Mr. Deputy Speaker:

Resuming debate, or is the House ready for the question? On debate, the Hon. Member for Kamloops-Shuswap (Mr. Riis).

Mr. Nelson A. Riis (Kamloops-Shuswap):

Mr. Speaker, I am delighted to have an opportunity to once again participate in the debate on the Bill that, hopefully, will be the beginning of diversifying the western economy. As a westerner I want to say that we have waited a long time for an initiative that would be a major effort-

Mr. Shields:

Mr. Speaker, I rise on a point of order. I may be mistaken but I would have thought that the Hon. Member had spoken in debate at third reading and therefore cannot speak again. Perhaps the Table could check.

Mr. Deputy Speaker:

I think the Hon. Member did speak at third reading but did not speak on the motion which is now before the House, that the question be now put. Therefore the Hon. Member for Kamloops-Shuswap may speak, of course.

Mr. Riis:

Thank you, Mr. Speaker. I am very happy to participate in the debate today on the western diversification initiative. As you know, Mr. Speaker, this is my second speech that I have given on this important issue. As far as I am concerned in terms of diversifying the western economy I would like to make many, many more speeches on ways and means of enhancing the economy of western Canada and

Western Economic Diversification Act

participating in any initiative that would result in expanded economic activity.

I wish to speak today on behalf of a group within our western communities for whom I have a great deal of respect. I refer to the small and medium-size business sector represented by men and women who are the engines of growth in our western economy. It is interesting to recognize that there are 20,000 small businesses in western Canada that are represented by the Canadian Federation of Independent Business. This is a business organization that is the largest small and medium-size business organization in Canada, with membership across the country. It represents the voice in a formal way of small business, along with its sister organization, the Canadian Organization of Small Business.

It has provided us with some interesting analyses of the recent intiative taken by the Government. Just to set the record straight right at the beginning, I want to indicate where it stands. This is in no way to criticize what the Government is attempting to do, at least in principle. Mr. John Bulloch, who is the spokesperson for the Canadian Federation of Independent Business, called the western diversification initiative a political slush fund. I hope it does not become that. I know that that is a fear that others have indicated. I hope that the Govenrment does not use it as a political slush fund, to paraphrase the words of John Bulloch, to support vulnerable constituencies, lure in big business or bail out obsolete industries in hopes of gaining short-term political profile, presumably for the local Member of Parliament. I hope that that is not true.

The organization raises another concern. It is the concern that this initiative might be a bureaucratic slush fund available for other line Departments and Ministries to raid in lieu of other national programs that should have their fair share spent in the West.

There is some good reason for this concern. I do not have to remind you, Mr. Speaker, of the very important initiative that was taken some months ago in the creation of South Moresby Park. It is pristine, world renowned parkland on the Queen Charlotte Islands which was set aside for a national park. That cost money, of course. It cost $75 million to the federal Government. From where did it get its money? Did it get its money from the Parks Canada envelope? No. Did it get its money from the other programs from which parks are normally purchased? No. It took the money out of the Western Diversification Fund.

Anybody in government would say that if we have budgets for parks and we have western diversification funds, the two are quite separate. We also saw that the Government wanted to put some money into salmonoid enhancement in British Columbia. Did it take the money from the fisheries envelope? No. Did it take its money from various budgets within the fisheries ministry? No. It took the money out of the Western Diversification Fund.

May 3, 1988

Western Economic Diversification Act

We cannot go on like this. We cannot go on and use western diversification funds for all the work that regular government Departments should be funding. If that is what the fund is used for, then it is a scam. It is misleading to call it a western diversification fund for that reason.

There is another reason that I am concerned about because one of the first drains on the fund was the Daishowa pulp mill to be built in northern Alberta. This pulp and paper consortium is one of the largest in the world. First, it received $150,000 from the Western Diversification Office to do a feasibility study. I really wonder if one of the largest pulp and paper consortiums in the world needs to dip into the western development fund in order to conduct a feasibility study. It has the world's capital markets at its disposal. Does it really need to use this precious western diversification fund?

Also, in early 1988 the Western Diversification Office announced that it would give $9.5 million to this pulp mill. Does it really need this kind of money? Does this really diversify the economy of western Canada?

These are questions that many of us are asking. We ask them in a certain context. I am personally aware of a number of small and medium-sized businesses in British Columbia that have made modest requests to the Western Diversification Office. The one that springs first to mind is a request by the Thompson Nicola Manufacturers Association which requested $40,000 to enable it to provide an infrastructure to assist the 500 manufacturers in the Kamloops region of British Columbia. Was it successful in obtaining $40,000? I am afraid to say that it was not.

I am also aware of a whole list of small businesses that have made requests for $5,000, $25,000, $35,000 and $37,000. All those requests were rejected. One gets somewhat cynical and frustrated when one considers that an international pulp consortium receives $9.5 million but a small manufacturer in central British Columbia cannot even receive $37,000.

I could go on in terms of a number of the questions raised. I do want to say that the intent of this is to diversify the economy of western Canada and to assist those entrepreneurs who are interested in expanding into new areas beyond the resource-based economy of western Canada. That is not to say that we do not wish to assist in developing the resource-based economy, but this is to diversify.

I notice with interest that there have been moneys from the Western Diversification Office for soil erosion studies. Those studies will not do much to diversify the economy of western Canada. There is also money for assistance in marketing potash. We do not say that that is not a good idea, but will marketing more potash diversify the economy of Saskatchewan? I suppose one could find some indirect way to justify that, but what are the terms of reference of this particular office?

On this issue, I have to return to our friends in the Canadian Federation of Independent Business. They point out that one of the major problems of the Western Diversification Office is that it lacks a business plan. No one is certain what the framework is for its operation; no one is quite certain of what type of projects will be supported. Therefore, it has led the Canadian Federation of Independent Business and others to believe that perhaps it is used as a slush fund. If one has the right political connections, or is a large multinational, one may receive some money. If one has some good friends in the office, or good political contacts, some financing can be arranged for a business. That is not what we need in western Canada, and I would like to think that this is not the manner in which the Western Diversification Office will operate.

I wish to return to the point I made earlier regarding those people who are the engines of growth in western Canada and who make the economy work, that is, the small and medium sized businesses. When one studies the role played by small and medium-sized business in western Canada, their successes and contributions are quite amazing.

In the West the number of small businesses is growing expediently as the resource sector becomes less secure, experiences slower growth, and creates fewer jobs. The Economic Council of Canada recently reported that three-quarters of all the new jobs over the last 20 years have emerged out of the service sector, which in turn is dominated by small business.

It is a little known fact that over the 54 year span from 1926 to 1980 manufacturing output per capita in Ontario and Quebec was actually outstripped by per capita growth in manufacturing in western Canada. That is absolutely astonishing. During the period from 1978 to 1984, including the boom by the large resource industries in the late 1970s and early 1980s, businesses with less than 20 employees were responsible for 80 per cent of all net job creation in western Canada. In 1985, the most recent period for which information is available, this strong performance continued. The job growth in small firms, meaning less than 20 employees, was 64 per cent of the total new jobs in Manitoba, 66 per cent in Alberta, 76 per cent in Saskatchewan, and 100 per cent in British Columbia. This corresponds with the much smaller contributions by large industry. For example, in 1985 in British Columbia there was a 6.6 net loss of jobs by big businesses compared to the previous year.

These impressive economic achievements are driven by the entrepreneurial spirit for flexibility and change. Researchers have noted that small firms with less than 20 employees take 27 per cent less time to complete the full research and development cycle from concept to market-place. They create two and a half times as many innovations per employee.

Surveys prepared by the Canadian Federation of Independent Business has found that in typical three year cycles, three out of ten of their members changed their clientele and markets, and one out of every four businesses make major

May 3, 1988

changes in their methods of production, promotion, and distribution.

In other words, Mr. Speaker, the small business sector is able to dodge and weave, to take advantage of market opportunities, and to meet market niches in a rapid and creative manner. Studies have indicated that half the businesses in western Canada were actively searching for new technologies to improve the competitiveness of their business on a regular basis. In other words, at any point in time half the businesses in western Canada are involved in new initiatives to search for appropriate technologies and to find ways and means of becoming more competitive in the market-place.

These statistics clearly indicate that small business owners are the unsung heroes of western Canada, measured in terms of job creation, economic stability, competitiveness, and innovation. Yet for years this crucial sector has been lost in the shadows of public policy as one Government after another has devoted its attention to funding megaprojects and providing big businesses with major grants. Although the grass roots has been patient, frustration has mounted with the traditional regional development approach. I do not think that there has been anything more frustrating than seeing year after year the support that successive federal Governments have given to large multinationals that have the ability to easily obtain capital on international money markets. Yet the struggling small business or the struggling entrepreneur who is attempting to develop a regionally sensitive business for either the domestic or international market is largely by-passed.

That is why on August 7, 1987 many of us from western Canada viewed the establishment of the Western Diversification Office as a fresh start. I must say that the initial support that many of us had for the principle is rapidly turning into confusion due to the absence of any clear guidelines or a business plan for the management of the $1.2 billion over the next five year period.

Always in the back of the minds of those of us who are not Liberals is the great Western Development Fund. That fund originally started at $4 billion, it eventually fell to $2 billion and then evaporated. One of the major jokes circulating at the time was about this evaporating Western Development Fund that the Liberals brought in, but no one ever saw or heard about other than the original announcement by the then Minister of Finance.

When one looks at the expenditures to date coming out of the Western Diversification Office, the best way to describe them is sporadic. Another way to describe them would be relatively limited. No clear pattern has emerged from these early actions. While many groups have criticized this lack of policy direction and apparent inertia, there does appear to be a critical window of opportunity now to establish policy for the Western Diversification Office at this embryonic stage. I would like to take a few moments to do just that. While we are determining the terms of reference and establishing a clear

Western Economic Diversification Act

mandate for the Western Diversification Office, perhaps I could make some suggestions as to what might be considered.

First, in each year in western Canada literally of tens of thousands of people start new businesses or expand existing firms. This is the heart of diversification; opportunities identified, resources gathered, and market niches established. The financial resources of the Western Diversification Office ought to be directed, in large part, to reinforcing this entrepreneurial activity by small businesses in order to be an efficient catalyst to broad sustainable market driven change.

When one looks at the various options available, one of the things we have to recognize is that the major problem faced by western entrepreneurs is having access to proper financing. If the Western Diversification Office can help the financing needs of many western Canadian small and medium-sized businesses, it will have made a major contribution to diversifying the western economy. Small business is financed by personal capital, reinvested earnings, debt financing, and equity investments. Bank lending practices, government taxes and programs, under-capitalization, and inadequate management preparation all combine to put a financial strait-jacket on the entrepreneurs within every western community. Measures that leverage greater access for small business through established private sector markets have greater credibility and business respect.

The IFIB brief went on to point out that the relationship between the financial institution and the entrepreneur has changed substantially; that various business organizations have documented problems, including tight lending policies that are insensitive to individual circumstances, extreme collateral/ security requirements, high cash-flow requirements, the arbitrary alteration of lending and administration practices, and the inadequate expertise of lending officials.

It goes on to state, however, that, regardless of these complaints, bank financing is the predominant element in local economic development and must be addressed that government initiatives, whether through the Small Business Loans Act, or interest shielding in Saskatchewan, or the Alberta Term Assistance Plan, "have met mixed success, but give some indication of how it can be better handled".

It points out that the Western Economic Diversification Office should undertake to have the Business Development Loans Program under the Small Business Loans Act revised and refinanced "to better encourage financing of small business entrepreneurs by financial institutions".

We might consider putting in place a regime whereby guarantees could only be available on loans made at interest rates that reflect significant risk, in other words loans made at prime plus one and one-half per cent. As well, interest rates should not be kept at a level that has the effect of interest shielding. Combining efforts to leverage risk financing with interest shielding will discourage banks from considering risk

May 3, 1988

Western Economic Diversification Act

loans and encourage use of the guarantees in respect of lower-risk loans that do not require additional incentives. The single purpose of the guarantee provision must be to maximize the leveraging of these resources to higher risk initiatives, initiatives that would otherwise not proceed. The interest rate charged by the lender should be allowed to reflect that risk.

The Federation makes the point that loan guarantees should also apply to working capital, pointing out that the growth potential "is increasing in sectors where physical capital requirements are much less than working capital requirements". It goes on to state that the Alberta Term Assistance Plan "offers a good example where loans for working capital were leveraged with partial guarantees", with 35 per cent of the loan being government guaranteed, to recognize the lesser collateral value of the assets involved.

There is a great deal more to suggest in respect of the Western Diversification Office, a great deal more that should be done. In closing, I simply want to say that, while we intend to support this initiative in principle, we do hope that it does not turn into a slush fund, whether political or bureaucratic, and that it really does lead to major gains in diversifying the economy of western Canada.

The Acting Speaker (Mr. Reimer):

The Hon. Member for Cariboo-Chilcotin (Mr. Greenaway) on questions or comments.

Mr. Greenaway:

Mr. Speaker, I have listened to the speech of the Hon. Member, and it is the same one that he gave the other day.

Is the Hon. Member for Kamloops-Shuswap (Mr. Riis) aware that the Western Diversification office in British Columbia is willing to send out officials from that Office to conduct one day seminars on western economic diversification? It may be that the Hon. Member would be interested in arranging for such a seminar to be held in Kamloops.

I had occasion to visit the Thompson Nicola Valley Manufacturers Trade Fair held in Kamloops last fall, and I can readily agree that it is a good organization. I am at a loss as to why the Western Diversification Office has not funded that organization.

I am wondering what the Hon. Member has done to bring about a positive decision on funding. Has he visited the Western Diversification Office in Vancouver to lobby on behalf of that organization; has he talked to the various Ministers involved?

I stand ready to offer any assistance I can provide in terms of getting funding for that organization. Certainly, it is a worth-while organization and should be one which is representative of what is required by the WDO.

Mr. Riis:

Mr. Speaker, let me first point out to the Hon. Member for Cariboo-Chilcotin (Mr. Greenaway) that the speech I made yesterday outlined all of the areas where the federal Government has failed in terms of delivering a fair deal

to western Canada. In that speech, I was specific, citing Supply and Service contracts, CIDA contracts, Regional Development grants, Employment and Immigration programs, and so forth. Being of the view that the Hon. Member opposite had heard enough of that, I had no desire to repeat it today.

The short answer to his first question is that, yes, I am aware of the opportunity to introduce people to the Western Diversification Office and what that office can do.

I, too, share the concern that the request for funding by the Thompson Nickel Manufacturers Association was rejected. I listened with interest when he asked whether I had talked to the Minister, whether I had talked to the Western Diversification Office. While I did in fact get involved, I would like to think that political intervention would not be necessary. I should like to think that Members of Parliament need not go to bat for every single initiative.

Mr. Greenaway:

Why was the request turned down?

Mr. Riis:

The reason given was that there was another community doing something similar. One is left wondering whether that is a criterion. If an initiative is being undertaken in one community, does that mean that it cannot be done in another?

These are some of the questions we need answered. I do not want to cast aspersions on this initiative. It is not my view that it is a bad initiative. My point is that we ought to have clear terms of reference as to what will be funded and what will not. We need some clear direction. I agree with the Canadian Federation of Independent Business that we ought to have a business plan. In trying to get information on the terms of reference, I have been in touch with the offices in Vancouver and Edmonton, as well as with the Minister, but to no avail. What I am told each and every time is that the application should be submitted. Well, do we submit an application for tourism, for soil erosion studies?

When I learned that a study aimed at finding new ways to a market potash had been funded, I wondered how that would assist in diversifying the economy of western Canada. Will the selling of more potash abroad result in a more diversified economy for western Canada? While that may in fact be the case, it is not clear to me how it will come about.

As well, a request for funding for a soil erosion study was approved. While there is no doubt that we need to learn more about soil erosion, one wonders how such a study is going to result in a diversified economy for western Canada. Again, it is not clear.

As Members of Parliament, each of us will go to all reasonable lengths to assist local organizations, local businesses in getting their fair share of a government program; but, if that means that one has to use one's political influence in order to make the program work, that is something I do not want to be a part of.

May 3, 1988

In making that comment, I am not suggesting that the Hon. Member for Cariboo-Chilcotin was saying that one has to use political influence in order to obtain financial support through the Western Diversification Office. I believe the principle of western diversification is a good one. It is one that we need to develop and expand upon in the future. I want to be a part of any process that will develop a business plan for western Canada for use by the Western Diversification Office.

The Acting Speaker (Mr. Reimer):

The Hon. Member for Athabasca (Mr. Shields), on questions or comments.

Mr. Shields:

Mr. Speaker, it is indeed a pleasure to have the opportunity to put some questions to the Hon. Member for Kamloops-Shuswap (Mr. Riis), who quoted extensively from the submission of the Canadian Federation of Independent Business. I should point out, however, that that submission was made to the Minister responsible for western diversification prior to Bill C-113 being tabled in the House of Commons.

Come on, Jack! How can you stand there and not blush!

Mr. Shields:

The NDP continually refer to that submission, and certainly the Canadian Federation of Independent Business was expressing concerns that it might have with the legislation, though it did so prior to the legislation being printed and tabled in the House.

The Hon. Member for Kamloops-Shuswap has some question in relation to the funding provided for a potash market study, a soil erosion study, as well as funding for a pulp mill.

In answer, I point out to the Hon. Member-and it is something, I am sure, he already knows-that that funding took place under programs in existence prior to the western economic diversification legislation being tabled. The Minister gathered, under the Department of Western Economic Diversification, those programs that were available to him, and it was under those programs that that funding took place.

The Hon. Member was pointing out that there was no plan in the terms of reference of the Bill. Perhaps he has a copy of the legislation before him. If he does not, I could probably get one of the Pages to bring him a copy so that he could read it with me.

Clause 6(1) reads:

6. The Minister may

(a) formulate plans and integrate strategies to support development and diversification of the economy of Western Canada;

(b) oversee the implementation of programs and projects in pursuance of plans and strategies referred to in paragraph (a) and, where those programs and projects will not be undertaken by another Minister or department or agency of the Government of Canada, initiate or implement those programs and projects;

Western Economic Diversification Act

(c) plan, direct, manage and implement programs and projects intended to contribute directly or indirectly to

(i) the establishment, development, support and promotion of enterprises, and more particularly, small and medium-sized enterprises, in Western Canada-

It goes on and on to outline the kind of points to which the Hon. Member referred dealing with clear directions. My caviar socialist from Kamloops-Shuswap is only making political hay in an attempt to delay this legislation, and that is all.

Mr. Riis:

Mr. Speaker, I have studied the legislation carefully. As a matter of fact, I have almost committed it to memory by now. That is why I am so perplexed about why the request of the Thompson Nicola Manufacturers Association was rejected.

Since my hon. friend from Athabasca has obviously taken such an interest in this fund, perhaps I could ask him as a representative of the Government to look into the matter and to explain why this request for $40,000 was rejected. I am asking these kinds of questions because I know of other initiatives that were funded.

Mr. Shields:

Because it doesn't fit any program until this legislation is passed. Is that clear?

Mr. Riis:

If he will let me speak, I want to tell my honest friend that in August of 1987, the Government announced that it planned to introduce the Western Diversification Office. This is now 10 months later. Where was the legislation for month after month?

If the Government really did care about doing something for the diversification of the western economy, it could have done something in the previous 10 months. I do not want to sit here and take flack from an individual who says that we are holding up the legislation. I have said that we support the legislation.

The Government sat on its hands for nearly a year after it announced this legislation. If it were serious about the diversification of the western economy, it would have acted on this months ago. To tell the Opposition that to take an extra few hours of debate will somehow hold up the legislation is absolutely silly.

Mr. de Jong:

Mr. Speaker, the Hon. Member for Athabasca (Mr. Shields) keeps asking the same question even though it has been answered several times. He claims that a small firm in Edmonton had made an application which had been turned down because this legislation has not been passed. Yet we have put on the record this morning various examples of projects that have been given the okay including that of a big Japanese firm which wants to build a pulp mill. The millions are there for them, but small business is being told that it cannot get any because the legislation has not passed. What sort of nonsense is this? I sure hope that the Hon. Member for Athabasca will stand in his place and for once be honest with the people of Canada and particularly the people of western Canada.

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Western Economic Diversification Act

I know that the Hon. Member for Kamloops-Shuswap (Mr. Riis) has been concerned about the high interest rates that exist in Canada, and I know that it affects western Canada detrimentally. Yet the Minister of Finance (Mr. Wilson) has told us that we cannot have a lower interest rate because of inflation.

Is it not true that the reason there is a 4 per cent inflation rate in Canada today is because of the sales taxes that the Conservative Government has introduced? If those sales taxes had not been introduced, our effective inflation rate would be around 2 per cent rather than at 4 per cent, is that not correct?

Mr. Riis:

Mr. Speaker, once again, that was an incredibly thoughtful intervention made by my hon. friend. He is quite right that that the monetary and fiscal policies of the Government of Canada discriminate against western Canada. Yes, the Government's own programs have resulted in interest rate practices which are discriminatory to western Canada.

Perhaps I will use this as an opportunity, if I can get your attention, Mr. Speaker, to ask if there is a quorum in the House.

Mr. Deputy Speaker:

We do have a quorum.