it widely in the business community and not-for-profit community.
Generally, we have had positive feedback on the white paper, and we are now in the process of putting together an implementation strategy. We are calling the paper "Citizenship for a New Millennium." A couple of highlights from that will give you a more practical sense of some of the issues related to corporate citizenship and investment.
Imagine was founded 10 years ago to promote a 1 per cent club, which was the notion that, as a standard, companies ought to contribute 1 per cent of pre-tax profits annually to charity. That has had a significant impact in raising the general level of corporate philanthropy.
What we are looking at in current society, which is very different from what it was when Imagine was founded, is promoting a much broader approach to corporate responsibility. The research, both that we have done and that which we have sponsored. shows clearly that the public expects more from business. They are looking to the corporate sector to play a much larger role in shaping and supporting the social fabric in Canada, which is good. The problem, however, is that expectations are unrealistic. Canadians -- depending on the survey one looks at -- believe that the corporate sector is now providing 20 per cent to 30 per cent of the funds in the not-for-profit sector, when in fact the figure is really closer to 1 per cent to 2 per cent. The expectations do not coincide with reality.
On the other side, what do we see in the corporate sector? With all of the government downsizing and the charitable sector feeling that the load has fallen increasingly on them, we have experienced an avalanche of requests for funding in the last several years. At Noranda, we receive thousands of requests each year for funding. The difficulty is that every request is, in its own way, a very good request and designed to meet a valid need.
Business is looking for new models in terms of how it can play this role. It is looking for opportunities that go beyond just writing a cheque, which has been the traditional approach to meeting social obligations. It is looking increasingly for win-win situations, or situations in which the charity and the business can achieve mutual benefits.
When businesses make donations or invest in the charitable sector, they are looking for some evidence of measurable impact that is being achieved through the organization and through the dollars invested. That is something this sector has not been good at historically.
Businesses are looking at opportunities for employee participation and for employees to volunteer.
Businesses are also looking to create environments in which they can attract and recruit the best people. Research increasingly shows that the next generation is attracted to corporations that are good corporate citizens. That is another motive for organizations to invest more.
Finally -- and unfortunately this is one area that often gets a lot of discussion -- businesses are often looking for a higher profile and greater recognition of their contributions.
I wish to outline for you the key points of the Imagine agenda entitled "Citizenship for a new Millennium." First, business should lead in setting credible and achievable standards for corporate citizenship. We believe that business should, in consultation with the other sectors, set those standards -- before they are set for us by others.
Second, it is important that the commitment increase in the business world generally. We now have a situation where a small percentage of businesses are making enormous contributions and a huge portion of the business sector is making little or no contribution. We have too few doing too much.
Third, business is looking for an increase in what I will call "value-added" from its corporate citizenship. It should be seeking to align its corporate giving with the missions, skills, and competencies of its employees and all of its customer interests. Business can then develop relationships with the charitable sector -- the not-for-profit sector -- which will tap not just the financial resources of the company, but also its human resources and the intellectual capital. At Imagine, we are asking business to think beyond the cheque book to the notion of developing true partnerships, where all the resources of the business can be utilized, with tremendous mutual benefits for both groups.
I should like to give a couple of examples of where I have been involved. An organization called The Learning Partnership was founded in Toronto five years ago. It now has a number of significant projects within the public school system in Toronto. One of the benefits of a number of these projects is that it is not just business giving to the education sector, but the business people who are involved are learning from the people who are involved in the education sector. Mutual learning and mutual benefit is coming out of that.
A second example relates to a program called Career Edge, which was put in place about three years ago by a group of businesses in an attempt to assist graduates in finding that first job. It started as a private-sector-funded initiative, and it has now evolved into a tripartite partnership. The federal government, after the business sector established the model, approached Career Edge and said that they had a significant internship program and would like to work with Career Edge in terms of administering and implementing that model. Not only that, they wanted to introduce a new group to this model, the at-risk youth. They wanted the YMCA to be part of that program in terms of doing special orientation to these at-risk people.
We now have a program that three years ago was just an idea. With this three-sector partnership, we celebrated the placement of the 1,000th intern in the spring. That number is probably close to 2,000 now. The good news is that 85 per cent of those interns get their first job either during their internship or within two months of their internship. We believe the power of these more complete partnerships is significant.
That is a brief overview of a complex topic. Before committee members raise their questions, I should say that there are no easy answers to address this issue.
To sum up, I believe strongly that business can and must be one of the key contributors toward the evolution of our society in a direction that will benefit all stakeholders, because in the end we will ultimately do well by doing good. It is good for business, shareholders, and society.
Senator Cohen: Mr. Pratt, your words should be a bible for all businesses to follow.
I wanted to tell you about an initiative very similar to The Learning Partnership that is happening in my hometown of Saint John, New Brunswick. We have put together a round table of business people and people living in poverty. We cannot sit at a boardroom table and talk about the needs of the community if the stakeholders are not there.
The wonderful advantage of this concept is that, after breaking up into groups, it seemed that the business community, at a very high level, had absolutely tunnel vision when it came to people in need. They could not believe that people making $8,000 per year had to pay taxes. It was an eye-opener to our community leaders. They started to get involved.
What is happening now is that NB Tel has taken the initiative for skill training for 25 people in poverty, with the promise that there will be jobs waiting for them when the skill training is done. Companies have taken the responsibility for training.
This initiative came from a retired bank manager. His ex-customers could not say "no" when he called. We then got involved with the poverty community. It is a wonderful working relationship, and it is in keeping with the theme that you presented this morning. I commend you.
Let us do more to create the social cohesion that we all would like to see in a perfect world. These are the tools.
Mr. Pratt: You have raised an important point. Fundamental to making progress in social cohesion is sitting down and talking to each other.
The private sector, the not-for-profit sector, and the government sector each operate in silos. We assume things about each other that are not true. Every time we get the kind of interaction that you are talking about, we get tremendous progress. People begin to understand.
People often believe that the private sector is off to one side and the government and not-for-profit sectors are off to another side, and that these sectors understand each other. I can assure you that people in the not-for-profit sector do not understand government very well. I do not think that government understands them very well either. There really are three groups that we must bring together more often to talk and to listen.
Senator Poy: Mr. Pratt, we were talking about being practical and developing practical solutions. You were talking about investment in employees, which is the way that corporations used to look after their employees. Years ago, an employee would stay with one company during his or her entire working career. That does not happen frequently any more.
How does a corporation talk to its employees when it is downsizing or being merged with another company -- which is common today -- and all of a sudden half of the employment is gone. How do you deal with that?
Mr. Pratt: To deal with the first part of your question, Senator Poy, the notion of how companies invest in employees is changing and must change.
In previous eras, there was a paternalistic form of investment: Do not worry, we will look after you for the rest of your life.
Because of the market forces now at work, companies cannot make that statement. It must change from that kind of investment to: We will give you the tools to be successful in the next stage of your career. Therefore, companies will invest in employees' skills development and in their ability to move on when the world changes.
How do you talk to employees when you are downsizing? I have been in this situation. It is very difficult. It is less difficult if a company does some of the things that I have spoken about and if a company is honest with its employees.
I believe that corporations should be saying that the world has changed. They cannot promise everything. There must be a degree of responsibility for an employee's career, and together the employee and the company will look at that.
If that has been done, then when there are layoffs or changes, the corporation can hold its head high and offer assistance in moving to that next phase. However, if they have not thought of that and there is a thunderbolt out of the blue, it is very difficult to speak to employees and hold your head high.
Senator Wilson: You mentioned three areas: the relationships, the employees, and the community. To my mind, one of the most divisive areas in Canada militating against social cohesion is the environmental interest groups. Could you say something about that?
Are you familiar with the document put out by the international community for human rights in Montreal on corporate responsibility? Can you comment on that, particularly vis-à-vis the environment?
Mr. Pratt: I am not familiar with that document, but I am familiar with the issues of corporate responsibility vis-à-vis the environment, having spent the last 10 years in Noranda.
My 10 years with Noranda were fascinating because there was an evolution in thinking in that company. When I went to Noranda, there was a realization that sustainable development was something that needed to be thought about much more seriously. In the last three or four years, Noranda has been recognized around the world as a leader in environmental responsibility.
Thinking in terms of sustainable development includes taking into account not only the economic aspects, but also the environmental aspects of development and working to create a sustainable system. There is a much broader business agreement on this issue than many people imagine.
There have been tremendous movements forward, not just on a local basis, but on an international basis. There is the World Business Council on Sustainable Development, which includes many of the world's biggest corporations, that is dedicated to these ideas.
I would not suggest, senator, that these concepts are universal or that there are no organizations that do not accept these tenets of responsibility. However, if you asked me what is the one area where I have really seen the biggest shift in belief and behaviour in business over the last 10 years, it would be with respect to the environment.
Senator Wilson: Is that purely voluntary on the part of business? Are there any guidelines in place, or enforceable benchmarks?
Mr. Pratt: Increasingly, in different parts of the world, environment is highly regulated.
Senator Wilson: What about in terms of Canadian businesses?
Mr. Pratt: In most businesses, there is a high degree of regulation on environmental performance and a high degree of government monitoring. Canada is probably as good as anywhere.
One of the approaches that we took at Noranda, when I was there, was that wherever we went, we would apply the highest standard, either the standard in the local country or the standard in Canada. Invariably, the Canadian standard would be the standard that applied.
Senator LeBreton: In response to Senator Poy, you talked about the private, not-for-profit, and government sectors assuming things about each other that are not true.
Given the obvious conflicts between corporations, labour unions, and various stakeholders, what level of success are you having in business bringing these divergent groups together to discuss social cohesion in the modern era of globalization?
Mr. Pratt: On a micro level, we have had several along the lines of what Senator Cohen mentioned, in Vancouver and one other city in the west. We brought these groups together, and we believe we made significant progress in gaining consensus among the stakeholders on how they ought to be working together to build a better local community. By the way, labour is a very important part of those discussions. My dream is to take that to a national level.
As to whether we have been successful, we are just getting started. The white paper is an attempt to put out some ideas and to get broad public reaction to them as a basis for going forward and being more active. I believe that we have just scratched the surface and that there is a huge potential.
Senator LeBreton: In this highly competitive, changing economy, this does not come naturally to corporations. Do you have to do a selling job to get them to buy into this, because it does not occur to them naturally that they must deal with these issues now? Or are more corporations starting to realize that they have a much bigger obligation than just generating profits for their shareholders?
Mr. Pratt: I believe that many corporations have come to that realization. With regard to the environment, a number of us have worked hard with NGOs over the years. A number of years ago, we would not have wanted to be in the same room. We went into the same room, we talked, and we worked out a number of areas where we could agree. That does not mean that we will agree on everything, but we need to find the areas where we can agree and then work together.
I think business is generally recognizing that, as is labour. I think all sectors are starting to recognize it. We have all been quite happy in our own little worlds for a long time. If we continue in the direction that we are going, I do not think we will have the kind of society that we want and need. We will have a "have" and "have-not" society. We cannot fix that unless we all get together and dedicate ourselves to finding the areas of agreement and working to deal with the issues.
Senator LeBreton: I think that is the problem. The general public is being swept along by this notion of a "have" and "have-not" society, which we see even in cartoons and newspapers. It is a self-fulfilling prophecy and it is a big problem. I do not know if there is statistical data to prove it. Although I think there probably is. Once people have a mindset, it is very hard to change it.
Mr. Pratt: There is some very good statistical data showing that the situation is worse than probably most of us would imagine, and that is just in this country. In this global era, we cannot think about Canada only. We must think of the "have-nots" around the world. Eighty per cent of the world is living in poverty. There is a tremendous double standard that is so easy to ignore here in Ottawa or Toronto.
Senator Johnstone: Welcome, Mr. Pratt. Is there a basic conflict between the business world and the community at large? If so, is there a change in corporate attitude today?
Mr. Pratt: I do not believe there is a conflict. In my view of how the system needs to work, business has to view a sound society as fundamental to its ability to succeed. I do not believe there is any kind of conflict at all.
I think the public expectations of what business can do alone to step into the gap are not realistic. We must replace that with expectations of how the sectors will work together to fill the gap. What is not acceptable is not to fill the gap, but I do not think any one sector can do it. We have to work together to find new solutions. It is in the interest of every sector to do so. The issue is creating the forum for those sectors to work together and move us forward on that agenda.
Senator Cools: Mr. Pratt, I am very impressed by some of your statements. The questions that you raise preoccupy the minds of many of us much of the time. In Senator Cohen's examples, the individuals had roots in that community. That is very profound. I remember an era when the heads of these companies knew the entire companies like the backs of their hands. Donald Gordon, for example, would have gone through every stage and phase of the company for which he worked, and he would have lived in the community where the head office was. He was attached to the wider community and he fought hard for his people.
A former senator used to tell us about the trade union battles. Donald Gordon would say, "Enough, fellows, let's get to the bottom of this." With the enormous expansion on every front, and the shifts and twists in the marketplace in recent years, human beings like that are not so common any more. Many large companies transfer their executives every few years. We now have many highly paid, highly competent executives being moved about the country as the bottom line or the communities in which they live dictate.
I am not condemning that. I am just raising it as a question. Have you given any thought to that? Have you a view on it? It is important to have individuals in the community who are respected heads of business corporations.
Mr. Pratt: We cannot afford to have the relationship of a business to its community dependent on one individual. We must create relationships that are lasting, so that when one individual leaves we are not back to square one. A company's role in a community should be part of their way of doing things, and when a new person arrives, it should be natural for them to continue that rhythm.
It is a problem that many business-charity relationships are very dependent on the particular concerns of the CEO or other senior management, and when those people leave, the charity is left in the lurch due to no fault of their own. It is an issue.
The Chairman: First, I should like to say that Senator Cohen is a well-known and highly respected community activist in her own community of Saint John, and indeed in the country at large. On Sunday night, she was the honouree at the annual Negev dinner sponsored by the Jewish National Fund in Saint John. Some of us were there. She made a wonderful speech; and I want to say how proud we are of our colleague.
Second, Mr. Pratt, we have the white paper to which you referred. I will see that it is circulated to members of the committee.
In the speech that you gave to the Canadian Club of Toronto, you said, among other things, that our social safety net, which was designed for another economic era, no longer works and is being cut apart every day.
Is it your view that governments should redesign the social safety net so that it meets contemporary needs; or that the voluntary sector, assisted financially by corporate Canada, has to take up a bigger part of that work; or both?
Mr. Pratt: I think the answer is both. However, they need to work together to do it.
What will not work is government doing its own thing, and the corporate sector/voluntary sector doing its own thing. They need to work together to get a sense of how the resources of the community can best be marshalled to provide the kind of support needed by the less fortunate.
I do not think the answer is for government to reinvent it all. The not-for-profit sector cannot do it; it will not happen.
To the extent that we do not sit down together and talk about how to do it, we miss the opportunity to bring together all of the available forces to deal with it.
The Chairman: Why is it that corporate Canada's donations to charitable causes are so low?
Mr. Pratt: Mr. Chairman, you have to be careful of how you phrase that because for a number of corporations, the donations level is high.
The Chairman: I appreciate that. Is that a function of the taxes? Is there not enough encouragement in our tax system for philanthropy; or is that too simplistic an explanation?
Mr. Pratt: I think that is too simplistic. I do not believe that is the answer.
The Chairman: Not to put too fine a point on it, Mr. Pratt, this is anecdotal and may be totally unjustified. However, it is something I want to look into. I am told that there is a difference in this respect between Canadian owned and controlled companies and foreign owned and controlled companies.
I am told, and again this is anecdotal, of large multinationals with about 20 per cent of their sales in Canada, for example, which give a pittance to educational and charitable institutions and the like, but which give enormous sums in the United States.
Do you know anything about that; or would you care to comment on it?
Mr. Pratt: I am sure there are examples of that. I guess I can speak more for the other side, the Canadian subsidiaries of big U.S. multinationals that do make huge contributions. They mirror what their parent companies do in the United States. In some cases they will exceed it, because the CEO in Canada happens to feel more strongly about it.
There are clearly examples of what you have mentioned as well, Mr. Chairman, but my experience says that there is more of what I have spoken about.
The Chairman: I am glad to hear that. I am glad to have it on the record. Perhaps it is an area where we might do some further research.
It is possible now to transfer vast sums of money at the speed of light -- or faster -- and companies have the ability, in this age of globalization, to shift their production facilities all over the world. Is it possible that corporations feel they have less of a stake in the success of a particular country, such as Canada, and that it matters less to them whether Canada stays together and prospers and what the social conditions are here?
Mr. Pratt: That would not be my experience. My experience is that where maybe we used to operate only in Canada, we now operate in four or five other countries, and we have to devote some of our community-driven resources to other parts of the world, in addition to what we are doing in Canada. We must do that because we need to invest in all of the communities in which we operate.
I have not seen that taken to the next step of saying that we are less committed to Canada. Again, that is not my experience.
The Chairman: In your speech to the Canadian Club, you referred to something that happened in the U.K. in 1993. Twenty-five of the United Kingdom's top companies came together under the leadership of Sir Anthony Cleaver, chairman of IBM U.K. The aim was to stimulate competitive performance by provoking business leaders into thinking about the sources of sustainable business success.
There is a hint there of a trade-off, of the idea that the company would refrain from taking a step that might be highly desirable in terms of the bottom line, or this quarter or this year, in favour of a longer-term approach. I am thinking of downsizing and that sort of thing. A phrase coined a while back is that some companies were downsizing so much that they were in danger of developing corporate anorexia.
Is it practical at all to think about companies making that trade-off, given the pressures of shareholders and so forth? I refer to the trade-off between tomorrow's balance sheet and a longer-term approach.
Mr. Pratt: That is a real reality of managing in today's environment. The pressure from shareholders in the financial community to continually improve quarter-by-quarter results is enormous. Does that impact on how people make decisions? It must, because the pressure is so enormous. It is hard to say to a shareholder group, "You will get your value in five years." Yes, it is a reality, senator.
I would like to come back to that one quote from the Cadbury report. What was interesting with that group of business people is that they started out looking at the whole issue of how to improve the performance of British business. Starting with that as their basic question, they came to a number of conclusions that I have talked about, that is, the need for business to be more inclusive and to think in terms of all the stakeholders.
They did not start with the question of corporate citizenship, but with how to make business better. That is what was really fascinating about that study.
The Chairman: We are informed that Mr. Paquette has arrived. I have to end here. Thank you, Mr. Pratt, for a stimulating morning.
[Translation]
Mr. Pierre Paquette was very well known for a decade as one of the leaders of the Confederation of National Trade Unions, the CNTU (CSN), of which he was Secretary General from 1990 to 1998. He is currently the host of a program called Droit de parole on Télé-Québec. He is also active as a member of the board of a number of community organizations such as Oxfam and the Greater Montreal United Way.
Mr. Pierre Paquette, Moderator: I am very sorry that I was unable to provide advanced copies of my brief; since I am no longer at the CNTU, I have far less logistical support to prepare such presentations. I will send you the brief in the next few days.
As the world is experiencing its first major financial crisis of the post-Communist era, your examination of globalization and social cohesion is extremely relevant. All of the principles on which the international organizations have tried for 15 years to create a new economic order are being shaken by the threat of global recession.
Many people are questioning the deregulation of financial markets and the "hands off" approach of governments. It is a strong bet that free trade will soon be challenged. Globalization has a worldwide scope and entails the "multinationalization" of economic activity. It emphasizes the intense interdependence and interrelationship between national economies, states, financial industrial and commercial groups, in short, of societies.
Globalization describes the process, recently referred to by Mr. Allan Greenspan, the President of the American Federal Reserve Bank, according to which no region of the earth can remain an oasis of prosperity if a solution is not found for the Russian problem, the Asia-Pacific recession and the financial instability of the Latin American economy. Globalization is both the cause and effect of certain technological, economic, cultural and, especially, political changes.
Globalization as espoused by the neo-liberals is not a misfortune if governments work together to use it as a means to improve the living and working conditions of people around the world. I would like to dwell on the internationalization and the "multinationalization" of the economy.
Internationalization relates to foreign trade and the movement of populations. States play an important role by controlling immigration and trade policy and negotiating trade agreements. Free trade agreements increase this internationalization. Organizations such as the World Trade Organization (WTO) reinforce this movement. Although it is obvious that all states do not have the same power in the international sphere, nevertheless, the impetus is essentially political. The history of capitalism is punctuated with successive periods of free trade or protectionism depending on the interest of the great powers at the time. The rapid increase in free trade was facilitated by technological advances in transportation and communications. They are not the determining factor, it is political will. Free trade was intended to open economies; in the context of globalization, the issue is the integration of economies.
As a former labour leader, I can tell you that labour's interest in questions of economic integration is not new. In the mid-1980s, when the federal government was starting to discuss free trade with the United States, the first major coalition on the subject was created in Quebec, and it was opposed to free trade with the United States. I am emphasizing the exact wording here because during the negotiations the approach changed somewhat. Our first coalition was opposed to free trade with the United States.
After the FTA was signed, the battle continued with the coalition on trilateral negotiations. At that time, the issue was negotiations with Mexico to conclude a North American Free Trade Agreement. The Quebec labour position then changed from being one of total opposition to economic integration with the United States to become that of opposing free trade that benefitted only business interests and of fighting for economic integration that would confer benefits on the people of Mexico, Canada and the United States.
Various agencies for international co-operation and a significant part of citizens' movements joined the coalition, which was no longer strictly a coalition of trade unions. After NAFTA was signed, they continued to criticize and make proposals through the Quebec current network on continental economic integration.
As we have seen, the membership of the coalitions has gradually broadened. At the start basically a trade union movement, the network now includes union associations, agencies for international solidarity, the student movement and the citizens' movement. All of the vital forces of Quebec society believe it essential that they form an alliance, if they hope to promote a different vision of economic and social development.
The federal government should encourage the efforts of Quebec and Canadian civil society to organize, and recognize it as a partner and associate both in Canada, during debates on trade liberalization or the effects of globalization, as well as in negotiations with other countries. I am thinking of the talks currently under way to establish a free-trade area of the Americas.
In the future, civil society and the provincial and federal governments will have to work together to make the process for negotiating a free trade agreement (FTA) of the Americas more democratic.
There are several reasons for this growing interest in economic integration issues on the part of the Quebec and Canadian trade union movement. In the first place, you have the negative results -- and I am not saying I agree completely with this -- of the free-trade agreements currently in effect. Significant job losses can be attributed to free trade in the three countries. In Canada, it is estimated that 138,000 jobs were lost between 1989 and 1996. In the United States, some academics have put job losses at 500,000. In Mexico, the situation has deteriorated.
Clearly, although there is no agreement on the economic repercussions of free trade, it must be admitted that the economic, social and political forces that were put in motion or accelerated by the agreements have produced more losers than winners.
The claim that liberalization of trade would give rise to lasting economic and employment renewal has been contradicted by the results in the past 15 years, which have been characterized by low rates of growth.
According to a joint study conducted by the OECD and the World Bank, the complete liberalization of trade might increase international revenues by 1.8 per cent at the most. Contrary to the general belief at the time, the main cost of employment losses was not so much a migration of jobs to the United States or Mexico, although this did take place in certain cases. The main cause of these job losses was the rush for unbridled competitiveness to meet the increased competition and financial capital pressure. This was also responsible for downward pressure on social legislation. The most instructive example for Canada is that of unemployment insurance, which has become employment insurance, since the dramatic reductions in its accessibility and coverage. In 1993, 90 per cent of unemployed individuals were receiving benefits. This percentage has fallen to nearly 40 per cent, which represents the average coverage and is slightly less than in the United States. This downward pressure on living and working conditions takes various forms from one country to another, but it is being felt every day.
Once again last week, we read how the gap between rich and poor in Canada has widened. The current debate on what to do with the budget surpluses after the deficit has been eliminated is taking place against the background of pressures exerted by the American example.
The Canadian and Quebec business communities constantly repeat that our tax structure must be adapted to that of the Americans. What this means is less resources for government programs, for the social safety net, less government presence, more markets, less social justice and more inequality. This is the neo-liberal agenda.
For trade unions, it is becoming increasingly clear that globalization and economic integration are not abstract concepts, they have repercussions even on collective bargaining. We are seeing an attempt to impose American models of collective agreements. The cases of the strike at Ogilvy in Montreal, which lasted nearly two years, is a good example of this downward pressure on our wages, on our normative working conditions, on our environmental health and safety standards. The American employers attempted to impose their model for a labour contract, including the English language, moreover.
The pressure is coming from Mexico but also from the Southern United States, particularly those states that adopted the Right To Work Bill. Protectionism is not a viable alternative to the neo-liberal agenda, especially for a country like Canada that exports almost 40 per cent of its products. In attempting to develop a market framework, we would do better to promote the idea of inserting a social clause into trade agreements.
The purpose of such a clause would be to ensure that the commercial benefits flowing from an agreement would be subject to basic international conventions. Since these would involve certain rights in the workplace, it would be more accurate to speak of a clause regarding fundamental labour rights. The conventions to be respected would be those adopted by the WTO regarding the ban on child labour, the ban on forced labour, the ban on various forms of discrimination and the defence and promotion of the right to belong to a trade union and collective bargaining rights.
The conventions mentioned in the social clause should be monitored at the continental level and be accompanied by effective complaint and settlement mechanisms. Complaint resolution would take place in a spirit of co-operation with the countries experiencing a problem, in order to avoid new forms of protectionism.
In the United States, President Clinton agrees with the idea of a social clause, but many Third World countries are concerned because they see it as another barrier that would prevent their exports from entering the American market.
The "multinationalization" of the economy refers to the transfer and delocalization of capital and production. Often, it is a matter of introducing a firm into countries other than its country of origin by means of direct subsidiaries, acquisitions or a form of commercial, financial, technological or industrial co-operation. The data that we do have -- and they are very rare -- confirm a huge growth in capital movements in the 1980s, with regard to both direct and portfolio investments. For example, although exports worldwide increased by 9.4 per cent annually between 1983 and 1989, while the average annual growth of the international gross domestic product was 7.8 per cent, direct foreign investments rose by 28.9 per cent, that is, by three times the rate of exports.
Today, for each dollar of commodities traded in the world, $40 are traded on the financial markets. Not all of these $40 are traded speculatively, but a good share of them are. This amount of money -- and we are speaking of transactions of up to $1,800 billion every day seeking out an extra little percentage point in interest rates or a quarter point differential on exchange rates -- plays havoc with the real economy, including that of Canada, whose currency has suffered harm from speculators in the last few months.
In order to minimize speculative transfers and encourage financial stability by making speculators pay a price, the Nobel prize winner for economics, James Tobin, suggested taxing the profits on currency transactions. This idea was rejected, and now there are instead proposals for taxing transactions themselves. Since profits on speculative movements are often not realized until they are cashed in, it is much easier to tax capital movements than the profits they generate.
Such a tax would allow central banks to win back some monetary dependence vis-à-vis the private market. Here again, the commercial benefits stemming from agreements to open up markets could be taxed. If one country collects such a tax, capital will flee to other countries that do not collect it. However, if paying this tax is mandatory to gain access to the commercial benefits provided by the agreement, this will narrow the possibilities. This having been said, what will be done with the tax? It could be used to assist the economic renewal of regions affected by freer markets. This will not be enough unless we revise the capital rules applying to firms involved in managing derivatives. The example of Long Term Capital Management speaks volumes. With a mere $4 billion US in base capital, LTCM speculated on various markets and had commitments of up to $200 billion, or 50 times its base capital! With stock market prices dropping, LTCM is being forced into bankruptcy, threatening to drag down other financial institutions with it. Somewhat similar to what happened with the American banking system in the 1930s, we are now seeing, on an international scale, a series of financial institutions that are channelling international savings, with insufficient capitalization to guarantee their investment capacity.
Many other things could be pointed out about the effects of globalization. I would like to close by reminding you that this process continues to be a phenomenon of unprecedented scope, whose effects will not necessarily be negative if we can manage to develop a framework that is in keeping with the democratic will of the people. National considerations are and will remain decisive. The role of government is changing and will continue to change, but will remain essential in the choice of successful strategies each country must make to take up the challenge of globalization, while maintaining social standards and safeguards.
In attempting to respond to new labour market requirements, one of our problems is that our social legislation and our social protection programs are no longer adapted to current labour market conditions. At present, there are as many self-employed workers as part-time workers in Canada. These individuals are often not eligible for programs like unemployment insurance and pension plans. Their future and the future of the community are uncertain.
Without a framework, like what is happening these days with international finance, social considerations will be reduced to economic considerations and the latter to financial considerations. Such a result will not be favourable to growth and employment, and therefore to people in general.
These are some of the ideas I would like to bring to your attention.
Senator Lavoie-Roux: In the last two years we have talked a lot about the social economy. I don't know whether the same concept has been developed in other provinces. Do you think that this could be an important tool for maintaining or developing social cohesion? How successful has the social economy been to date?
Mr. Paquette: First I must tell you that Employment Canada is currently conducting a study on social economics across Canada. It is being carried out by Jean-Pierre Boyer, who was an economist with the Economic Council of Canada when I worked there. I have had some contact with him. It will be interesting to see the conclusions of his study.
In Quebec, there is a big debate on this question. A large part of the trade union movement and the citizens' movement is distrustful of the development of the social economy. It is somewhat like globalization, that is to say, the social economy per say may develop in a very favourable way, or it may develop in a much less beneficial way, if certain criteria are not met. Among other things, one of the characteristics of the social economy is to meet the needs of the community. This therefore requires a will on the part of the community to set up social economy enterprises. The financial viability of such enterprises is usually ensured by means of joint funding -- in which the government may or may not play a role -- and these enterprises meet a social or economic need.
I think the most well-developed example in Quebec is our daycare system. As you know, the Quebec network of daycare centres is largely non-profit and originated in neighbourhoods where parents, together with project developers, wanted to establish a daycare system. It is funded in part by the state, and in part by the users. It also operates on a democratic basic, which is not always easy, but attempts are made to meet this goal.
In other words, there are many needs the government cannot meet because they are specific to the community's requirements. This can play a major role in promoting social cohesion. The problem is as follows: governments, particularly in the case of Quebec, are ambiguous about the role of the social economy network, particularly as regards health care. Efforts are being made to remove some of the government's responsibility and give it rather to community groups. These are obligations that should be the government's responsibility.
The dividing lines are not hard and fast. In a public debate, the mistrust of the union and community movements is clear. People have the impression that the government is transferring its responsibility to community groups or to social organizations to save the State money.
Senator Lavoie-Roux: How would you define social cohesion from a union point of view?
Mr. Paquette: For a number of years, I advocated the need for a social contract in Quebec, particularly as regards employment issues. Mr. Fernand Dumont spoke about "common reasons." Societies require a number of common values and projects in order to develop social solidarity. If people are not careful, these common values may erode and social solidarity may be jeopardized. This basic social contract guarantees social cohesion.
Does society or the community have certain responsibilities towards individuals who need help? Are a number of needs, such as health and education, assumed by the community? What are the responsibilities of individuals? I have always maintained that responsibility for professional training was a community responsibility, but people have to want training. Adults will not be trained if there is no training culture in a society. Social cohesion does not mean absolute social harmony. There will always be power struggles and pressure groups. In this regard, one of the basic values of the social contract for social cohesion is the quality of the democratic process within society to manage its debates without disrupting social cohesion. This is the role of democracy. We must be careful about having an official democracy that people do not support. As you know, people often see our political process as a battle of special interests, rather than one for the general interest. These battles involve politicians, institutions, the labour movement and the great lobby groups.
Senator Lavoie-Roux: Is that a concern of unions in Quebec?
Mr. Paquette: Yes.
Senator Lavoie-Roux: What efforts have been made to support social cohesion and take corrective actions if necessary?
Mr. Paquette: There has been a major debate in the last 10 years about democratizing the organization of work in the workplace to meet the needs of business. Efforts were made to empower workers but also to meet their needs, which means controlling their workplace. These issues have been discussed a great deal, particularly in the regions, and in the private, manufacturing, paper and metal working sectors. The regions have very much focussed on the introduction of regional structures.
At the moment, the structures put in place by the Quebec government are quite bureaucratic, but we have been closely involved in the whole debate. We were very active, even though that did not result in any direct provisions in our collective agreements or in the jobs of our members. We think that communities must be active and that regions must take charge of their own future if people are to have good jobs.
There was even some participation at the Quebec socio-economic summit held in March and October 1996. At the moment, there is somewhat of a backlash in the regions despite the fact that there is starting to be some criticism about the way in which the Quebec government set up the local structures. There is talk about local economic development corporations and regional development corporations. These are often forums in which the local elite puts forward its viewpoint rather than one in which all social partners are involved. These structures have been called into question in the regions, but the criticisms are not fundamental.
However, at the provincial level, there is no doubt that the Bouchard government's use of the consensus on having a zero deficit in four years has meant that some grassroots members of society are extremely mistrustful of this type of operation. At the moment, there has been some slackening of efforts after ten years of intense work to define a social contract in Quebec.
[English]
Senator Grafstein: I am interested in your evidence and the fact that it comes from a worker's position, a union position, a syndicate position. It is not often that we have an opportunity to exchange of views. I hope that we can have an exchange of views on this in order to understand the goals of the union movement in Quebec. We will have an opportunity to deal with it outside the province later.
I am curious about the fact that, while we are trying to work towards social cohesion, there were no comments from your group with respect to interprovincial trade barriers. We have been told -- not in this committee but elsewhere -- that one of the greatest barriers to decreasing unemployment is the fact that we have deep, invisible, intractable trade barriers between provinces, which are paralleled by intractable social barriers. Trade tends to be a little easier.
First, has your group looked at trade barriers? Have you developed a policy with respect to how they eradicate or reduce trade barriers, with a view to giving labour greater flexibility and mobility?
The Chairman: Before Mr. Paquette replies, let me say he was a former leader in the union movement, the CSN. He is no longer. He is a television star now. I think he would want to say that he is not speaking on behalf of his former organization.
Senator Grafstein: We should then strike the reference but deal with the question. It is more helpful on the social side as well. His experience probably gives him a better platform from which to deal with both topics, namely, trade and social barriers.
[Translation]
Mr. Paquette: I did not deal with national issues very much. I emphasized the social clause on which the Canadian government should work very hard, as it should regarding the Tobin tax. I did not discuss domestic issues, particularly as regards trade barriers. They may be less important than some think. Every time someone from the Chamber of Commerce talks to me about them, I ask that person to identify some for me. There are some, but as we gradually identify them, we find we have solved them as well. Clearly, in Quebec, there is less manpower mobility than in the rest of Canada. These issues are debated much less by people in Quebec than elsewhere in the country. The Quebec union movement is not very concerned about these issues.
[English]
Senator Grafstein: If not trade issues, have you identified barriers to social cohesion from a Quebec perspective? In other words, do you have a checklist of issues that would be relevant for us to look at with respect to the lack of the social cohesion?
[Translation]
Mr. Paquette: At the moment, the biggest debate is about use of the surplus once the zero deficit is achieved. What position will the federal government adopt? Will it take any initiatives? Will it increase transfers to the provinces for health and post-secondary education? What will be done with employment insurance? From Quebec's point of view, everyone, including management, is opposed to Mr. Martin's approach.
Senator Lavoie-Roux: That is not true just of Quebec, but of other provinces as well.
I think that if the federal government wants to play a useful role, it should take into account the fact that in a world of increasing economic integration, some powers will ultimately be delegated to continental political structures. These will be powers that sovereign States will be able to delegate. If we want to provide a framework for the market, we can no longer do so as was done in the case of the "New Deal," which involved the national level only. Now this must involve the continent as a whole and ultimately the world as a whole. The federal government will have to delegate powers to a higher level and also to a more local level.
The debate about the importance of training and the role of human resources in our businesses cannot be the same in Quebec, Ontario and British Columbia, because each industry has its own unique features. It should be emphasized in this context that Quebec's repatriation of active manpower measures was a step in the right direction. However, in the area of unemployment insurance, the federal government does not play a constructive role in Quebecers' understanding of the solidarity of Canadian society. The whole debate about the social union, which seems imbued with political wrangling, will not help develop solidarity within Canadian society. Those are some of the points I wanted to make.
We must bear in mind the new realities of the labour market. The self-employed constantly depend on a few suppliers of work. They are disguised wage earners with no access to any sort of income protection. The federal government will have to show some imagination in order to meet these new demands, rather than trying to use surpluses for purposes other than those for which they were intended, as in the case of unemployment insurance, for example.
[English]
Senator Grafstein: I wish to pursue this trade barrier and social barrier issue in a more anecdotal way. I have noticed that while the Province of Quebec has had meetings with New England governors with respect to a closer economic relationship, they have not had similar meetings with the Maritime premiers or the Province of Ontario. My view of the globe is local. If we cannot agree with our adjacent neighbours, Ontario on the one hand and the Maritimes on the other, it is difficult to see how we can build something constructive. Have you any comments on the Province of Quebec choosing to enter into discussions with governors of New England states but not with premiers of the Maritimes?
[Translation]
Mr. Paquette: It is a slippery slope.
[English]
The Chairman: There is an association of governors and Ontario, Quebec, and the Atlantic provinces. They meet every year or so.
[Translation]
Mr. Paquette: The same thing exists in the west. When I went to the United States, to Seattle, I was surprised to learn that a treaty for economic co-operation between British Columbia, Alberta, Washington State and Oregon existed. Our problem is that up until quite recently, political structures were designed to develop economic areas and that is no longer required. The same thing is happening in Europe where by creating a broad economic space, Europeans have provoked the resurgence of nationalism that they had thought had disappeared. The map of Europe is reverting back to what it was at the start of the 20th century. We will face the same problem in Canada.
One of the challenges of managing economic integration will be our ability to remain a united society, and it will be impossible for that to be based on economic relations, because economic relations between the east and the west have all but disappeared. Everything is developing on a north-south axis, and Canada will continue to exist as a political entity on the basis of social solidarity.
In this sense, when it comes to employment insurance, the federal government's game is extremely dangerous, because we are talking about one of the assets of social solidarity. The same is true for our health care system. The problems are huge responsibilities, but the federal government plays an important role. The challenge over the next few years will be to develop solidarity in Canadian society on a social and cultural basis. The debate is very strong in the rest of Canada and in Quebec.
The CRTC, for example, will play less and less of a regulatory role. There is quite a debate surrounding advertising during programs. Official advertising is regulated but not unofficial advertising. For example, we see brand names on milk cartons in programs because the Federation of Dairy Producers is sponsoring the program. You see a McDonald's bag in a classroom because McDonald's is sponsoring production. The large communication trusts in the United States will be in a position to offer more money or obtain products at a lower cost than what is produced in Canada and in Quebec. So Canadian culture will be threatened. The CRTC -- I listened to an interview with Ms Bertrand -- is not prepared to monitor that.
Whether we like it or not, Canada will face very serious challenges to its social and cultural cohesion because of economic integration. That was something we knew when the Free Trade Agreement was signed with the United States.
[English]
Senator Grafstein: One last, small question: I was curious to read some weeks ago a statistic about novels written in English and translated into French for the Quebec market -- which is a rich market -- and the reverse situation, where novels written in Quebec, which has a rich tradition, are translated into English for the English market.
I was unhappy to discover -- my statistics may not be correct -- that something less than 5 per cent were translated as a matter of course. It struck me that this was a huge barrier to social cohesion. If people do not understand novelistic values, how can they expect to understand social or economic values? Do you have any comments?
Senator Lavoie-Roux: First, we have to teach people how to read.
[Translation]
Mr. Paquette: You are right to be disappointed with the situation. There is a reason why we talk about the two solitudes in Canada. Canadian cultural products are not well known in Quebec, and Quebec products are not well known in the rest of Canada. Bridges are being built.
Again recently, in Ontario, I heard on the radio that there was a meeting between Quebec and Ontario poets. It is on the basis of this type of exchange that we will be in a better position to get along. Everyone acknowledges that there is more animosity at the political level. People can have very different political views on the future of Canada and Quebec and be capable of discussing cultural points of view. These are the positive effects of globalization and openness to the world. If we open up to the entire world, it is not normal not to be open to what our neighbour is doing.
I was told that Quebec comedians' fees made up about 80 per cent of their income, whereas in Canada, it was the opposite and that 80 per cent of the income for comedians in English Canada came from advertising work. In Quebec, it is more of a supplementary income.
There is nevertheless a problem in English Canada that the federal government must respond to for reasons linked to the linguistic barrier in Quebec. It is a very important cultural issue. It is in the interest of Quebec culture that Canadian culture be quite vibrant to face the American giant. By converging our respective interests, we will be in a position to better organize ourselves collectively.
The Chairman: As regards the surplus in the employment-insurance fund, I fully agree with what you said about the current government's policy in this regard. I would add however that this government has contributed a lot to social cohesion in Canada over the years by gradually adjusting to regional conditions.
Benefits are higher in regions where unemployment is higher. Despite recent budget cuts, that remains the same. I would say the same thing for equalization payments in Canada. These are two very important factors in social cohesion in Canada that are perhaps underestimated by politicians and other people.
When you talk about delegation of certain powers to a higher level of government, are you talking about international agencies, about another level of government or about protocols for trade treaties, for example?
Mr. Paquette: I was just pointing out a trend. I do not have a clear idea of the shape that will take. At the last meeting of heads of state, where I met Lloyd Axworthy and the Canadian delegation, I noted that more and more people feel that the opening up of markets will require a type of framework at a continental level. How will that unfold? There is perhaps a very interesting start on the NAFTA side, even if the mechanism requires some improvements, because it covers such a limited number of areas.
The Chairman: The environment, the labour force and working conditions.
Mr. Paquette: As regards working conditions, only three aspects can go as far as a formal complaint and a sanction: health, security and minimum wages. But the right to a union is not one of the areas that can eventually be taken as far as a sanction.
As part of the co-operation agreement on labour, what is interesting, and I did not highlight it in my document, is the spirit of co-operation. It does not involve sanctioning a country. If you take Mexico for example, in some places in the southern United States, near the Mexican border, like in El Paso, you have the impression you are in Mexico. There is a spirit of co-operation whereby attempts are made to help the country and the businesses in question resolve their problems, like the problem of child labour for example.
This spirit of co-operation should be a major part of the mechanism. There will nevertheless be some kind of delegation of powers over social issues which are currently strictly under provincial or federal jurisdiction.
For example, a rather specific thing, the Quebec union movement has urged the Quebec government to sign the co-operation agreement set out in NAFTA whereas the Canadian Labour Congress is still opposed to it. The provinces where the NDP was present, like in Ontario when Mr. Rae was premier, refused to sign it.
Since they are against the Free Trade Agreement, they will not sign these agreements. However, our experience over the past five years shows that the situation may be changed when there is pressure from the Canadian, American or Mexican public.
I find it unfortunate that the provinces did not sign an entire agreement and that it cannot be used integrally in Canada. Its application is seriously limited, although this has changed somewhat since four provinces signed it. It could perhaps be an interesting start.
I do not know what these institutions will look like, but I know that some will need to be created, and not just at the federal level. The provinces will also have to delegate some of their responsibilities, if we are talking about labour, for example, to continental monitoring organizations, if not it would be meaningless. That will call into question the opening up of markets as such.
The Chairman: I would like to thank you very much for appearing and addressing these important issues with us.
The committee adjourned.