Mr. Ken Atkinson (St. Catharines):
Mr. Speaker, I appreciate the opportunity to speak on this motion. I take from my hon. friend's response that there has been an increase in transfer payments.
The motion in front of us refers to a part of our economy which has become vital to the future of our nation and that is small and medium-sized businesses. All sides have recognized small and medium-sized businesses as the real engine of growth, as has been described, and as the creator of jobs in our economy. I am glad, therefore, that the hon. member has introduced this motion because it highlights those Canadians who usually get little attention from the news media and the leaders of our small business communities.
I would like to speak on the role that the Federal Business Development Bank has played in helping finance small businesses. I will do that in a minute. First, in my own community, small and medium-sized businesses are going to be very important to the recovery that will go on.
We know that there is a restructuring going on in the automobile industry. It has hit my community particularly hard. We have to do everything we can to maintain what we have in the automobile industry. That restruc-
turing is something that is going on throughout North America, particularly at General Motors because of the lack of capacity and the downsizing that is going on. That, or course, is under the auto pact and has nothing to do with the free trade agreement which is usually given as the reason for the downsizing of the automobile industry. When you lose 10 per cent of your market share over a short period of time, obviously you are going to have overcapacity and you are going to have to deal with it.
In order for our area to recover, small and mediumsized businesses are going to be very important. Those small and medium-sized businesses are usually driven by individuals who come from within the city or the community. I think that people realize now you cannot get large companies to come into your community because of the infrastructure costs. It would be nice to have them, but it is very difficult to have everything there for these large businesses to come into your community. Most of the economic activity, as has been pointed out by people on both sides of the House, comes from the small and medium-sized businesses within the community. They are the ones which are going to drive the recovery.
It is not only financing that is necessary for these business to succeed. There are other things as well. First off is the training for the entrepreneurs themselves. Many of these people have good ideas, they have the initiative that is necessary to start their own businesses but they need the training, the development of business plans and so on. The Federal Business Development Bank helps out with that in one area, but there are other things in our community that are also important to that entrepreneurial training.
The Centre for Entrepreneurship associated with Brock University is very important in trying to create the entrepreneurial spirit and help those individuals establish their own businesses. As an outgrowth from the university and the secondary school institutions, we have started what is called New Enterprise Store. It is a storefront operation where potential entrepreneurs have the opportunity to go to be able to develop business plans, to listen to people who have started their own business successfully. They are helped along the way in terms of bookkeeping, financial matters, preparing a business plan, approaching banks for small business financing. These have helped out.
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This institution has helped a great deal. In fact it is expanding across the country. It is an idea that was started by some individuals in St. Catharines, especially Professor Ken Loucks from Brock University and Gene Luczkiw from the Governor Simcoe Secondary School. It is working out well.
We have to encourage these small business entrepreneurs obviously because, as was mentioned previously, this is where most of the jobs are created. The figures that my friends across the way have shown indicate that.
We also need the people to help these entrepreneurs and that gets back to training. I can say that the government is putting a great deal of money into training through the unemployment insurance fund, through the other training initiatives, through the Canadian Jobs Strategy and so on. Those are welcomed in our community.
They help to train individuals for the jobs created by the entrepreneurs. That is what we need in order to succeed and to get out of this malaise and the difficulties that we are having in my community.
The next thing of course is financing and that is what this motion speaks to. There is the small entrepreneur who has the entrepreneurial training programs. The province is also involved in the training programs and is co-ordinating those efforts in order to make sure that the training is directed in the best manner possible. It is getting labour, business and other community leaders involved in that as well. That is something that we look forward to and is good.
The last portion of it is the financing that is necessary for these small and medium-sized businesses. The new knowledge-based economy that we read so much about consists of things like computers and semi-conductors. It consists of medical facilities and medical supplies. It consists of telecommunications equipment and instrumentation be it in medicine, industry or whatever.
The people who are going to be involved in these industries need to have a great deal of knowledge and training. It is necessary that we realize that a lot of these businesses are based on knowledge and the individual's educational qualifications and training.
A lot of these businesses do not have the bricks, the mortar and the machinery or other things that banks look for when they figure out: "Are we going to loan these individuals money? If we are going to loan them money then we have to make sure that we have some lien or mortgage that we can put on assets of that business so that if anything goes wrong with it, we can move in and realize on these assets. In that manner we can try to recoup what we have lent to these individuals".
Unfortunately the new knowledge-based industries do not have a great deal of assets, bricks and mortar. As a result it is something new. It is something new to the banks and other lending institutions. It is something new for the individuals who are going in asking for the loans that they need to develop these knowledge-based industries.
They say: "I have this idea. I can do this, this and this." In turn they are told: "What do you have in terms of a building? What can you give us that we can put a lien on? What personal property security agreement can we get out of this? What mortgage can we get out of this?"
As a result these individuals feel: "We really do not have those things. I have ideas here. I have the experience. I have the knowledge and I know that this business can succeed. Here is a business plan but no, they are not the bricks and mortar that you have asked for".
This is preventing these people from getting the financing that is so desperately needed. Knowledge-based industries are going to be the ones of the future. The lending institutions have to change their mind-set.
As was mentioned across the way it cannot be just a formula that is developed in a head office somewhere where you go to the local loans manager who has a check list to go down. They find out that the various things that were traditionally there are not there any more.
We have to realize that. I think that is one of the things that we are trying to get through in this debate. The whole culture has to change.
The economic indicators currently put out are based on what is referred to as the old economy. They do not go into the new economy. They do not go into the indicators about computers, semi-conductors, software,
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medical supplies, medical equipment and telecommunications networks and so on. Those are the things that we know now are going to be important to the economy of the future. They are going to be important to my area.
We hope that the culture can be developed within these lending institutions and business plans can be looked at in those terms.
No, they do not have the bricks and mortar. Yes, here is an individual with a track record. Elere is an individual with some ideas and it is going to take a little risk on my part. I am willing to do that. I know the person in the community. I know it can be done in this particular area.
I am going to take a risk and I am going to lend this individual the money that is necessary.
The Small Businesses Loans Act helps in that way, certainly through the cut down on the personal guarantees which is always a concern to somebody who goes into business. We commend the government in that regard.
Banks are not the only method of financing these small businesses. In fact in some books the percentage of these businesses which are financed by banks now is very small. We probably need other mechanisms as well, maybe a local based equity fund or venture capital fund, something where business people in the community come together and form this board, people who are given certain perhaps tax breaks or tax concessions in order that an equity fund or a venture capital fund can be developed within an individual area such as mine.
Then people who have these ideas could come to these established business people and in return for a certain portion or certain equity in the company that these people would give up to this local board with a venture capital fund, they would get the money in return. They would probably get experienced business people on the board of directors of these small and medium-sized enterprises who could watch over that equity investment and make sure that these people are going in the right direction in a business sense.
A lot of these people have great ideas, but the business acumen that goes along with it is sometimes something that is necessary.
I was encouraged by the budget of the Minister of Finance where he recognized that this is a possibility. He said in his budget that this is an area he was going to look into and see if we could establish these local based equity or venture capital funds. There are already the labour community funds which in effect are mutual funds to help out small businesses. There are other things which have been done by the government. We welcome those things.
Certainly we have to realize that our economy is moving in a different direction. We all instinctively know that. We have been told this for more than 20 years. Alvin Toffler in his book Future Shock spoke about what is going on now. He spoke about the telecommunications network that is going to have to be developed. All those things were there. Now it is upon us and we have to be prepared for it. Other countries in the world are going through the same thing. In that term, the banking culture is going to change.
What is the Federal Business Development Bank doing to help? The Federal Business Development Bank has three functions. It permits a project to happen which could not otherwise be realized because of a lack of financing. It counsels and trains small businesses to improve their management skills, which is one of the things I was just talking about. In a small way, and I hope the Federal Business Development Bank will look at this in a greater degree, it has provided equity seed capital to allow companies to continue to expand in a changing economy.
That is what I was mentioning. The Federal Business Development Bank is only in this in what I consider to be a small way. Hopefully it could get into it in a larger manner. Some of the figures pertaining to the bank are testimony to the scope and impact of the FBDB. It has a 10:1 debt equity ratio so there are no cash costs to the government. I know that is something that is important now.
The NDP members have not mentioned today the study which they are floating around as their economic plan. They have indicated they would like to put $2 billion a year into an equity fund or a venture capital fund, funded through taxpayers' dollars and administered through the FBDB.
It is a laudable idea but where is the $2 billion going to come from? That is the real problem, especially in our current debt situation. It is great to sit here and say that tax loopholes should be closed. Business lunches should be disallowed, business people should not be allowed to take clients to lunch and deduct 80 per cent of that lunch which they are now allowed to do. That will save $1.9 billion a year and would fund the equity fund each year. It just does not happen that way. It would increase taxation on businesses in doing it in that manner, plus not allow a business expense to proceed, plus the restaurant industry would be affected by that particular matter.
It is not easy and the NDP members would probably find that out just as they did in Ontario. It is great to say all these things in opposition but when they are in government and are faced with the reality of governing how things change. There is a debt to deal with and it seems then that a light has gone on. It has been there. We have been talking about it. We knew about it. They get into government in Ontario and suddenly they have to deal with the debt. They have a problem where they did not know there was a problem.
I can tell them right now there is a problem. Their plan for $2 billion is laudable but by taking it from taxpayers' money, borrowing will have to be increased again to finance that $2 billion. That is not going to help because when government takes the money it takes it out of the realm of the private sector and the private sector cannot get at that money. That is what the private sector needs in order to succeed.
It does not need as well a tax increase which is the other way of financing that $2 billion. Again a tax increase takes money out of the private sector and brings it into the public sector.
I am glad that the government has been doing that for the last two years and has not gone through any tax increases because that is something that is very important to small and medium sized businesses, probably more so than anything else.
The clients of the Federal Business Development Bank employ more than 160,000 people, 2 per cent of the entire small and medium sized business work force. Forty-three hundred of the jobs were created in the fiscal year 1992.
Five hundred and eighty-six million dollars in loans were authorized, up 13 per cent from the previous year. The number of loans FBDB expects to generate in 1993 will rise by more than 10 per cent and most are for $100,000 or less.
The loans already made have helped generate more than $900 million in total investment. Almost 20 per cent of the loans went to the tourism industry. Obviously that is an industry that is important to an area like mine with Niagara Falls and all the tourist attractions that are there. It has fallen on tough times in the last couple of years but it is going to come back and we are glad that the FBDB is supporting it.
Another 22 per cent of FBDB loans went to manufacturing. Exporters received $55 million in loans and we see that exports are leading the recovery that we are experiencing now.
In the division that I mentioned previously, the venture capital division, the paid-in capital of $55 million, the FBDB has authorized $92 million in investment since 1984. The venture capital division is something I would like to see expanded, as I mentioned, and there are facts and figures that I have here in regard to the FBDB.
The FBDB plays a role in other areas as well. We heard about women and how they are developing as entrepreneurs and how well women are doing in developing their own businesses but they need help in expanding those businesses. The FBDB is doing that.
The preparation of business plans is necessary. When these individuals approach traditional lending institutions they must have business plans that banks and other institutions can look at and say it is a good idea and they can go ahead with it. Those things are taking place.
All those things are certainly helping and I believe that in the performance of the FBDB we have ample evidence of innovation, hard work and imagination devoted to providing financing, advice, and training for thousands of Canadian entrepreneurs.
This motion does not reflect the accomplishments of the FBDB and certainly that should be noted. I hope that we realize the importance of the FBDB, what has
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been done by the government in the other areas I have mentioned in order that the small and medium sized businesses can receive the financing which is so desperately needed.
We all agree they are the ones that create the jobs and that is the only way we are going to create jobs, not by government pouring money into some make-work project or whatever. It is the private sector through the small and medium sized businesses that are most important.
Subtopic: ALLOTTED DAY, S. O. 81-THE ECONOMY