May 16, 1978


The House resumed consideration of the motion of Mr. Jelinek: That this House regards the small business sector as a key to the regeneration of economic growth, increased employment, an improved balance of payments position and increased Canadian ownership of the industrial and resource sectors, and therefore urges the government to end the delay in formulating small business policies by immediately taking steps to: (1) implement a small business act, to include a realistic definition of small business, the criterion for which will be owner-management; (2) give tax rebates and other incentives to those small businesses which invest in research and development; (3) provide an incentive tax credit to any Canadian citizen who makes a direct investment in the equity of a Canadian-owned business; (4) amend those provisions of the Income Tax Act which discourage the transfer of small businesses within families or to employees; and (5) create a small business secretariat, independent of the Department of Industry, Trade and Commerce, its duties to include: (a) ensuring that the decisions of the federal departments and agencies reflect the interests of small business, (b) assisting small businesses to form consortia to improve opportunities for export and domestic trade, (c) establishing a fixed proportion of government-purchased goods and services, to be supplied by small businesses, and (d) exempting small businesses from the application of federal legislation potentially harmful to them.


NDP

Reginald Cyril Symes

New Democratic Party

Mr. Cyril Symes (Sault Ste. Marie):

Mr. Speaker, today we are debating a motion on small business which I find very timely and worth-while considering the sad state of our economy, especially as it affects small businesses. After listening to the minister this afternoon outlining in catalogue form all the things which this government is doing for small business, I can only lament at the state of small business in coming months when we consider that, despite these policies, we have record bankruptcies and record financial difficulties facing this important sector of our economy. Unfortunately, I was not reassured by the programs and the lack of new initiatives forthcoming from the minister this afternoon.

This motion is timely for another reason as well, because today is the day after the tabling of the report of the Royal Commission on Corporate Concentration, more familiarly known as the Bryce commission report. In it the Royal commission examined the operation of our economy and looked at the very important role that large businesses and large corporations play in our economy. That, of course, has a direct bearing on how small businesses operate in Canada today.

The very disappointing conclusion of this commission, as far as the NDP is concerned, was its conclusion that no radical changes in the laws governing corporate activity are necessary at this time to protect the public interest. I note that "in the public interest" includes not only consumers but all small businesses. Indeed, the royal commission went so far as to recommend the ending of corporate income tax and came up

May 16, 1978

with the conclusion that big is beautiful. Our party parts company very dramatically with the royal commission in that conclusion because we look at the evidence provided by Statistics Canada and other sources, and conclude that corporate capitalism is not competitive capitalism and, as a result, the small business sector of our community suffers very badly because of the domination, in both supply and price, of a few relatively strong and powerful corporations.

Indeed, if we look at the statistics provided by the government in 1975, we find that in Canada there are 206,695 non-financial enterprises. These are companies outside of banks and trust companies, etc. Of those 206,000 corporations or enterprises, only 500, or less than one quarter of one per cent, control 59 per cent of the assets, 51 per cent of the sales, and 63 per cent of the profits of all business in Canada. Those are very disturbing and startling figures. What we have in effect is oligopolistic or near monopoly capitalism in this country. We do not have free enterprise or competition, as most economists or even members of the House would define it.

I submit that when 500 firms control 59 per cent of the assets of this country, it is absurd to suggest that the remaining 200,000 corporations or businesses can provide any meaningful competition. When we have four firms in the motor vehicle sector of our economy which control 90 per cent of output, is it any wonder that here in Canada cars of any kind produced in Canada cost more t lan in the United States, even though the same cars are produced here and shipped across the border where they sell at a lower price? Surely that kind of concentration and the resulting price policies must indicate to any unbiased observer that we have price fixing of a sort and that we do not have true competition in that sector of the economy.

When four firms control over 50 per cent of all capacity in the primary metal sector, can anyone tell me that we have effective competition in this country, or when three sugar companies are dominant in their field-and recently, as we all know, have been charged with price fixing-does the consumer, or indeed any other business competitor, benefit from that kind of economic situation? The answer must be no.

This concentration of corporate power is detrimental to consumers and to small businessmen alike, because those corporations that control these important sectors of our economy dominate supply and price, and that affects both consumers and small businessmen. I wonder when was the last time that Imperial Oil or Loblaws asked us if the price was right. Indeed, Imperial Oil, which was chartered back in 1881, had accumulated by 1970 $2.3 billion in assets. Just five years later, in 1975, their assets had grown to $6.2 billion, or almost tripled in five years.

You can go through sector by sector in the economy and you begin to see the concentration of corporate wealth and power, you begin to see that the small businessman has little chance competing against these huge giants which have policies of underbidding, underselling, cornering markets and driving out their competitors. Anyone who looks at the food chain or the

Small Business

oil industry in Canada might wonder what has happened to the small independent retailers. Of the estimated $10 billion in unpaid corporate taxes, we find that about $9 billion are owned by the largest 1,000 corporations.

In terms of the government's tax policy, year after year this Liberal government has favoured the large firms as opposed to small business in terms of total amounts of tax concessions and deferred taxes. That, of course, is an unfair situation. It is unfair from another point of view as well, because it is the small businesses that are mainly engaged in manufacturing, and that is where the job creation is. This government continues, in its tax policy, to give preference to large corporations, mostly in the resource field, which are highly capital intensive and not job intensive.

Indeed, if members on the government side have difficulty in accepting the words of the NDP in that regard, I should like to quote the comments of a former Liberal cabinet minister and president of the Stock Exchange, Eric Kierans, who said:

With the exception of the United Kingdom, I doubt that any nation in the world has given its corporate 1,000 a more handsome gift package of subsidies, tax allowances, two-year write-offs, deductibility of merger costs, cheap loans, export credits and insurance than our present Trudeau government.

In light of that kind of growth of corporate power and the disadvantages it entails for small business, and in light of the report of the Royal Commission on Corporate Concentration, which in effect did not find anything substantially wrong with this concentration of corporate power and wealth, 1 was shocked to read in the press today the comments of the hon. member for Halton-Wentworth (Mr. Kempling) on what is the view of the Conservative party of the royal commission. I should like to quote him from the Ottawa Journal of May 16. He said:

"It's a blue report and that's our colour baby," Bill Kempling, Progressive Conservative business spokesman said Monday night, expressing a positive reaction to the report of the Royal Commission on Corporate Concentration.

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NDP

David Orlikow

New Democratic Party

Mr. Orlikow:

So much for small business.

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NDP

Reginald Cyril Symes

New Democratic Party

Mr. Symes:

Yes, so much for small business. The article continues as follows:

Kempling, was speaking literally-the book is blue-and figuratively: it contained what he said were recommendations Conservatives have advocated for years.

I am rather tired of the hypocrisy and duplicity of the Conservative party. Time and time again they have stood in the House to move motions and put questions in an attempt to indicate that they are in favour of small business. On the other hand, they have indicated that they are in favour of corporate concentration and the concept that big is beautiful in this situation.

Conservative members should get their act together. They should be honest. Either they are in favour of small business or they are in favour of big corporations. The two are not mutually synonymous or compatible in their aims. It is a shame for Conservatives to attempt to have it both ways. As I have illustrated, corporate concentration is operating to the

May 16, 1978

Small Business

disadvantage of small business. 1 regret the Conservative party is supporting the conclusions of the Bryce commission.

We in the New Democratic Party have repeatedly emphasized the necessity of revitalizing our manufacturing industry. That is where the jobs are. This important sector of Canadian industry has been declining year after year because of the government's allowance of foreign ownership and dependence on resource exports. Our manufacturing trade deficit has risen from $3 billion to $11 billion. That means we are importing more manufactured goods than we are exporting. That has resulted in a loss of some 400,000 jobs in Canada over the years. We have allowed this very vital sector of our economy to decline. Part of that is the result of a branch plant economy and allowing foreign ownership to take over.

Some 280 of the 500 corporations which 1 mentioned earlier are foreign controlled. The result of that is that when there is a slack in the economy the lay-offs are in the branch plants in Canada first. Also it means a lack of research and development in Canada, as well as policies to bar Canadian branch plants from exporting their products to other countries in order to develop a market of jobs here.

The role of small business in our economy could be much greater than it is now. That sector should be revitalized in order to get our economy back on the rails, to provide jobs, and income, and revenue for the federal government. At the present time small business employs between 30 and 60 per cent of our work force, depending on how it is defined. Most people would say the definition of small business is a firm employing under 200 people, owner managed, and not dominant in its field.

I want to stress the important role which could exist for small business in the rebuilding of our economy. When we look at budgets and small business policy, one can only conclude that the government favours the large corporations over the small businesses. Over the years it has allowed corporate concentration to exist. It has allowed foreign ownership to exist. It has allowed the higher prices these corporations can charge by virtue of control of the market. It has allowed high unemployment. It has associated with the decline of our manufacturing sector by allowing the record number of bankruptcies in small business. Surely the record is clear. The government is not interested in revitalizing small business and controlling the power of the dominant corporations in our society. We need a positive and imaginative small business policy in Canada. The New Democratic Party supports a healthy small business sector.

I should like to outline briefly what my party thinks small business requires, and what we would do to encourage this sector of our economy. It should be obvious that we need to put limits on the power of large corporations and their ability to manipulate price and supply. This can be done by breaking up the oligopolistic or near monopolistic situations which exist in many sectors of our economy, so that there will be true competition and benefits to be derived from that. There are cases which can be made in favour of not breaking up monopolies. For example, I am thinking of Bell Canada. If we are not

going to break up the monopolies, then there must be effective regulation of these monopolies, either through a government regulatory body which has some muscle, or through a competition act which has the power and ability to restrict unfair competitive practices that are detrimental to consumers and small business. We must restrict the power of large corporations which enables them to manipulate the market, supply and demand, and price.

We must assist small businesses with their cash flow problems. Any hon. member who has taken the time to talk with small businessmen will know that is the first complaint made. Small businessmen require start-up funds, cash and capital in order to commence business, expand, or tide them over through difficult times. When I think of the minister's carrot, the Small Businesses Loans Act, as a solution to that problem, I have to weep. The small businessmen I have spoken with indicate that bank managers laugh them out of their offices when the idea of assistance under the Small Businesses Loans Act is mentioned. The act contains no compulsory requirement for banks to set aside a certain proportion of their money to be loaned to small businessmen. Most bank managers realize that if they hang tough they can force small businessmen to borrow at the prime rate, rather than the slightly lower rate applicable under this act. There must be some mandatory requirements for the banks to loan under this act.

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LIB

Gérald Laniel (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Liberal

Mr. Deputy Speaker:

Order, please. The hon. Minister of State for Small Business (Mr. Abbott) on a point of order.

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LIB

Anthony Chisholm Abbott (Minister of State (Small Businesses))

Liberal

Mr. Abbott:

Mr. Speaker, will the hon. member allow me to make a correction to the point he just made?

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NDP

Reginald Cyril Symes

New Democratic Party

Mr. Symes:

Yes, Mr. Speaker.

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LIB

Anthony Chisholm Abbott (Minister of State (Small Businesses))

Liberal

Mr. Abbott:

The banks charge the prime plus 1 per cent under the Small Businesses Loans Act. The hon. member indicated that the banks would prefer the prime rate. I assume they would prefer one extra percentage point of interest. Rarely would they charge less than the intrest rate under the Small Businesses Loans Act.

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NDP

Reginald Cyril Symes

New Democratic Party

Mr. Symes:

I thank the minister for his correction. The number of small businessmen who would like to take advantage of the terms of the Small Businesses Loans Act compared to the number who are able to is very disappointing. When one looks at the total number of loans by private banks, under normal lending practices, and compares that with loans under the act, the latter is minuscule. That entire area requires reform. The loan limit should be raised, and there should be a much more lenient policy on the part of banks. Also the tax system should be reformed. The bias is toward large corporations as opposed to small businesses.

NDP provincial governments have taken initiatives toward reducing the small business corporate tax rate. We could learn something in that regard. Also there should be a restructuring of the Federal Business Development Bank. The small businessmen I have spoken with indicate that they receive more hassle and have more problems with the FBDB than private

May 16, 1978

lenders. Yet the FBDB was established to assist small businessmen who did not have the traditional forms of collateral. Indeed, often they are much more difficult to get assistance from than the private lenders.

A third area that we need to move imaginatively into is a federal government policy which ensures that at least one third of all government spending on goods and services will be contracted out to the small business sector. This is a beginning for this government to take instead of its ad hoc policy. We need to subdivide large orders so that the small businessman can bid easily on them. We have to end some of these large bid tenders, complex tendering forms, and large bonding requirements that put roadblocks in the way of the small business trying to get a part of government business. The paperwork, as we all know, must be reduced. The minister, indeed, has begun in this area to reduce what he calls the paper burden, but there is much more improvement that could be made.

I am glad to see the government has implemented the employer tax credit idea. This was long overdue. Many other countries have used it to great effect. Finally, we need a long term industrial strategy to develop our manufacturing sector and get this economy back on the road. That can only be done with some investment planning in which government has a say in this country.

We need to support small business. The government is not taking the initiative it should and until it controls corporate power and comes up with some imaginative policies, the small business sector will remain in great difficulty.

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SC

Charles-Arthur Gauthier

Social Credit

Mr. C. A. Gauthier (Roberval):

Mr. Speaker, first of all I want to thank the mover of this motion on small businesses. The motion being rather lengthy, I will quote only its first paragraph as an introduction:

That this House regards the small business sector as a key to the regeneration of economic growth, increased employment, and improved balance of payments position and increased Canadian ownership of the industrial and resource sectors, and therefore urges the government to end the delay in formulating small business policies by immediately taking ...

Necessary steps starting with the implementation of a small business act and the definition of what exactly is a small business. Mr. Speaker, I think the best definition of a small business is the following: it is a business which is operated by its owner and which does not have the management structures typical of large corporations or companies.

Mr. Speaker, when we talk of medium size businesses we usually have in mind those with fewer than 100 employees whereas a small business has 50 employees at most and is also called a tertiary enterprise. We are right in saying that the small business is the key to the future of a country because it is the one from which it springs forth. A region is always opened by private business and it is always that business which makes the first test of a new economy. Large companies follow later.

Small Business

It is almost contradictory that large businesses are always openly welcome whereas the arrival of a small enterprise alway occurs in almost complete silence. Yet small businesses are those which generate most of the employment since 60 per cent of workers owe their living to them.

Today we urge the federal government to formulate small business policies. I think this representation should be made to all governments in this country and draw the attention of all citizens so their attitudes will change vis-a-vis small businesses. Even at the municipal level we have seen multinational corporations get 20- and even 25-year tax exemptions while small businesses in those same municipalities could never get a one-cent exemption on those same taxes. I think this is a bad attitude which has been perpetuated from generation to generation-always worshipping millionaires and forgetting about those who provide the basis of our existence.

Even today it is sad to see that big corporations and multinational companies have the assured protection of governments because they fill up the election coffers. The largest revenues belong to industries and multinational companies which barely pay 25 per cent of the whole national budget while the millions of workers who pay altogether 75 per cent of the national budget get 20 times less revenue than large corporations.

Some will say: We are helping our small businesses, there is the Industrial Development Bank with its thousands of advisors. Mr. Speaker, what kind of help are they providing? Loans for 50 per cent of their needs at interest rates of 10 per cent, 11 per cent and even 12 per cent. Flow is it possible for a small business starting out to make even a net profit of 11 per cent or 12 per cent to be able to pay only that interest? The subsidy they are given does not even pay the interest on three years of operation. Even if after three years the small business has survived, after that time taxes will eat it up.

That is why 90 per cent of our small industries end up going bankrupt or being bought by monopolies. In that respect I will give only one example experienced in my area, that of the bakeries in the four constituencies in my riding. A few years ago, we had only one bakery in each large municipality. Those bakeries were not making millions but they were doing well enough and were thus able to provide work for several heads of families. Then came the time to modernize, which involved mechanization will all its requirements, and since the small industries could not find help to obtain money at reasonable rates, they were swallowed up by the few monopolies of the areas who can now dictate to the whole sector. They even control the quality and the price of bread, and what a price it is, Mr. Speaker! They have eliminated 90 per cent of the jobs. Our bread is trucked in to us from a distance of 125 miles and we must accept it as it is, good or bad. Should this monopoly ever decide to call a lockout, the whole area would have to do without bread. The worst of it is that these monopolies have the blessing if not the protection of the governments.

May 16, 1978

Small Business

We do have the Small Businesses Loans Act, but this legislation is ineffective because of the criteria which make it nearly useless. 1 am in complete agreement with today's motion which urges the government to give tax rebates to small businesses which invest in research and development. If we were to compare them once again with large businesses, we would be amazed to see how the latter are favoured.

I especially want to draw the attention of the government to the tertiary industries which are the most neglected in my opinion. I do not know if this is because the criteria are too strict or because the civil servants are given orders to refuse all requests for help from those small businesses, but of all the applications made in my area, only two per cent are accepted.

We ask the government today to end the delay in formulating a small business policy, and I would even urge the government to take concrete action through our present legislation by accepting the applications made by small businessmen. The government may claim that it is prepared to help the development of new small businesses, but if it refuses 98 per cent of the applications or else, which amounts to the same thing, if it imposes unacceptable conditions to those small businesses, the offers of the government will certainly remain only empty promises. There is the matter of financial help in which case the government offers a 10 per cent or 15 per cent participation in total investments. This does not even cover the interests nor the legal costs the owner has to pay during the first year.

As for guaranteed loans, the interests the owners of small businesses will have to pay outweigh by far the net income of the business during the first year when economic efficiency cannot be stabilized like in subsequent years. As to tax exemptions, unlike large companies, small businesses are subject to tax from the very first years of operation, which is the cause of 90 per cent of the bankruptcies I have just mentioned. The government should give priority to small businesses which often start with the means at their disposal and where the owners risk their whole future because they have limitless confidence in the survival of their business.

After their initial efforts they turn to the government, which is quite normal since it is there to support the efforts made by citizens and not to create an industry by spending millions of dollars at a time to advantage a select group of its supporters. It happened in the past and unfortunately it still happens regularly today. We deplore it and denounce it vigorously.

If we really want to help our small businesses, the government must further encourage those who are anxious to invest in such enterprises, particularly through the Income Tax Act which now stands in the way of transfers of small businesses to members of the family or employees. It is another weakness of the legislation that strikes a deadly blow to any small business operated by the family head. When he dies the Income Tax Act strikes it lethal blow. When the family head transfers his

business to his children or his employees, he should declare bankruptcy because it would be cheaper for his heirs to purchase the bankrupt business than having to pay succession duties. This is a sad situation I have witnessed many times and experienced myself with the result that the business is crushed under the tax burden.

Another way for the government to help small businesses efficiently consists in buying in Canada. Obviously small businesses cannot assure the money support offered to the old parties by big corporations but it would be compensated by the social effects that would benefit all Canadians. If only the government were concerned about the well-being of the people instead of profitability, I think that many acts would be amended and that many false criteria would disappear.

Last, the motion says that the government should create a small business secretariat independent of the Department of Industry, Trade and Commerce. Mr. Speaker, I am afraid that those secretariats created by the government are nothing but a group of civil servants who want to impose their will on small businessmen. If that secretariat supported by the government were made exclusively of small businessmen I would agree, but please do not impose on us a group of civil servants delegated by the parties in power and who will play into the hands of politicians.

I think that the only persons who can really work in the interest of small businesses are businessmen with no political ties and whose only interest would be the success of small business. Mr. Speaker, I think that the only way to fight against monopolies at the production level as well as the distribution and consumer level is to encourage the development and multiplication of small businesses that can really benefit all people.

Today we are almost passive witness to a war without quarter against the financial monopolies of production, distribution and consumption on the one hand, and the labour monopoly and big unions on the other. And who is the victim of that macabre spectable? Always the consumer. That is why we are asking the government to take the necessary means to introduce legislation clearly favouring small business to enable it to play its true role in the Canadian economy by living on parallel lines with the monopolies without falling prey to them. That is why, Mr. Speaker, we approve and support this motion before use today on small business.

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PC

Stan Darling

Progressive Conservative

Mr. Stan Darling (Parry Sound-Muskoka):

Mr. Speaker, it is certainly a privilege to take part in the debate this afternoon. I wish to commend very highly my colleague and spokesman for small business, the hon. member for High Park-Humber Valley (Mr. Jelinek) for the content of the motion. He has spelled things out very correctly. Even the Minister of State (Small Business) (Mr. Abbott) said that while he did not agree 100 per cent with everything that was said-which we would hardly expect-he certainly agrees with

May 16, 1978

the content of the motion. This motion gives the minister and his department a chance to speak on behalf of the government, to present their views and to let the people know that a great many of us have grave concerns for small business in Canada today. We feel that it should be given every possible incentive to help it.

I am pleased to speak on this topic, not just from the isolated position of a member of parliament but because prior to coming to the House of Commons I operated a small business in a small village in the riding of Parry Sound-Mus-koka. Thus I am aware of the many problems that exist. Of course, similar problems are faced by colleagues in the same type of business in which I was engaged, that of general insurance and real estate. A great deal of the credit for giving assistance to small business and also for speaking on behalf of small business can be given to the Progressive Conservative party.

1 certainly feel that our party can be classified as the party really beating the drum for small business. It is only logical for the Progressive Conservative party to follow this course considering the enormous contribution that the small business sector makes to our economy. Approximately 55 per cent of all businesses in Canada can be classed as small businesses. It is a well endowed source of revenue for the government. Of course, the government has seen fit to ignore this important section of our economy, perhaps not entirely, but certainly it has not given it its due place in the sun. I consider the small business sector to be the backbone of our economy. If the government took heed and implemented some of the sound economic proposals contained in the motion, the smallscale business sector could provide the remedy to our economic ills, give hope to the unemployed, and restore some balance to our lopsided international trade account.

Because of the important role it plays in our economy, not too long ago the government saw fit to establish the Ministry of State for Small Business. I would like to underscore and strongly support the suggestion contained in the motion to establish a "small business secretariat" which would be independent of the Department of Industry, Trade and Commerce. This proposal will not require any further expansion but would be merely a transfer in the status of importance attached to the small business sector.

A small business secretariat will serve as a conduit to many businessmen who currently spend costly time trying to untangle themselves from government red tape or desperately trying to free themselves from the quagmire of government's stifling procedures affecting small businesses. Quite bluntly, Mr. Speaker, it will help the operator against the familiar "runaround", a commodity that the government dispenses so abundantly, whether in calling an election or providing solutions to our economic problems.

I was pleased to hear the minister mention that the secretariat is open and that there is a Zenith line where small businessmen can call in without cost. I hope that a good many

Small Business

of them will take advantage of that facility. I understand the minister gave the telephone number, but for the record again it is Zenith 03200. If anyone has problems let us hope they will call in. If they do not get answers from the secretariat, I hope that they will then contact their local members to intercede on their behalf.

The small business sector comprises firms operating in a variety of industries ranging from tourism to construction and from farming to manufacturing. Since I represent the picturesque riding paradise of Parry Sound-Muskoka, it behooves me to focus attention on small business operators in the tourist trade. Tourist trade immediately conjures up images of small scale operators. This is rightly so. Tourist trade is synonymous with small scale business. The plight of the tourist facility operators is a miserable reflection of the lack of concern that the government has shown in lending a sympathetic ear to the small business sector in the past.

It is well to note that in spite of our economic woes, tourism is one of the areas with the greatest potential for regenerating and fuelling our blighted economy. It is worth noting that tourism is now the sixth largest earner of foreign revenues for Canada. I may further add that travel in Canada is a $10 billion industry, but regrettably statistics also reveal that our travel habits have plunged us into close to a $2 billion deficit. Tourism expenditures in Canada provide employment for about one million people and the total annual investment is around $1.5 billion. Over $5 billion is poured into government coffers. In the province of Ontario it is the second largest generator of export dollars, exceeded only by the automobile industry.

I have briefly outlined the importance of the tourist industry to our economy and I repeat that this industry is comprised of small scale businesses. At this stage, Mr. Speaker, I would like to pose a simple but realistic question. Why has the government failed to recognize the importance of this industry? Is it because it is operated by a large number of small businesses? Why is the area of tourism cuddled up in some nook in the Department of Industry, Trade and Commerce? I will take the liberty of further suggesting that the motion call for the establishment of an independent department of tourism. This is not a call to expand the bureaucracy but merely to transfer personnel from the Department of Industry, Trade and Commerce to an independent unit.

This would facilitate the efficient handling of matters affecting the numerous operators who contribute to the tourist industry. It would also provide for some serious studies to be conducted in order to grapple with one of the fastest growing industries which may become the most important revenue earner for Canada in the not too distant future.

We need to do some long-range thinking. The role that tourism can play in eliminating our dismal and lopsided balance of payments account is certainly worth considering. Too little has been done to generate enthusiasm and to tap foreign markets so as to entice people from abroad to visit our beautiful and friendly land. Think for a moment of the tremendously favourable impact such a move could have on

May 16, 1978

Small Business

reversing the flow of much needed foreign exchange that this country is being depleted of at an alarming rate. These suggestions and proposals are not put forward as lofty ideals but can be achieved with some realistic approach by the government. That is why the opposition has consistently come forth with positive suggestions such as those contained in the motion before us today.

I will reiterate briefly what I have put forth on a number of occasions in this House. The small business sector needs special consideration in order to provide adequate financing. There ought to be special long-term loans to help the many ailing small tourist operators. Mr. Speaker, short-term and inadequate financing is the wrong formula to apply to solve the tourist trade equation. Small businesses also deserve to be given special consideration for tax credit purposes. This, Mr. Speaker, is well spelled out in the motion, which calls for tax rebates and other incentives to those small businesses with investment in research and development. It is the small business which usually ends up contributing heavily to the government revenue, for small businesses lack the services of skilled tax specialists. This sector is merely requesting a fair reward.

When speaking this afternoon, the minister mentioned small business loans and the more attractive interest rates. Let us hope that becomes a reality. Many members of parliament have been approached on this subject by small businessmen. I have mentioned this in the House before and it certainly bears repeating. They are asking where are the small business loans announced by the Minister of Finance (Mr. Chretien). I am sure almost every member in the House has been asked about this. We tell them they do not get these loans from the Federal Business Development Bank or from the Ministry of Finance, that they must put in a request to their local chartered bank or financial institution. After doing this, they find there is no money there. This has been proven to be the case time and again, and has been documented by many members on both sides of the House.

In past years, the rate was set. At one time it was 9% per cent. The prime rate was that high or higher. What bank or financial institution will lend money at a loss? Not many. They say they are out of that kind of money. It is important to small business to be able to get adequate financing at reasonable rates. This is one of the most serious problems facing the small businessman today.

Many of our small businessmen are tourist operators. They find it difficult to secure funds in order to upgrade or enlarge their facilities. Even in small towns where there is a personal relationship between the businessman and the bank, a tourist operator is at the bottom of the list as far as being a credit risk is concerned. This is most unfortunate.

The farmer was in the same boat. When he went to the bank, he was more or less told that his ability to repay was not among the highest. Therefore, the farmer had difficulty securing suitable credit over a reasonable period of time. We must

not forget that farmers are just as much small businessmen as limited or small companies.

The Minister of State (Small Business) said that the Federal Business Development Bank is a federal agency. Its interest rates are not as reasonable as some private institutions. It has been and probably still is known as a bank of last resort. 1 believe their current interest rate is around 11% per cent. After approaching the Federal Business Development Bank for a loan, they sometimes find that they can get a better rate and even a longer term at their local bank. The period of the loan is most important to many small businessmen.

The loan period with the Federal Business Development Bank is probably ten to 12 years. It is very difficult for a small businessman to repay a loan in that period. I hope something can be done about longer term loans at reasonable interest rates for small businessmen, tourist operators in particular. That is one class of business that finds it most difficult to secure financing. As a result, they must carry on with less than adequate facilities. Therefore, they cannot charge the rates they could charge if they were able to provide more up to date and more luxurious accommodation. Canadians and visitors from outside Canada demand the very best in accommodation and are willing to pay for it. I hope the Minister of State (Small Business) will use his good offices to see that something special is done for those in the tourist industry, an industry with which he is familiar.

The minister is well aware that that industry can bring tremendous revenue into Canada, if only we do a real selling job on it. I concede that is not his responsibility but that of the Minister of Industry, Trade and Commerce (Mr. Horner), as the government agency and services come under his department. If money is spent in the right way to attract tourists to this wonderful country, it will be the old story that if you cast your bread upon the waters, it will come back in no small amount.

Small businesses are an integral part of any community, and are very important in my constituency of Parry Sound-Mus-koka. I can hardly be blamed for beating the drum and speaking on behalf of the many small businesses in my constituency. There are about half a million small businesses in this country. It is a tremendous market. I therefore appeal to the government to accept the motion and implement the various statements made by the hon. member for High Park-Humber Valley.

The newspapers have recently given considerable publicity to the tourist industry. A headline in the Toronto Star reads "Tourist Trade Braced for the Yankee $1.12 Invasion". Let us hope that is right. I say a word of caution to the tourist operators. Our American visitors know there is a substantial difference in the exchange rate. They do not want to be ripped off. They must be assured they will be given every break possible. I know they can get the latest exchange rate at the banks.

Tourist operators are aware that the great American influx of tourists and tourist dollars have dropped off drastically, from a high of 50 to 60 per cent some years ago down to 10 to

May 16, 1978

15 per cent. That percentage certainly must be brought back up. May I call it six o'clock, Mr. Speaker?

Topic:   GOVERNMENT ORDERS
Subtopic:   BUSINESS OF SUPPLY
Sub-subtopic:   ALLOTTED DAY S O. 58-MEASURES TO IMPROVE SMALL BUSINESS POLICIES
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LIB

Gérald Laniel (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Liberal

Mr. Deputy Speaker:

I might bring to the attention of the hon. member that he has about 30 seconds remaining. If he does not mind I will recognize another member. I do not think he will be back for 30 seconds, after eight o'clock. However, if he wishes, he will be allowed to say a few more words at this time.

Topic:   GOVERNMENT ORDERS
Subtopic:   BUSINESS OF SUPPLY
Sub-subtopic:   ALLOTTED DAY S O. 58-MEASURES TO IMPROVE SMALL BUSINESS POLICIES
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PC

Stan Darling

Progressive Conservative

Mr. Darling:

Mr. Speaker, I did have a couple of comments I wanted to make; they reflect the opinions of tourist operators in Muskoka. Tourism is Ontario's second largest industry. In 1976, 102 million visitors spent $2.8 billion here. Last year, 105 million spent an estimated $3 billion and this year it is expected the amount will be more. So let's hope our tourist operators will be able to benefit from the fact that the U.S. dollar is at a premium. Together with Canadians in all types of businesses we want to make Americans as welcome as possible, along with visitors from other countries. Canada is a tourist's paradise and small business can earn tremendous amounts of revenue and, with the continued development of this resource, become more and more successful.

[ Translation]

Topic:   GOVERNMENT ORDERS
Subtopic:   BUSINESS OF SUPPLY
Sub-subtopic:   ALLOTTED DAY S O. 58-MEASURES TO IMPROVE SMALL BUSINESS POLICIES
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LIB

Gaston Clermont

Liberal

Mr. Gaston Clermont (Gatineau):

Mr. Speaker, may I now call it six o'clock and start my speech at eight this evening?

Topic:   GOVERNMENT ORDERS
Subtopic:   BUSINESS OF SUPPLY
Sub-subtopic:   ALLOTTED DAY S O. 58-MEASURES TO IMPROVE SMALL BUSINESS POLICIES
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LIB

Gérald Laniel (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Liberal

Mr. Deputy Speaker:

It being six o'clock, I do now leave the chair until eight o'clock.

At 6.03 p.m. the House took recess.

Topic:   GOVERNMENT ORDERS
Subtopic:   BUSINESS OF SUPPLY
Sub-subtopic:   ALLOTTED DAY S O. 58-MEASURES TO IMPROVE SMALL BUSINESS POLICIES
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AFTER RECESS The House resumed at 8 p.m.


LIB

John Napier Turner

Liberal

The Acting Speaker (Mr. Turner):

Order, please. At six o'clock the hon. member for Gatineau (Mr. Clermont) had the floor.

Topic:   GOVERNMENT ORDERS
Subtopic:   BUSINESS OF SUPPLY
Sub-subtopic:   ALLOTTED DAY S O. 58-MEASURES TO IMPROVE SMALL BUSINESS POLICIES
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LIB

Gaston Clermont

Liberal

Mr. Clermont:

Mr. Speaker, the opposition motion we are studying in the House of Commons today deals with small businesses and what could be done to improve their situation. Mr. Speaker, I have always thought that small businesses are a very important topic worth considering. Because of their large number, they can have a great impact in our economy. It is a matter worth discussing at various times during our parliamentary debates and I thank the hon. member for High Park-Humber Valley (Mr. Jelinek) for having given us the opportunty to discuss it.

Small Business

Mr. Speaker, in the Speech from the Throne of October 12, 1976, as reported in Hansard for that date on page 2, we can read, and I quote:

... Small owner-managed firms are a mainstay of employment in cities and towns across the country. They supply goods and services essential to consumers and to other business, and they demonstrate the innovation and entrepreneurship from which successful enterprise must spring. More than that, small businesses, and the people who own them, manage them, and work in them, are the economic backbone of countless communities throughout Canada.

Mr. Speaker, I have considered this matter on several occasions and I am happy to take part in this debate. The motion includes recommendations and measures to improve the situation. I am referring to the first recommendation which

is:

(1) implement a small business act, to include a realistic defintion of small business, the criterion for which will be owner-management;

Mr. Speaker, I remember that when the Standing Committee on Finance, Trade and Economic Affairs was discussing the white paper on taxation in 1970, various studies were made to arrive at a definition of small businesses. The mover suggests that the criterion for this definition be owner-management. I feel, Mr. Speaker, that the terms of this recommendation are too limited. Some would rather use the assets of the business as a criterion; others, the number of employees or the turnover. As you see, it is not easy to arrive at a consensus, but I say it is worth trying.

Mr. Speaker, here is the definition of a small business, according to section 632 of the small business act of the United States, and I quote:

For the purposes of this chapter, a small business concern shall be deemed to be one which is independently owned and operated and which is not dominant in its Field of operation. In addition to the foregoing criteria, the administrator, in making a detailed definition, may use these criteria, among others: Numbers of employees and dollars, volume of business. Where the number of employees is used as one of the criteria in making such definition for any of the purposes of this chapter, the maximum number of employees which a small business concern may have under the definition shall vary from industry to industry to the extent necessary to reflect different characteristics of such industries and to take proper account of other relevant factors.

Mr. Speaker, the small business act could consolidate current programs and would serve as a basis to a policy aimed at promoting the interests of that sector. Policies to be implemented under that act could also include certain considerations. I would like to mention a few, Mr. Speaker. The lack of capital and especially of long-term and equity capital to get these small businesses started and developed is for them a major problem. This is not surprising. Most often small businesses have not proven themselves and occasionally lack qualified management. They therefore represent a risk for creditors. Their size is also another disadvantage.

Firms specializing in risk capital are rarely interested in investing less than $100,000. In any case, it would not be very

May 16, 1978

Small Business

profitable for such a firm to spend about SI,000 to enquire as to the solvency of the business in order to lend $20,000. To increase the sources of credit open to small businesses, the existing government financing programs must be improved and new financing services must be created.

On another level, the availability of risk capital should be considered. Businessmen are often concerned that the lending requirements of the Federal Development Bank are as stringent as those of private lenders. As this bank is supposed to be a last resort lender, its lending requirements should be revised to put more emphasis on the commercial potential of the future business than on the usual guarantees.

However, the revision of the Federal Development Bank's lending requirements will probably not provide small businesses with all the risk capital required. There are always serious restrictions to having government agencies investing risk capital.

First of all, Canadians might not necessarily agree with the investment of public funds in high risk endeavours. On the other hand, the investment of risk capital forces the investor to work in close co-operation with the management of the business concerned, a situation which many businessmen would consider undue interference of the state in the board rooms of the nation. The government could encourage private sources to supply risk capital to small enterprises. The government could consider the possibility of encouraging the creation of private firms specializing in supplying credit capital and long-term participation in small commercial undertakings. Companies of that type, Mr. Speaker, known as investment companies in the small business sector have been very successful in the United States for several years now. They have the advantage of being allowed to borrow up to 50 per cent of their share capital from the American small business bureau. They are also granted tax rebates. Similar programs have been introduced in some Canadian provinces.

Mr. Speaker, there is no doubt that other proposals can be included in such a legislation. There now exist opportunities and certain programs to promote small business development and expansion, as the counselling assistance to small enterprises tendered by the Federal Business Development Bank to small businessmen on their management problems. The business expansion program offers grants to Canadian manufacturing firms and guarantees loans for developing new products and implementing new production techniques. Under the Small Businesses Loans Act, the Canadian government has the authority to guarantee loans up to $75,000 granted by private institutions to set up or expand small businesses, and the income tax employment credit has also been in place since March 1978.

Moreover, we have the Enterprise Canada 1977 program implemented by the Minister of Industry, Trade and Commerce in co-operation with other departments and other services. It sponsors information sessions between officials and

business people to inform the latter of the range of programs and services offered by the Canadian government.

In another area, Mr. Speaker, the approach used to set the interest rate allowed under the Small Businesses Loans Act should be reviewed to come up with a formula that would allow for interest rates that would be more competitive with current rates. In the latest report to parliament submitted by the Department of Finance for the first three months of 1978, the interest rate on loans under the Small Businesses Loans Act was 8% per cent, while the prime rate was 9'A per cent over the same period. I wonder if in the circumstances the private sector has any real incentive to make those loans, when it can get higher rates on regular loans.

I read in recommendation No. 5 of the motion: Create a small business secretariat, independent of the Department of Industry, Trade and Commerce.

It is a known fact, Mr. Speaker, that the right hon. Prime Minister (Mr. Trudeau) established in September 1976 the function of Minister of State for Small Businesses, in order to defend and promote the latter's interests.

The first minister was the hon. member for Kamloops-Caribou in British Columbia (Mr. Marchand) and now it is the hon. member for Mississauga (Mr. Abbott) in Ontario.

Mr. Speaker, I do not see any serious opposition to the recommendation of the hon. member for High Park-Humber Valley but, if it were implemented, we should not allow a duplication of responsibilities and we should not create at this time the impression that the Department of Industry, Trade and Commerce is looking only after big business. On the contrary, Mr. Speaker, the activities of that department prove it is not so.

Concerning the procurement policy of the Canadian government, small and medium size enterprises-those having 100 or fewer employees-are encouraged by the Canadian government through the Department of Supply and Services whose minister is the hon. member for Dollard (Mr. Goyer).

When he participated in the debate on the motion, the hon. member for Sault. Ste. Marie (Mr. Symes) urged that at least 33 per cent of the Canadian government's purchases of goods and services be handled through small businesses.

During the supper recess I made inquiries and was told that the current percentage was about 41 per cent for small and medium size businesses-and again I repeat those having at most 100 employees. Mr. Speaker, I hope that percentage will continue to increase. Maybe in some cases we will have to change the tender system so that it will be less expensive and complex for small business.

In concluding, Mr. Speaker, I hope the Minister of State responsible for small and medium size business will take all necessary steps to help them expand, as he said he will soon table legislation toward that end.

May 16, 1978

Topic:   GOVERNMENT ORDERS
Subtopic:   BUSINESS OF SUPPLY
Sub-subtopic:   ALLOTTED DAY S O. 58-MEASURES TO IMPROVE SMALL BUSINESS POLICIES
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PC

William James Kempling

Progressive Conservative

Mr. Bill Kempling (Halton-Wentworth):

Mr. Speaker, I want to spend the bulk of my time talking about research and development. Before getting into that I should like to make a few remarks based on the comments of my colleague the hon. member for High Park-Humber Valley (Mr. Jelinek), and those of a few other members, possibly just adding a bit to what they have said.

Hon. members will have noticed that in our motion we recommended the establisment of a small business secretariat. The minister in his remark in reply said he felt the present structure of a Ministry of State for Small Business, under the wing, so to speak, of the Minister of Industry, Trade and Commerce (Mr. Horner), was adequate. I believe that was the gist of his remarks.

Let me just say that the concern we have on this point results from the fact that we all saw the establishment several years ago of the Ministry of State for Science and Technology. Like many Canadians, we thought it was really going to be something, but we find on examination of the administrative structure that a ministry of state, though set up by act of parliament, can be cancelled by order in council. Essentially it is a weak structure from which you cannot expect too much muscle. For that reason my colleague and others who have looked at this situation felt that a small business secretariat not under the wing of the Department of Finance or the Ministry of Industry, Trade and Commerce would be a better structure through which we could carry out programs.

Let me just say a word or two about the Small Businesses Loans Act. Because I have had a good deal to do with it in my constituency during the years I have been a member here, let me make a suggestion to the minister, if he will consider it. Probably one of the most valuable things the minister could do as far as the Small Businesses Loans Act is concerned, now that we have the rates sorted out, is to put together a little booklet on how to apply for a small business loan.

In talking with people in banking I have been told that the greatest difficulty they have in granting a loan is with the applicant. Applicants do not as a rule come in with adequate information. They do not bring a financial statement in most cases or a statement in respect of cash flow, and in many instances do not have a clear idea of what they want to accomplish. Applicants usually come in as a result of a cash bind in which they find themselves at particular times. They run into the bank and say they would like to have a loan under the Small Businesses Loans Act, but they do not have the supporting information. These applicants do not get their loans and consequently feel aggrieved and call their member of parliament.

I think that if a very straightforward brochure was put together on how to apply for a small business loan, explaining also that the government only guarantees the loan, it would be of assistance. It should point out that the money does not belong to the government but is the bank's money and the

Small Business

bank has to approve the loan. That is something else most applicants do not understand. The brochure should point out that if the applicant expects to get bank approval he should take these several elementary steps, putting this information together, as this will assist the bank manager to assess the application for a loan. I pass that suggestion on to the minister for his consideration as I think it might help the situation considerably.

Having regard to the paper flood we seem to have experienced and about which everybody is complaining, let me just repeat what I have said a couple of times in this House. Perhaps others can do what I did in a practical way to cut down on the paper work coming into my office from the government. I bought a rubber stamp on which was engraved simply "not applicable". I took all those pieces of paper that dealt with taxation and put them to one side because I realized I had to pay the taxes, but anything that did not deal with taxation I stamped "not applicable" and sent it back to Ottawa. After I had done this three or four times my paper work was reduced by 30 per cent or 40 per cent. I pass that information on to any members who would like to use it because I can say from experience that it works.

Let me now deal with research and development as it applies to the small business sector. When you look at the structure of small businesses you must ask yourself where these people come from. In most cases you find they come from large businesses. These people have worked for a large business concern and have a desire to go out and make it on their own. Whatever the rationale is, away they go and they take with them a variety of talent.

In many cases these individuals have design talents, engineering talents or what-have-you. The great difficulty facing a small businesman is insufficient cash flow. These people just do not have the cash to carry through a research and development project. They may have the idea and the desire, and the market may be there, but they do not have the cash to carry the idea through.

The first suggestion we make in that regard is that we should consider setting up a reserve for research and development from tax payable. In other words, when you make out your tax return and get right down to the amount of tax you must pay, you should be allowed to reserve a portion of that for research and development. This could be accumulated for a period of two to five years, depending on what it is you are going to do, so that when you begin your research and development project you will have the cash available to carry it through.

The second suggestion we would make to the minister is that we amend the Small Businesses Loans Act to allow small and medium-sized businesses to borrow under the act in order to supplement their reserves for research and development. We should allow research and development as a reason for granting a loan under the Small Businesses Loans Act. In fact, the two things could flow together. We should allow a portion of the tax to be set aside out of profits as a reserve for research and development, and follow that up with a loan to make it

May 16, 1978

Small Business

possible for the individual to build the jigs and fixtures, allowing the project to be set up. In this way the cash would be available and something could be started.

Many of these small companies have a sort of mechanic who has worked in business and starts off on his own, designing and building a piece of machinery. Most of this is done by experimentation or by trial and error. If the part breaks, the man reinforces it. In many cases there is very little sophisticated engineering involved. One of the great things we might do in this country is make better use of our provincial research councils and research facilities at universities.

If a small business had a research and development project that had been approved, had the money set aside and the research facilities, perhaps in certain cases the government would agree to pay a portion of the engineering costs to bring that article to market. We could do this through provincial research foundations on a contract basis, thereby relieving the small business sector of that cost. We could also do this through our universities, because all provinces do not have research councils. In these instances we would be supplying the engineering and research facilities to the small businessmen who do not have this capability on their own premises.

In many cases we have people with ideas who know the market, how to sell something, how to market it, how to advertise it. But there may be engineering which has to be done to the product in order to put it in such condition that it can be easily manufactured. The product may require engineering that is not within the competence of the individual concerned. I am suggesting that we use the facilities of the provincial research foundations and the universities to assist the small business community in this regard.

Furthermore, I suggest to the minister that we establish a series of tax-free prizes or awards for new innovations that have a significant effect on reducing our unemployment and balance of payments. These prizes would be for new devices that could be manufactured, engineered and brought into the marketplace. There is a lot of this going on throughout the country. The federal government could sponsor national contests where small business people design and develop products that will have a market either inside or outside Canada. It could work on an award basis where the government gives a tax free prize to the business or individual who designed the device. This is something that people will strive for, such as municipalities do when building a new building. They hold a context among architects for the best design. This is along the same line, something that will stimulate the interest of the people.

The problem we face in Canada is how to get more things made in this country. Look at the tremendous balance of payments problem and the deficit we have in finished goods. We cannot go on like this. We have to make more in this country. We import more per capita in finished goods than any other western nation. We import more machinery per capita than any country in the world, and last year we imported $24

billion of high technology products. Certainly a good deal of that can be made in this country.

There are those who will try to convince people that everything we do has to be based on the economies of scale, and that we have to have large manufacturing facilities to carry this out. I would just refer to the report we tabled yesterday of the Royal Commission on Corporate Concentration, page 408, where it states:

A healthy small and medium-sized business sector can offset the effects of high concentration in some industries, although stimulation or encouragement of small business will not fundamentally transform Canada's industrial structure, and many industries in Canada will continue to be dominated by large, capitalintensive firms. Nevertheless smaller businesses can increase competition in some industries and have beneficial social effects. They have demonstrated their ability to innovate and to sustain market competition when they are given a reasonable chance to grow.

That is the point I am making.

One of the difficulties our small business section faces is venture capital. We are going to have to address ourselves to this very serious problem and put in place instruments that will assist in getting these small businesses this capital. In fact the capital gains tax we have in the country today has done more harm to the small business sector than to anyone else, because in the past businesses were able to get a good deal of their funding from wealthy people within the community who were prepared to loan money on the possibility of a capital gain at a future date. Now, however, the small business must deal in the short-term money market with the banks. Businesses just do not have the facilities with the level of activity in the country to go ahead and develop things on their own. this is why we are suggesting to the minister than he seriously consider these points on research and development for the small business sector.

I would like briefly to review these points again. Firstly, to allow the small and medium-sized business to set up a reserve for research and development from taxes payable so that funds could be accumulated that would allow research and development projects to be carried through to completion. Under this scheme a small business would be able to accumulate funds over a period of from two years to five years, without affecting their cash position from their normal day-to-day operations, with which they could undertake a research and development project. That is the main thrust of it.

The second step is to amend the Small Businesses Loans Act. We do not use the Small Businesses Loans Act enough. We have all been through difficult times in the past. I can recall speaking to the one-time minister of finance, Mr. Turner, when he was here about the anguish of the small business community and how they would go to a banker who would say: "We have never heard of the Small Businesses Loans Act and we do not handle it in this branch." Mr. Turner's reply was to the effect that he would speak to the chairman of the Canadian Bankers Association and see if he could alleviate the problem. Of course, nothing ever happened.

There was also a problem with the rate formula, but that was changed and now we have a formula where borrowers pay one per cent above prime, and I believe that is reasonably

May 16, 1978

acceptable. We now have to move to be sure that it is understood, and the minister must do more lobbying with the bankers and be damned sure that it gets down to the branches because this is where the difficulty lies. I hope we will see the day when the small businessman can go into a chartered bank that will say: "We know about the Small Businesses Loans Act, here are the necessary forms, fill them out and we will consider your application".

I do not wish to put all the onus on the banks because it is a two-way street when borrowing money. The individual borrowing has to supply adequate information to the banks if he is going to expect to get a loan. I suggest to the minister that he put together a booklet on how to get a loan through the Small Businesses Loans Act. Many people just do not know what is required, and I know this from the number that I talk to. 1 tell them quite openly if they are turned down by one bank to go to another. After all, we have six banks and we are not tied to one.

If the banks choose not to move in this area and the minister cannot make any progress, when we are looking at the Bank Act revision I will suggest to him that perhaps near banks, caisse populaires, trust companies and credit unions should move into the field covered by the Small Businesses Loans Act. Somewhere along the line we have to find funding for the small business sector, and it must be more than we have now. We have to find credit facilities. If we do, I know there will be more entrepreneurs and the hiring of more people.

I know this from people of my own acquaintance and from experience of my own personal business. In my own little business we have designed three products we hope to receive the patent for within the next 18 months. We did this all on our own without any assistance from the government. We are just one small company, and there are thousands across this country that have far better abilities than my company has. I know that it can be done and that we must move into this area to assist the small business sector. If we take this action, I know that Canada generally is going to gain. I urge the minister to heed my remarks and find some way to move in this direction in the very near future.

Topic:   GOVERNMENT ORDERS
Subtopic:   BUSINESS OF SUPPLY
Sub-subtopic:   ALLOTTED DAY S O. 58-MEASURES TO IMPROVE SMALL BUSINESS POLICIES
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LIB

Paul Edmund McRae

Liberal

Mr. Paul E. McRae (Fort William):

Mr. Speaker, in this critical period when vast changes are occurring over a very short period of time, it seems difficult for those participating in these changes to have a clear perception of what is happening. Only much later is the nature of the crisis described by historians.

The failure to perceive global crises perhaps explains the nature of the deliberations in this House over the last year, with emphasis on alleged RCMP misdeeds, concentration on elections and polls and the kinds of events that occurred this afternoon. These factors, I believe, tend to belie the true nature of the period in which we are living.

The quantum leap in the problems facing all nations, the unheard of phenomena of growing energy shortages globally,

Small Business

and the failure of conventional techniques to deal with these problems either because the techniques are not commensurate with the magnitude of the problem or because they are, worse still, counterproductive, are factors which should suggest to all that we are in a critical period, a period between one era and another.

One of the characteristics of the era that we have lived through is the great faith in bigness. If something is big it has got to be better, cheaper and more efficient. I believe one of the causes for the changes in our time which will bring the end of this era is that faith in bigness. It is my belief in a new era, when we come to grips with these problems and the nature of this crisis of our time, that we will find smaller units and smaller groups, smaller businesses and smaller governments. These are some of the things which will characterize this new period.

I am pleased today to be involved in this debate on small business. I would like to congratulate the hon. member for High Park-Humber Valley (Mr. Jelinek) and those who were responsible for putting this motion together. I think the motion is well thought out. I would also like to congratulate the Minister of State (Small Business) (Mr. Abbott) for his response. It seems to me that in this debate today there has been a general good mood in terms of this problem. We all see different things that can be done, but in general we are looking at suggestions from all over this House so as to move in an intelligent direction, a direction which I think presages a new era.

Dealing with the motion, there are a couple of areas which 1 perceive as being important. One of the ways that governments can change direction is in their purchasing policies. Certainly I believe that governments, because of the very large nature of the operation, can make some significant advances in supporting small business by adopting purchasing policies which will support small business. The minister alluded to this. We have taken some steps but I am sure more can be taken.

The notion of a consortia of small businesses is one that I find particularly pleasing provided, of course, the consortia themselves do not become a large business. There are many ways this can be done. Perhaps more than anything John Bulloch's group and other groups in this country are explaining and pointing to a direction to make this possible.

I agreed with the minister when he took some exception to the limited nature of the definition of small business as described in the motion. One definition might very well be "owner-management" but I think this definition, as the minister explained, is somewhat limited and should be broadened and made a little more flexible. Generally in this House we know what we are talking about when we are discussing this problem.

In my area of the country, which is northwestern Ontario, we see some problems which communities and small businessmen are facing. I see that there are things sensitive governments can do to resolve some of these problems. I must say, Mr. Speaker, that in the first three or four years I was here I was not very happy with the approach taken to small busi-

May 16, 1978

Small Business

nesses. I always had the feeling that officials in the Department of Industry, Trade and Commerce were much more big business oriented, looked at big things and were only interested in big things. But I think in the last couple of years since we have had two ministers move into this area that there has been a great improvement and a new sensitivity is developing. It occurs to me that some of the communities and small business people, particularly in the small manufacturing sectors, require more managerial assistance.

There are one or two other factors which I would like to mention. First of all let us take a theoretical situation. As an example I would cite a community with a good supply of wood, some entrepreneurial skills in terms of working with that wood, a perception of the wood chip industry potential and the need to create jobs. Incidentally, the market for the wood chip industry is expanding, particularly in the United States. Here is a scenario that is found in many northern Ontario communities.

When governments look at this kind of scenario there are things they can do to change the situation into a productive one where jobs would be created. Money is one of the factors, but I think this factor is being solved. We are moving in a direction where it becomes more possible to get hold of the kind of funds necessary, at least in many cases. Other managerial skills beyond the skills needed to run the production unit are probably necessary. One that comes to mind, is the skill of finding a market. Very often the market is something that eludes the small entrepreneur because the market may very well be dominated or controlled by large business and large corporations. From the discussions I have had with a number of small businessmen, with community representatives and industrial groups looking for new industry, this kind of support is needed badly.

I suggest at this point that there is a rather fortunate economic situation which should make it easier for small businesses to compete in some of the traditional markets. This results from the depressed value of the dollar. We are all aware, since there has been a great deal of discussion of it in this House, of the 90-cent dollar or the 87-cent dollar and the effect it has on our exports. It is easier to sell our exports in traditional markets under these circumstances.

However, one of the things that has not been mentioned and which has not been part of the discussions to my knowledge- perhaps it has on one or two occasions only-has been the relative competitive advantage that the higher price of imports gives to the Canadian entrepreneur. If the import is 13 or 14 per cent higher in price than it traditionally should be, this could give the small Canadian businessman a chance to compete in this market. Sometimes I think the reason why more of this is not happening is that the business community and governments do not realize what the position is and do not try to stimulate that kind of activity. I think it is very important that we realize that when the dollar is depressed people selling on the local market-that is, the Canadian entrepreneur- have a distinct advantage over the importers of foreign goods.

I think that the era of "small is beautiful" is going to dominate in the future much more than in the past. From my own experience in the business world of large industry, and as principal of several high schools large and small, I have come to believe that the smaller the unit, the more efficient and productive it is, and the happier are the people in it. Smaller businesses, smaller government units and decentralized government will offer many opportunities in the future which we did not have when we were so busy trying to make things bigger.

I want to compliment the Canadian Federation of Independent Business which I think has done more to bring the small businessman, the entrepreneur and the small company to the fore in this country than any single group up to this point. One of the things that John Bullock and the people associated with him has done is to differentiate between small business and the large corporation. In the past small businessmen, I think, had seen themselves as almost identical to large businessmen, the only difference being size. I think the Canadian Federation of Independent Business has identified a qualitative difference between the two groups and this is extremely important.

They have also indicated their concern about big government, big labour-the whole spectrum of bigness. This is one of the contributions being made to the new era which is fundamentally important in terms of where we, as Canadians, are going.

I should now like to make one or two comments on the report of the Royal Commission on Corporate Concentration which came down yesterday; I think it is very appropriate to this debate. I am one of the two or three members of this House who put in an appearance at the commission hearings and presented some thoughts on the question of corporate concentration. I agree with critics of the commission that the terms of reference were too narrow and that the commission should have dealt with the concentration of power in all areas. The terms of reference are what they are, however, and the commission had to work within them. I became very disturbed in particular about the global nature of multinational corporations or, as some people call them, global corporations-the extent of their power and the branch plant mentality which has had a great effect on the economic structure of this country. I was disturbed, too, about the control of global assets.

I would recommend to hon. members a book entitled "Global Reach" which deals with the assets of some global corporations. It indicates that the liquid assets of the major global corporations in the world are one and one-half times to twice the size of the liquid assets of all the national banks in the countries where they function. It also states that some of the currency problems of the past four or five years are the result of the great power that these liquid assets confer and the extent to which these assets are mobile. The United States Senate finance committee did a great deal of work in 1973-74 and the very first report it produced provides the basis for my figures.

May 16, 1978

Local corporations have some definite advantages. They are able to move goods around the world and encourage manufacturing in developing or non-developed countries, but they also create serious problems. Sometimes the type of production activity, the type of product or the type of advertising may not be appropiate to the country in which they function. Very often third world countries are faced with many problems because of the nature of global corporations. That is not to say that we make a judgment whether global corporations are good or bad, but one has to say that some things global corporations do are not desirable and other things they do are very desirable.

The problem of control, which was one of the topics I raised when I appeared before the royal commission, is a very difficult one. Some of the efforts being made by UNCTAD, the OECD and other such groups are very necessary, as are some other multination efforts to maintain some kind of regulation over global corporations, particularly in the area of tax transfers. There is a tendency to set up tax regimes which are not designed particularly for the benefit of the nation states of the world. These are some of the matters I dealt with in my submission to the royal commission.

Obviously, Mr. Speaker, I have not read through the 32 volumes of the report, but in the summaries I have read I was disappointed at the almost total endorsement without any real criticism of the nature of these forces. I was very disappointed for many reasons. I think the great concentration of power in the hands of global corporations could be a source of global depression.

One of the associate editors of The Economist, Norman McRae-no relative-published an article within the last six months in which he predicted some of the very grave problems facing us and the possibility of global depression because of the largeness and insensitivity of global corporations. He felt that only those global corporations that were able to decentralize their operations so that units in a given country, such as small factories, were able to function independently might survive this kind of depression. 1 think it is very important that we understand there are inefficiencies in global corporations attributable to bigness. A great deal of care must be taken to ensure that because of the largeness, the difficulty of administration, the remoteness-

Topic:   GOVERNMENT ORDERS
Subtopic:   BUSINESS OF SUPPLY
Sub-subtopic:   ALLOTTED DAY S O. 58-MEASURES TO IMPROVE SMALL BUSINESS POLICIES
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May 16, 1978