Money working for people
Copyright © 1996-2008, Fédération des caisses Desjardins du Québec. All rights reserved.
Toronto, October 24, 2006
Ladies and Gentlemen,
Firstly, I would like to thank you for being here at a time of day when many of you are normally just getting into the office.
I am very honoured to be invited here today to speak at the prestigious Economic Club. I am well aware that many key issues have been debated and numerous political proposals unveiled here.
While the issue I am about to discuss is not a new or particularly original one, it is, however, of paramount importance for the future of the Canadian economy. Many things depend, in fact, on the way in which we deal with the challenges of innovation and productivity.
But before getting into the heart of the matter, I would like to take this opportunity to say a few words about Desjardins Group – a name that I am sure is considerably less familiar to you than, say, the Leafs or the Blue Jays.
Today, Desjardins Group is a network of 549 financial services cooperatives, which operate a total of 1,440 service centres and 56 business centres in Québec and Ontario. Desjardins Group also includes about twenty subsidiary companies offering services to caisse members as well as to their own client networks, operating in many fields, such as insurance, securities brokerage, venture capital, asset management, real estate and international development.
We also maintain close ties with Desjardins Credit Union, which was created to enable the purchase of the Province of Ontario Savings Office in 2002 and which has 7 of its 25 branches here in Toronto, by helping existing teams to considerably expand the range of services offered to members.
With $130 billion in assets at June 30, 2006, and some 40,000 employees, Desjardins Group is currently the foremost financial institution in Québec and the 6th largest deposit–taking institution in Canada.
When I was invited to speak at the Canadian Club in Toronto 2 years ago, I announced Desjardins Group's intention to begin strengthening its presence across Canada, particularly in Ontario. At that time, 17% of our business volume came from outside Québec.
Today, that figure stands at 20%. For some of our components, that proportion is even higher. For example, our property and casualty insurance company, Desjardins General Insurance Group, currently derives 38% of its business volume from outside Québec. For Desjardins Financial Security, our life and health insurance arm, that figure is 26%.
In the securities sector, half of all Disnat Direct accounts come from outside Québec. And in business financing, new loans granted in Canadian provinces other than Québec represented one–quarter of all new business in 2005.
We are therefore steadily on our way to achieving our goal of raising the percentage of business we do outside Québec to 25%.
In 2004, I also extended an invitation to our colleagues throughout the credit union movement to join us in examining the possibility of setting up new partnerships or signing new trade agreements that would be mutually beneficial.
Since then, we have been working towards this goal, developing new business relations, strengthening many existing ones and building closer ties that hold great promise for the future.
As an integrated cooperative financial group, Desjardins is profoundly rooted in the communities it serves and is very concerned with their long–term development. The Group also maintains business relations with some 400,000 companies, supporting their development and promoting their long–term continuity. This dual commitment highlights the central importance of productivity in today's markets.
Concerns arising from current economic conditions actually strengthen our convictions in this regard. We know that today, Canada, which exported $366 billion worth of goods and services to the United States last year – or 84% of its total exports – is particularly exposed to the impact of the correction in real estate south of the border. This makes American consumers more vulnerable and increases the risk of a recession in the U.S. in 2007.
Already in July and August, the Canadian automobile industry found itself in a trade deficit with the United States for the first time since 1991.
For many Canadian businesses, especially those in the manufacturing sector, the possibility of a sharp slowdown in the U.S. economy is yet another stumbling block in the already long list of obstacles they face.
Over the past few years, rising prices of oil and raw materials, the recovery of the Canadian dollar, higher interest rates, renewed demonstrations of American protectionism – such as softwood lumber or the new border security requirements – as well as the dramatic increase in competition from emerging countries have left many companies struggling to survive.
Of course we must be very careful not to confuse issues arising from current market conditions and actual structural economic problems. For example, interest rate fluctuations, which are by their very nature cyclical, cannot be considered on the same plane as changes to the competitive business environment caused by the rapid rise of countries that have recently become part of the global economy. It is the structural changes then that must drive the decisions we will be required to make and whose effects will be felt over a long period of time.
Nevertheless, it is a combination of many factors that has led to the loss of some 225,000 jobs in the country's manufacturing sector since 2002. The expected slowdown in consumer spending and the current slump in the construction industry in the United States will certainly not improve the situation in the coming months.
It is such difficult conditions as these that make us realize just how fundamental the issue of productivity truly is. Improving long–term productivity is one of the best ways we have of bolstering our ability to withstand down cycles and unexpected setbacks.
The importance of productivity is further amplified by our aging population, in that our collective ability to create wealth and generate sufficient tax revenues to maintain public infrastructures and services will gradually be borne by a working population whose relative size will be decreasing.
In fact, just a few weeks ago, on October 5, economist William Robson of the C.D. Howe Institute published a study in which he calculated that demographic changes alone would generate a net liability for governments of more than $810 billion over the next 50 years.
In the light of these forecasts, he rightly insisted upon the need for increased productivity in Canada, to ensure that we are able to continue supporting the country's current social programs.
I – A hard–to–sell concept
Because of its importance for all Canadians and the fact that it requires choices to be made collectively on their behalf, the issue of productivity must now be brought out of the closed circles of business people, specialized advisors and economists.
In this respect, I agree with the arguments put forward by the Chief Economist of the Toronto–Dominion Bank, Mr. Don Drummond, at the annual meeting of the Canadian Chamber of Commerce, held in Saskatoon on September 17.
While pleading the cause of saving Canadian productivity, Mr. Drummond also emphasized that "productivity is inherently a difficult subject to communicate because it is not directly observed or measured."
I would like to add that this problem is exacerbated by the fact that, for the uninformed, the concept of productivity also carries a negative connotation. Many people believe that increasing productivity means increasing the work pace, regardless of workers' desires, safety or working conditions. Others will recall massive layoffs carried out in the past, all in the name of productivity.
Contrary to these viewpoints, what the notion of productivity actually covers is considerably more extensive, more strategic and more engaging.
We therefore need to adopt the collective objective of always working better and more intelligently, not that of simply working harder.
II – Productivity: A gage of efficiency
Productivity is actually a way to gage the efficiency with which the workforce, capital, resources and ideas of a company are combined within the production process.
A significant increase in productivity can have positive repercussions on the growth of workers' salaries and purchasing power, on companies' profitability and investment capacity, as well as on government tax revenues and our flexibility in making collective choices.
A considerable and long–lasting gain in productivity also allows for greater increases in economic growth without provoking inflation and higher interest rates.
What is important in this respect is our positioning among the competition, and that is also where the problem lies.
According to data released by the Centre for the Study of Living Standards, which is linked to Industry Canada, the productivity gap in the business sector between Canada and the United States broadened from 18 percentage points in favour of the U.S. in 1999 to 26 percentage points in 2004.
This labour productivity is measured according to the ratio of GDP per hour worked. Compared to a substantial increase of 3.8% per year in the U.S. between 2000 and 2004, labour productivity in Canada only increased by 0.9% per year for the same period – or four times less.
We cannot allow this situation to deteriorate further; otherwise the development of numerous businesses will be compromised and prospects for future economic growth diminished.
There are leverage tools available to us. We need to focus on using them to reverse this trend.
There are three main overall factors involved in improving productivity: the quality of production equipment and technology; the quality of our workforce and, finally, the efficiency of workplace organization.
I – Boosting investment
One of the reasons that Canada is lagging behind in terms of labour productivity is that we have invested less than our southern neighbours in machinery and equipment, as well as information and communication technologies.
For a long time, the devalued Canadian dollar was artificially holding up the competitiveness of our products in the United States, which put many investment projects on the back burner.
And although it does not apply only to Canada, we can also raise the question of the inhibiting effect of financial market expectations, which are always pressing and short–term, on investment decisions that should be made with a view towards the long term. Do not investors' appetite for high profits and returns, quarter after quarter, have a restraining effect on investment?
Personally, I do not believe that intrinsic market dynamics alone can lead to proper investment decisions. The market is not perfect, and it does not have an answer to everything. In my opinion, joint actions involving governments and the judicious use of taxes to promote investment are also needed.
Under market conditions where capital is very mobile and where we no longer have the advantage of a weak dollar, we must ensure that the corporate tax burden does not discourage investment, either by Canadian or foreign firms, or reinvestment by businesses already established here.
Technology to support new partnerships
Because technology is such an important factor in productivity, I am pleased to note that this is one of the main ways in which Desjardins can contribute to the partnerships that we hope to establish with other Canadian financial cooperative organizations.
In fact, we offer Canadian financial services cooperatives a complete IT solution, to which they can add a number of products and services if they wish. We are certain that this will be a major asset in helping them improve services to their members and communities.
Desjardins' leadership in technology dates back to the late 1960s. Since that time, Desjardins has been a leading player in all the major technological innovations in the Canadian banking world, from the first "inter–caisse" computer system and the creation of the Interac network to the introduction of automated tellers and debit cards and today's extensive online service offering.
On the strength of its experience and the continuous improvements made to its systems, Desjardins today possesses a cutting–edge technology platform which, as we create business partnerships that are respectful of each organization involved, will help strengthen the financial cooperative movement across Canada.
We are sure that by working closely with the credit unions and by combining our experiences and creativity, together we will be able to progress and continue improving the efficiency of our respective organizations and the services offered to our members. As a result, the Canadian financial cooperative movement will represent an increasingly attractive option for individuals and communities seeking financial services adapted to their needs.
II – Improving the quality of our workforce
The second leverage tool we need to develop in order to improve productivity is to optimize the skills, abilities and creativity of our workforce.
Elementary and secondary schools are, of course, essential sources for acquiring the permanent learning skills that will be called upon as individuals are required to continually improve their technological skills throughout their professional lives.
We also need college and university graduates who, thanks to regular contact with new ideas, new methods and the latest in technology, will be able to transfer that knowledge to the companies they join when they enter the job market.
Of all the OECD countries, Canada currently accounts for the highest proportion of 25–to–34–year–olds with post–secondary degrees. However, stagnating growth rates of new students at colleges and universities – which only increased by 1% between 1995 and 2005 – is today cause for concern. We need to pay close attention to this matter, because these issues are now being played out on a global scale and many countries are emerging as strong competitors.
Nowadays, the basic training given in schools is completed in the workplace. As technological progress and business methods are constantly being updated and renewed, employees need to receive regular training and coaching to achieve their maximum potential.
III – Improving workplace organization and conditions for innovation
The third leverage tool we need to develop in order to improve productivity relates more specifically to workplace organization and the use of innovation.
It is not enough to simply buy new equipment and introduce new technologies. It is not enough to continually update employees' skills and knowledge. We also need to regularly improve and – if necessary change – our methods so that better qualified employees are making optimal use of all the resources available to them.
It is therefore through innovation in our business methods and workplace organization that we will achieve a progressively more effective combination of human and physical capital. Concern for working conditions and employee health and well–being will also help us achieve this.
At the same time, all these efforts must lead to new ways for us to succeed in a global business environment. As well as striving to improve what we currently do, we also need to actively develop new markets and explore new business models which, in addition to gains in productivity, will help us achieve that success.
In that respect, many businesses are already making waves with creative ideas for product differentiation and improvements to order and delivery management processes.
The importance of research
Since innovation will be playing a driving role in our future, Canada must adopt a firm stance with respect to Research & Development. I am referring here as much to R&D performed at the university level as to that carried out within companies, as well as the connections between the two, which we need to learn to develop further.
The field of Research & Development requires long–term vision and financing. It also requires patience and long periods of time before results and commercial success are achieved.
Our governments must clearly indicate the importance they attach to research and ensure that their contributions in this field target the long term.
In this respect, we are lagging behind not only the United States but other countries as well. India and China, for example, have invested massively in the past few years, both in advanced training for researchers and in R&D spending.
These countries are gradually becoming major knowledge centres, and it will be the technologically advanced business sectors that will increasingly have to deal with goods and services from China, India and elsewhere.
In conclusion, all these innovation and productivity considerations remind us of our obligation to plan for the long term, both within our businesses and in the various branches of government.
I also want to assure you of Desjardins' firm intention to do its part to help Canada meet its productivity challenge.
We will be there to finance investments and support new business ventures, both at home and abroad. We will also be there, alongside other financial services cooperatives, working together to improve efficiency as well as productivity.
Today, we are called upon to make a major collective commitment. That is why we intend to continue to act, and to work even harder to explain this issue in simple terms, to make everyone aware of its importance.
By working together on the crucial productivity issues – investment, training, innovation in the workplace – all Canadians, from the population at large to business people, governments and other stakeholders, will be able to ensure that Canada remains one of the most dynamic countries on the global economic stage.
Money working for people
Copyright © 1996-2008, Fédération des caisses Desjardins du Québec. All rights reserved.