INST Committee Meeting

STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY

COMITÉ PERMANENT DE L'INDUSTRIE, DES SCIENCES ET DE LA TECHNOLOGIE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, June 7, 2001

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[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I call the meeting to order.

Pursuant to Standing Order 108(2), this is consideration of the report of the Canadian e-Business Opportunities Roundtable. This is a televised meeting, just so everyone is aware of that.

We're very pleased to have with us this morning, from the Canadian e-Business Opportunities Roundtable, Mr. David Pecaut, the co-chair, president of iFormation Group; Mr. John Wetmore, e-team captain and vice-president of IBM Americas; Mr. John Eckert, e-team captain and managing partner, McLean Watson Capital; Mr. Matt Holland, e-team captain, vice-president and managing director, the Boston Consulting Group; and Mr. Jean-Pierre Soublière, e-team captain, president and chief executive officer, Anderson Soublière Inc.

I'm very pleased to welcome the Canadian e-Business Opportunities Roundtable here this morning. To let everyone know, the round table is presently developing a vision for Canada's Internet economy and helping to make that vision a reality.

I want to again welcome the co-chair, Mr. David Pecaut. Mr. Pecaut, as president of the iFormation Group, works with Global 2000 companies to unlock the value of their offline assets to build new technology and the Internet. As well, he continues to sit on the board of directors for The Boston Consulting Group. He holds a masters in philosophy from the University of Sussex and a magna cum laude from Harvard College.

I welcome you here, and I will turn it over to you, Mr. Pecaut, for some opening comments.

Mr. David Pecaut (Co-Chair, Canadian e-Business Opportunities Roundtable): Thank you, Madam Chairwoman. I'm very happy to be here this morning.

My French is not very good, so I'm going to present in English, but Jean-Pierre here will be happy to entertain questions in French, and he will make some of his comments in French as we go forward.

Thank you very much for the chance to present to you today some of the work that the e-business round table has been undertaking. We are an unusual group, in that no one called us up and said, do you want to join this? We kind of created ourselves. It's an ad hoc group that came together from the private sector, from universities, and ultimately from federal and provincial governments to address issues regarding e-business in Canada.

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We've been at work now for about 20 months, and we believe that by the end of this year we should have finished the role we set out to play. Quite simply, that role is to be a group that could pull together a vision, a strategy, and an action plan for making Canada a leader in e-commerce and e-business.

We define e-business very broadly, and I think it's good we did so, because if we had defined it narrowly, we might have found that we were really missing a lot of the opportunities. E-business, for us, is any place in which digital technologies, the Internet, the World Wide Web can affect the business environment in Canada. So it includes not just selling things over the Internet, but employing the Internet within companies. E-mail, for example, is part of e-business, using the Internet inside government to be able to communicate, your BlackBerry pagers. All these things are part of the e-business environment, and we have taken a very broad definition of that.

We set out initially to try to create a round table that represented all the different points at which e-business might touch Canada. So we have members from large companies, like John Wetmore from IBM and my co-chairman John Roth from Nortel. We also have people from smaller companies, like Jean-Pierre, a number of venture capitalists, like John Eckert and others, who are the funders of these small businesses, and people like Matt Holland and the Boston Consulting Group who donated their time to the research effort here.

That cross-section of Canadians, men and women, people from the east to the west coast, people from universities, from small businesses, from large companies, and from high-tech and non-high-tech companies, really, I think, came together very effectively on this issue and put a very fine point and a focus on what's important about this. That's what we'd like to share with you today, along with the agenda we would like to see the country continue to pursue.

We've given you all a handout, and I would encourage you to follow along in this. We'll be using it as a guide to our discussion.

When we started this process we knew we needed to set a paradigm here, a framework in which to think about the opportunities and the challenges. But we also knew that too many groups get together and issue wonderful reports that are calls to arms, but then at the end of the day say, over to you, federal government, or, over to you, big business, or, over to you, small business, and they don't stick around to try to make it happen. We vowed we would not be like that. And so from the very beginning we set up the structure you see on page one of a series of implementation teams that would be chaired by our members, that would roll up their sleeves and go out and make it happen.

You see we have an international branding team, which Matt Holland here chairs. This group has been actively out beating the bushes outside Canada to build our brand around high technology. For example, last month in New York City the e-business round table, the group you see here, and the Committee for Economic Development, which has some of the bluest blue chip CEOs in the U.S., put on a joint all-day session, a conference on Canada's e-business sector and the linkages between Canada and the U.S. that could be fostered in high technology. Minister Tobin came down and addressed that group. There was a terrific turnout, front page Wall Street Journal business section coverage of that event, CNN, and I hear today that the New York Times is doing a big story and we may get cover stories in some of the magazines. That's the sort of thing the branding team has been doing, and they'll tell you more about that this morning.

The second team, chaired by John Wetmore from IBM, has taken as its focus accelerating the adoption of this technology. We all are thrilled that Canadian companies, in some cases, are leading the way in this technology, the big ones like Nortel, smaller ones like Research In Motion, and software companies as well. But it is even more important to get all Canadian businesses to use the technology. In fact, that's going to have a much bigger productivity impact on Canada than all the technology we might create.

John is going to take you through some of the issues regarding adoption. Unfortunately, we are not moving as fast as our neighbour to the south and some European countries that have moved more quickly to adopt the technology. John's team has organized itself much like a United Way campaign. He has subcommittee chairmen on communications, on different regions, and he'll take you through how they've been rolling it out. Altogether, I suspect he now has about 130 business people, government folks, and others in his team. So when you see his team, you have to think it's seven or eight Canadian football teams put together.

The capital markets team, which John Eckert chairs, is a mix of business people, venture capitalists, and bankers who have really focused in on the issues of finance here. And I have to tell you, I had my eyes opened by this team in the way they approached the problem. Many business groups go out there and call for bringing down tax rates. I'm sure you've heard them in this committee room before. We were advised very strongly by Minister Martin and others that it would not be particularly helpful to make that our only clarion call. So we tried to go down two or three levels deeper into how our venture capital regulations are constructed in Canada, how we regulate our pension funds. And what we discovered is a veritable thicket of briars and brambles that prevent the forming of venture capital in these new technology areas.

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We travelled into the U.S. and abroad and talked to venture capitalists who said they would not invest in Canada because it is too difficult, too costly, and there are rules and regulations that prevent it. They said we have terrific people and great ideas, but it's just too costly.

We also discovered, much to our horror, that even some Canadian venture capitalists register their Canadian companies in Delaware, because they say eventually when they get to bigger sizes, it just doesn't make sense to have them be incorporated in Canada. Literally, today we have hundreds of Canadian companies whose employees are entirely in Canadian towns and cities but that are registered Delaware corporations because of the way our regulatory environment works.

John's going to take you through some of the issues there. You've made huge progress with the tax cuts on capital gains, stock options treatment, and so on. There's a lot more to be done.

The fourth team is focused on the talent pool. Kelvin Ogilvie, from Acadia University in Nova Scotia, has chaired that team. They have dived into issues all the way from the public schools through to universities. How do we make sure this technology is getting used?

Broadband access is critical. But if we have access and our people don't know how to use it, we're not going to get anywhere either. That team has also made great progress and we'll touch on some of their activities.

Finally, Jean-Pierre has been chairing our government online team. This is an area where all levels of government—federal, provincial, and municipal—have a huge contribution to make, and unfortunately an area where we have moved far too slowly.

If you turn to page 2, our first report came out in January 2000—an auspicious time, I think. We treated that very much as a call to arms—a clarion call. We had six themes around the report. We wanted to build that global e-business brand and we put the branding team in place. We wanted to accelerate small and medium business adoption of these technologies. We wanted to create a venture capital environment and a financing environment second to none. We wanted to build a talent pool and retain our talent, because brain drain is a real and continuing issue for the country. We wanted to make government online a true priority. And finally, we wanted to create a policy environment in Canada that assured consumers and businesses that the trust and legal environment they deal with in the off-line world could be there in the on-line world.

I think we were very successful in getting the clarion call out there. So over the past year, as we've worked forward and as we released our Report 2.0 in February of this year, we felt it was quite appropriate to think about a report card.

On page 3—I think some of you have copies of Report 2.0—we focused very much on what kind of progress we make in 12 months. John Roth, who couldn't be here, when I asked him what message I could convey to the committee today, said to just remind them that Internet time is four times faster than normal time. So when you give the report card and you say it has been a year, remember that in the Internet world it was four years since we were here last time. I think in his own personal life he feels that even more strenuously than some of us up here, as Nortel's fortunes have risen and fallen several times over the past 12 months.

The truth is, the world moves very quickly, and positions of leadership can be undermined or lost very quickly. Just this morning we were talking about the kiosks that the Government of Ontario put in place to issue driver's licences six years ago. Probably, John Wetmore suggested, more than 20 countries have come to Canada in the past five or six years to look at that kiosk program. But I will tell you, today at least 20 U.S. states have gone way beyond that program now on the web. We would never hold up—no one would hold up—any Canadian province as a leader now in terms of web-based access for those kinds of things.

A Canadian province was a leader, but unfortunately time didn't stand still and others have leap-frogged that with web-based technologies—a small but I think telling example of why pace and speed is critical in this area.

On page 4 we've summarized our report card for you. I'd strongly encourage you to read the report. We put a lot of effort into keeping the full report quite brief and hopefully compelling. But I do want to highlight the report card and then I'm going to turn it over to my committee co-chairpeople here to address their specific areas.

You can see on page 4 we took a little bit of liberty with the computer keyboard iconography and tried to present it in that fashion and rated things really in three areas: fast forward, rapid progress; secondly, modest progress—kind of a forward button; and then pause, where we really thought there was no progress. Given that the world's moving on, no progress for us means that if we've only grown and moved as fast as the average out there, we're really not moving fast enough.

You'll see, of the nine things we ranked, that tax policies were the only thing we thought we could really say was fast forward. However, I want to say, of those nine things, that was probably the most important thing. If this round table did nothing else but stimulate and advance the debate of what needed to be done around not just the tax levels on capital gains, but also the treatment of stock options, foreign venture capital, and pension funds, we would have considered ourselves a success.

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I would like to draw the committee's attention to two things here in this tax policy area. The first is that we received a terrific degree of cooperation from the federal government. I've previously had the privilege to serve on other groups advising the federal government, and I've never seen the Department of Finance come to the table with the kind of openness and willingness to engage on this issue that we had here. It was terrific. And that continues to be the case, as John's group continues to dialogue around some of the minutiae and those brambles and thickets I talked about.

Unfortunately, the one downside of the tax policy—it's not a downside, but it's a limitation—is we're very modest about it. We don't tout it outside of the country the way we should.

In January the round table hosted a small dinner for Minister Martin in New York, where we invited about 16 of the top U.S. venture capitalists, financiers, and CEOs of technology companies. John Wetmore had John Thompson, a Canadian who is vice-president of IBM, come to that dinner. Unfortunately, most of them had no idea what had happened in Canada with our federal budget. It's not front page news in the U.S. So there is an enormous need to take what the government has done and to get the message out on those areas.

There are about four or five areas where we said that we made some progress—five, to be specific. The first is consumer connectivity. Canadians continue to go online in large numbers. We are one of the most wired countries in the world. We have more individuals online as a percentage of our population than the U.S. does. We have two and a half times the broadband access. Canadians are adopting the Internet.

Unfortunately, small businesses are moving online but not in great enough numbers. We're a leader in individuals getting online; we're much less of a leader in small and medium business getting online. In fact, our rate of small businesses using the Internet as a purchasing mechanism is less than half of the U.S. rate. So we're not adopting it at our economic centre the way we need to.

Venture investment continues to grow in Canada, but the U.S. still has 35 times the venture capital available to its new technology start-ups that Canada has. I think most of you know the U.S. gross domestic product is about 14 times the Canadian level, depending on what the dollar was yesterday, so they have a significantly bigger advantage in venture capital than they do in the size of their economy.

This means that Canadian entrepreneurs continue, in many cases, to have to look south of the border to get funding. We had several stories at the round table of Canadians who fundamentally were forced by their venture capital backers to eventually move their companies to the U.S.—a tragedy that we really don't like to see repeated.

There are two other areas where we saw forward progress, not huge progress but some progress. On the talent pool side, the changes in the treatment of stock options and capital gains did have an impact. You see it in surveys of young people. We had several entrepreneurs on the task force.

We were able to watch one of them, Jesse Rasch, actually live the entrepreneur experience over the course of the last 18 months. He went from a net worth of $11 to something well north of $30 million or $40 million in the course of the round table. He's a terrific young fellow who sold his company. He, and people like him, reflected back to us that some of those changes were having a big impact on the brain drain. Having said that, we still have a lot more to do there.

And on trust marks, there has been real progress with getting the certification agencies behind the kinds of processes necessary to make online commerce secure, and that has continued to move forward.

There are three areas we're going to talk to you about this morning, though, where progress has been very poor. The first is all of the financing that comes after venture capital. In 1999 we had seven IPOs in the high-technology area in Canada, versus a dramatically higher number in the U.S. I think the number in the U.S. was actually 230. Last year there were six in Canada and about 128 in the U.S.

So companies find, after they get through that venture stage, if they're lucky enough to be funded, that it's very difficult to go to the next level and be able to raise capital on the public financing markets. We have had meetings with the members of the Toronto Stock Exchange and with other groups to try to get at some of those underlying issues—some of them also do come back to regulatory and government policy.

Government online is also an area where we have not seen enough progress. We applaud the efforts of the federal government to form an advisory committee, which I think is coming together soon to work in this area. There has been a lot of talk. I'm sure many cabinet rooms have been filled with presentations on government online. But the fact is, when you compare the opportunity to what we have accomplished so far, it's very little, and that is also true for provinces and municipalities.

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The challenge in having government on-line, which Jean-Pierre is going to tell you about in more detail, is that people miss the fact that this is three opportunities in one for Canada. They are cost reduction for government, which is huge, and the opportunity for people to receive a higher degree of service from the government. Doing things online could be more efficient. You don't have to leave home. It could be more effective and simpler. Also, it's a terrific way to stimulate economic development, to create world-leading companies that supply government's needs and then go abroad and sell the technology to other countries and governments and private sector companies. Jean-Pierre will tell you what we think needs to happen to move that agenda forward.

Finally, the last area where there hasn't been enough progress is something we all have to work on together, and the private sector has a huge role here as well. It is our e-business brand, our technology brand. We have a good story. Canada is a leader in infrastructure, with companies such as Nortel, Research In Motion, and JDS Uniphase. We have up-and-coming software companies, online merchants, and companies with success stories. We need to tell those stories. We're extraordinarily modest about that, and it is very important.

I had the privilege recently to work with Deputy Minister Peter Harder and the Department of Industry and various other departments. We hosted the CEOs of some of the biggest software companies in India. I will tell you that many of those companies are starting to look outside of Silicon Valley to place their major bets. With the huge level of immigration to Canada over the past 20 years, we have the ability to attract Asian and European companies into making us their North American headquarters. But to do that we need to build our international brand. They have to feel that being here, they are not away from the heartbeat of high technology and the Internet, which can be the case. In that particular case, I think we made good progress in convincing that company to possibly come here.

So there has been some progress, certainly nothing to be ashamed of, but terrific challenges remain.

On page 5 we set out an agenda for where Canada needs to go next. We need to close the gap in venture capital. We need to dramatically accelerate the small and medium enterprise adoption of these new technologies by encouraging them not only to get online but also to use the online mechanisms.

We need to continue to do things to create a magnet for talent. Again, this is a moving playing field in talent. Just two weeks ago the U.S. announced a new streamlined H-1 visa process. It takes 15 days now, if you pay a special fee, to get a tech visa in the U.S., versus what used to take sometimes four to five months. So it's a moving target there.

We have to build our international brand, and we have to harness government as a leading engine. Government has to be a leader in this process.

With that, I'd like to ask each of my committee chairmen to give you a bit more detail on what they've been doing in their area and where the challenge lies. After that I'd like to open it up for questions, discussion, and challenges, whatever you'd like.

Let me turn first to John Eckert, who can speak in a little more depth about the venture capital area.

Mr. John Eckert (E-Team Captain, Canadian e-Business Opportunities Roundtable): Thank you, David.

Let me begin by saying that although e-business is the wedge that is opening the door to change, we see the efforts of the capital markets committee as being beneficial to Canadians everywhere, regardless of geography, level of skill, or industry. The issues we have addressed relate to entrepreneurship and the barriers entrepreneurs face, whether it's retaining talent, attracting the best from abroad, or issues that may impede their growth and success, and then the other side of the equation as well, which is the flow of investment capital. I'm referring now to both moneys invested by Canadians and the entry of foreign investors into Canada. So we took a very comprehensive look at where Canada stands.

We also set as our objective levelling the playing field. Notwithstanding Canada's high ranking in many categories relative to the OECD countries, the United Nations, and so on, we see the U.S. as the real competitor for both human and financial capital. As a result we have to set our sights on the U.S. standard and either equal or, preferably, exceed the core measurement criteria.

We began by providing a rather detailed submission to the Standing Committee on Finance about a year ago, which set out recommendations for change to the tax environment in particular. We also made reference to some of the other issues inhibiting capital flow, such as escrow requirements in Canada relative to the United States, as well as private placement regulations that pertain to the ability of small businesses to raise money in Canada. This was all very well received. We actually met with a fair bit of success in the mini-budget and also the budget of February 2000, in which we saw reductions in capital gains from from an inclusionary rate of 75% to 50%, but also things that specifically addressed the formation of early-stage capital.

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There were significant breaks on a rollover provision that allowed those entrepreneurs who made money in previous investments to roll the dice again and invest in other early-stage ventures. We saw some relief in areas surrounding the employee stock option plans, and issues that inhibited the flow of capital from the U.S. to Canada, specifically cross-border mergers.

We continue to work with Finance Canada, and we're involved in a number of exciting projects that will hopefully further open up the doors and establish, in the minds of both Canadians and people internationally, that Canada is a great place to invest. We're optimistic that we will meet with success there.

To put the venture capital industry in perspective, last year we saw $6.3 billion invested. As David mentioned, it pales in comparison to the U.S., in particular, which is probably 30 to 35 times as large. That being said, we're in very good shape going forward. I think our growth rate in the past two years has surpassed the U.S. We've closed the gap, particularly given the recent carnage in the public markets, and the fact that the U.S. had been very focused on the dot-com sector, whereas Canada had not. I think this will stand us in good stead over the next one to two years. We can perhaps make some gains, as the U.S. sorts out the dot-com meltdown issues.

We're very optimistic. There's much work that still remains to be done. We don't think the changes that have been enacted or are proposed on tax reductions on the personal, corporate, or capital gains rates are sufficient. We've seen the U.S. move further ahead now, with recent tax-drop initiatives in the U.S. For Canada to really get its share, or more than its share, of the e-business and economic slice of the pie, we have to work harder and be more aggressive to close that gap, and make it more advantageous to invest in Canada.

The other thing we have to do, as David alluded, is spread the word and really convince foreigners, who to this day are still not aware of the positive changes that have recently taken place in Canada. They still view Canada as a nice place to visit, but would you really want to invest a lot of money in a chip plant? Hmmm—not really sure. They still view Canada as being overtaxed and over-unionized, with some issues relating to language barriers, and such.

There have been great improvements in all those areas, and it behooves us to get out on the road and speak to those international financial centres about the positive changes that have taken place in Canada. We're working very hard at it. I'm optimistic we'll see some results, but we need the support of those in this room, and those in government today.

One specific issue we are working very diligently on is the attraction of institutional investment in Canada. It's an area that has sadly lacked the U.S. experience. We have very few institutions that have committed money to private equity, specifically venture capital. There's a whole host of reasons, some of which are technical in nature and should be easily addressed, and some of which involve just getting them more comfortable. This is an area that is close to the government's heart, and we're also working with them to address these concerns.

Thank you.

Mr. David Pecaut: That's terrific.

One of the things that's been very compelling about John's group is the pressure he's been trying to put on the other parts of the private sector. His group is organizing sessions with the major pension funds, the Department of Finance, and others, to really sit down and talk about the impediments to getting the level of pension fund investment up, in the venture capital sector. We don't want to give you the sense today that we're putting all the heat on government; we very much believe the private sector has to step up in these areas as well.

John Wetmore, perhaps you can share with the committee what we've been doing in the small and medium enterprise area.

Mr. John Wetmore (Vice-President, IBM Americas; E-Team Captain, Canadian e-Business Opportunities Roundtable): Thanks, David.

Two years ago, when the round table got together, we were very concerned. We got the feeling, through surveys and our own observations, that the train had left the station, and Canadian small and medium businesses, by and large, weren't on it, with regard to this concept of e-business, the Internet world, or the network world, which was going to fundamentally change every enterprise in the world.

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Larger businesses were making the investments and were very competitive with the U.S., but we could see—particularly with the U.S., which is our largest trading partner—as small and medium-sized business companies competed to supply larger businesses, and so on, it would put Canada at a disadvantage. So while the train had left the station, we got together as a team and decided we could do something about it.

The first thing we did was connect with a lot of the business associations in Canada. The Canadian Federation of Independent Business, the Canadian Chamber of Commerce and the regional chambers of commerce, the Retail Council of Canada, the Canadian Bankers Association, and so on, kind of joined our team and asked what they could do about this challenge.

In 2000 we really felt the obstacle was awareness about the opportunities and the threats, if you will. So we set a course to go across Canada from coast to coast to raise the awareness of e-business as an issue. On chart 6, there's a pictorial to represent the fact that we had a very successful year of regional conferences. We had panel sessions. We had small Canadian businesses come in that were very successful. We had businesses from Prince Edward Island, Toronto, and western Canada come in and talk to their peers about what they'd done and why they'd done it. That was very successful, I think, in raising the awareness level across Canada of what opportunities were there, from an e-business point of view. We had very good support.

Over the course of the year, we also had an opportunity to get a lot of feedback from small businesses directly, and also through surveys from the Canadian Federation of Independent Business, which surveyed some 9,000 of their members, and the Chamber of Commerce.

What came back is indicated on the next chart, which shows some of the barriers small and medium-sized businesses in Canada were telling us were preventing them from really moving forward and investing in Internet technology. We put them into these different categories. One category was just education and understanding—having somebody in their business who understood the business and Internet technology, and could put the two together to decide what to do about them. There was the obvious issue of how they could make the investment. They were small businesses, just getting by day to day. How could they invest in the technology, in order to get on the Internet, or join this e-marketplace?

There were also issues around getting the resources, once they wanted to do something. How could they get help? Obviously, the issues of security and privacy were there, in all discussions we had around e-commerce. Again, the acceleration team, working with the associations and others that had an interest, focused on what we could do to attack some of these obstacles. Really, that's what the Canadian e-Business Opportunities Roundtable and our particular team has focused on, over the last few months.

The next chart is just a list of some of the things we've been working on. We've gone from an awareness of what the opportunities in e-business are to saying, “Okay, I understand that there's an opportunity. I understand that there's a threat, but what do I do, how do I do it, and where do I start first?” in a lot of small businesses.

We have a team led by Nancy Hughes-Anthony of the Canadian Chamber of Commerce, and other representatives, who are trying to do an inventory of some of the help and tools available today. We will make that available and get it distributed, through associations and everything. We've connected with Industry Canada. We're working on a website called E-Biz-enable, which will have a lot of information and helpful advice for many small businesses. So we're tackling this concept of how to get started and how to justify it.

The other area that's really important, which David mentioned in the area of governments, is that large businesses can be real catalysts in pulling a lot of the smaller businesses along with them. In the case of IBM Canada, 95% of our purchasing in Canada is online today. We deal with small companies, single people, who come in to teach in our education centres. It might be a company of one person. We deal with lots of large companies and everybody in between. We've been able to get them connected, as a matter of course of doing business with IBM.

That same principle would apply in doing business with oil companies, banks, the federal government, and provincial governments across Canada. If we were all fairly active in this space, we would pull the rest of the Canadian economy along at an increased rate.

We have a team focused on how to accelerate this thinking in larger businesses. They're out doing some surveys now, through the Purchasing Management Association of Canada. They're about to write a white paper on best practices, because there are a number of Canadian businesses that have already moved forward on this, and have learned along the way. I think we need to share that learning with the rest of Canadian businesses.

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David desribed one of his ideas as a three for one. I describe the concept of e-Corps as a win, win, win. This concept is really an extension of the Student Connections Program that Industry Canada kind of supports and endorses today, where students get trained in Internet technology. They were trained in Y2K conversion type technology, and they were out in the small business world in Canada helping those small business companies. We think the same concept applies to e-business, and there's a proposal working its way through Industry Canada and Peter Harder's group at the moment that extends that to this concept of e-Corps. It's a win because the students get the training and they get a lot of good skills, it's a win for small business because they get some help, and it's a win for the economy because we get more of our businesses engaged in the network world.

So that's something our committee strongly endorses and supports. We have a group that is focused on communication and getting this message out, getting best practices, getting references. There are lots of successful Canadian businesses. We need more, but as David said, we need to get out and just talk more about those references, and I would encourage you, as individual MPs, to take a leadership role in your ridings and encourage small businesses, look for the success stories, and try to promote those successes on a regular basis.

We're connected with the industry associations, and we do try to follow our progress in comparison with others in the world. We're well positioned internationally. We still have a gap with the U.S. in regard to the number of Canadian businesses that are connected, but we're closing that gap modestly, though we need to do more. Our team doesn't approach this in a negative fashion at all. We're proud of what we're doing, but we've got a lot more to do and a lot more to work on. We're focused on really helping Canadian small business.

The last thing I will mention is the fact that the task force on broadband connections in Canada is about to produce a report, and we think the work of the e-business round table and the recommendations of the broadband task force really connect well, because the broadband task force has been focused on how we get access and transport of high speed access out to Canadian communities. The prerequisite for taking advantage of that access and transport is that Canadian businesses, schools, libraries, and governments actually use the high speed band once it gets there. So there's this really good connection between the round table work and the task force work.

That's my update.

Mr. David Pecaut: And a terrific job.

As I mentioned, Kelvin Ogilvie couldn't be with us today, but there were two points he wanted us to pass on. One is that his education and talent task force has focused on immigration as well. Canada last year had over 100,000 immigration spots that we did not utilize. Meanwhile, the U.S. has turned its immigration mechanisms into a real technology engine, and they are rapidly reforming their H-1 visa program. We've heard from many CEOs of U.S. companies that they believe now that it is becoming much easier to get tech workers into the U.S., and I think we need to be equally competitive there, as we should be, with the large diaspora of many people from around the world here already. We should be a great draw for that.

The other thing in the talent area is that distance learning is a huge industry that's going to be augmented and expanded more quickly by the Internet. Last year it is estimated there were $6 billion in revenue from e-learning, most of which happened in the U.S. Canada has for 25 years been a global leader in distance learning programs, but we are now in danger of taking a legacy asset this country has and really doing very little with it. Of the top 100 e-training companies in North America, it's unclear whether any of them actually are Canadian, because some of them are private companies. This is an industry we could have been leaders in. We probably still could be. We have the infrastructure in education and the knowledge of how to distance-learn, but we haven't figured out how to leverage that into the e-space.

Let me turn, Jean-Pierre, to you to summarize where we are on the government online initiative.

[Translation]

Mr. Jean-Pierre Soublière (E-Team Captain, Canadian e-Business Opportunities Roundtable): Thank you, Madam Chair.

I would like to mention that the government online team is made up of representatives from all levels of government across the country. Therefore, it includes not only federal government representatives, but also representatives from a number of provincial governments in the health care and education fields, as well as municipal representatives, of course.

There is always some confusion about what is involved in government online, or GOL. So, I will briefly explain what this refers to.

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What are we talking about when we use the expression "e-government"? I see it as being divided into two major branches: electronic democracy and government online. Government online is made up of two very important elements. Web sites, in other words, online services, come to mind immediately. Another element which is even more important—and its economic impact and effectiveness are huge—is the restructuring of governments and their internal operating methods. That is important, because there is a great deal of confusion on that subject.

[English]

There's also the factor that keeps coming back—why is this very important? A lot of the comments that have been given already in fact talked about that. There are really six reasons why GOL is important to us, to you, and to our economy.

They include the efficiency of government, and David talked about that. They include the efficiency of the economy because for business or individuals to deal with government in a more efficient manner helps the economy overall. It includes the pull, and John talked about that. The fact that governments will be dealing with Canadians or business online pulls the economy to this new age that we're involved with. That's a very important factor.

There are the advantages of the acceleration and the branding in the sense that, if our governments are really operating in this new world, then it brands the country as such. It will attract immigrants and, I think, investments to our country a lot more easily than before.

A very important factor—there's a conference in Ottawa that you're all aware is going on today—is the restructuring of the public service. Well, in fact, unless these new approaches happen, it gets very dull for public servants who want to keep working in our government. So that's a fifth important criterion. Finally, not to be neglected are the economic impacts, because what we want is for our governments to work with the private sector in going online. As such they'll create companies which will create jobs and from there go internationally.

Now, we gave the government a not-very-good report card in the last year, and that report card was not given by us as simply being flippant and saying what we like to do is criticize governments, because we're working very closely with the governments.

[Translation]

We obtained this assessment from a number of public servants across Canada. They admitted that they are having trouble moving ahead, because it is a sector that is nevertheless relatively complex for a number of reasons.

Much progress has been made, but it is a hugely complex area. We mentioned what happened with the Government of Ontario kiosks. The federal income tax initiatives deserve praise. These improvements mean that Canadians are dealing more and more with Revenue Canada. We can point to what the Industry Department has done with the Community Access Program, or CAP, and so on. Good progress has been made throughout the country.

[English]

But in the last year things seemed to slow down. It's not that we did the easy things, but a lot of the tough things are now starting to come into play. This is not a technology issue, and that's important to realize. It's an operations issue in its global definition. It's an issue of governance because we're not talking about just one department. We're talking about a government. We're not talking about just government—we're talking about different governments, and all the levels of government. We're talking about health, and we're talking about education. So it's very complex. Anyone who thinks that one municipality can do it on their own and be successful—it's not going to happen.

We have to somehow get this thing to function. It's an issue of leadership also. Now the specific recommendations that we have been providing governments across the country are very simple and to the point. We've been advocating—because of openness and accountability, but also working with the private sector—that governments publish their projects and their detailed plans. We don't mean by that just wish lists or mission statements that we'll never quite get to. We mean actual projects that are funded and that people work on and are going to work on. The federal government has pledged to do that and has done a bit, but there is more to be done. Five provinces have actually pledged in writing to do it. I'm sure that we'll get all of them to pledge to do it.

The doing it and the pledging are une autre étape, but we're getting there. Another specific recommendation that we've given is to create advisory committees. I give the parallel, actually, and it's not to be ironic in what's going on... but the senior executive advisory committee is created in fact to give an outside view of what should go on, and to also give an outside opinion of the importance of these changes. So the federal government has announced the advisory committee and that it will take place, and we're hopeful that it will be implemented in the not too distant future. That's a second specific recommendation, and we're starting to work with the provinces for that to be created.

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The third one is to look at procurement, which remains very complex and in some respects very inefficient. Again, it's the creation of an industry, but also governments cannot do it without help from the private sector. Those are two facts.

Finally, there's the issue of governance, and that is a very important one. It ties into leadership; it ties into organizational issues; it ties into yourselves as members of Parliament as well as all our leaders across the land—the ministers and cabinet, of course. But unless our governments and you, the leaders, start working together more closely on this and see this as a win-win, we as a country are going to suffer immensely as to what we observed going on elsewhere.

[Translation]

Those are the brief comments that I wanted to make this morning regarding government online.

[English]

Mr. David Pecaut: Jean-Pierre, thank you.

Let me finally close with Matt Holland, from our branding team.

Matt, maybe you could just say a few words about what we do.

Mr. Matt Holland (Vice-President and Managing Director, The Boston Consulting Group (Toronto); E-Team Captain, Canadian e-Business Opportunities Roundtable): Sure, thanks. Thank you, David.

The branding team is focused on a very simple equation that goes something like this: if we have a strong brand and reputation for Canada as a place that will provide advantage for businesses to develop and build international businesses, we will attract dollars and human resources to Canada. Those resources will result in building the next wave of large, successful international companies. Those large, successful international companies will create economic health and well-being for Canada. And that will in turn play back against our brand.

It's a very simple equation, but it's one that has been proven by many other countries around the world that have a very clear brand in the community of e-business and in the area of e-business. Ireland, Israel, the Nordic countries, and Singapore all have a very well-defined brand. If you look at investors and ask them opinions as to where they should put their money for investment around the world, they will cite countries, typically, that have a very clear brand.

Canada has a challenge on the branding dimension. We do not have a clear brand. Even though we look at the specifics of the facts of Canada's situation—in which case, if you tally up the facts, we have a very compelling argument—we are not recognized very credibly around the world as being a place where you will gain an advantage if you build your business here.

So the branding team has challenged this particular problem in two dimensions. We have said “All right, we realize we have a story to tell, and the story is not being told very credibly.” Our first task has been to collect the elements of the story. This has to be more than just straight facts and figures, and our Fast Forward 2.0 and 1.0 begin to assemble the facts and figures. But we need a story that is appropriate for a brand that sells Canada—sells Canada as an advantaged location for business development. We need to tell the Canadian success stories of companies that have grown up here in Canada and have been very successful here from start-up through to full development into large, competitive companies. We need to create that content. Then our second task is to communicate that content along with the specific facts and figures of the argument.

So the branding team has organized itself to work on the content, and on the content side we are consolidating the success stories within Canada. Surprisingly, the stories that we are informally aware of vastly outnumber the ones that you see typically written up in the magazines of Canada in the press. And so we've been able to capture a whole number of stories that we believe will be extremely interesting. They're almost adventure stories about how to build a successful enterprise within Canada.

The second task around communication is one that requires enormous amounts of effort, and, I would argue, not just from the branding team and members of the round table, but from every member of this room. Communicating the story of Canada and the fact that Canada provides an advantaged location for e-business development is an enormous responsibility. Just recently, in the last four weeks, we were partnered with an organization in the United States called the Committee for Economic Development, the CED, which was hosting a large conference in New York City.

David earlier raised the point of people—even our largest trading partner, our closest neighbour—not really understanding the Canadian story. We sent down a delegation to the CED conference. This is a very blue-chip conference conducted in New York City. Some members here were at the conference, and we told the Canadian story. It was really well received. Many people in the room said they did not know that. They did not know that Canada was much more open for business. They did not know the success stories that we were telling them. They did not know we would be as welcoming for them to invest within Canada.

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We need to do that again and again to get the message out that Canada is in fact an advantaged place for businesses to develop in the space of e-business. If we can accomplish both the content development and effectively deliver the message into international markets, we can in fact change the shape and understanding of Canada's brand in the international community.

Thank you.

Mr. David Pecaut: Madam Chairwoman, in summary, when we released our second report in February, we used the metaphor of baseball, which I think still extends across most of the country. We said we're only in the second inning of the game here, and this game may even go to extra innings.

There's a lot of turmoil on the stock market and there are a lot of stories about the dot-com bomb. But the fact is, what's happening right now in the financial markets is the natural turmoil that comes with technological advances. It's absolutely incumbent upon the members of this committee, upon the federal government, upon all the leaders in Canada and in the private sector as well, to take the long view here.

This technology is fundamentally going to restructure business. It's fundamentally going to change the trajectory and the pace of wealth creation. It can fundamentally change the cost of government, the effectiveness of government, and the degree to which citizens feel connected and well served by their governments.

The only question really on the table is will Canada seize the chance to take its legacy assets that we've talked about today and be a leader in this revolution by focusing on the long-term vision, or will we sit in the back of the bus and be carried along by other countries, other places that actually take the mantle of leadership first? I think that's the challenge we've tried to put the focus on today and the challenge that we hope all of you will join us in, because clearly I think you know where we stand on that challenge.

Thank you, Madam Chairwoman.

The Chair: Thank you. We appreciate that very detailed presentation. We now have a number of questions for you, beginning with Mr. Rajotte.

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): Thank you, Madam Chair.

Thank you very much, gentlemen, for those presentations. They were excellent.

The first question that comes to mind for me, especially considering the last presentation, is whether Canada's—I don't know another word—problem or position right now in terms of e-business is more a perception problem or more a reality problem.

Mr. Eckert, you talked about the venture capital regulations, which were a real problem. Then Mr. Holland was discussing how perhaps it's more perception in the fact that we may have as competitive an environment here as the U.S., but it's just that people don't know that. So perhaps at least the two of you could comment on the extent to which it is perception and the extent to which it is reality.

Mr. John Eckert: I think it's a bit of both, and it varies, depending on what specific issue you're looking at.

It's true that if you look at how Canada ranks relative to other countries in the world in almost any category surrounding e-business, we actually rank pretty well in these surveys. But if you actually went to those countries and spoke to the senior business leaders and asked what they think about Canada, and where do they think it might rank, you'd probably find that it ranks much lower. So the perception does not reflect the reality, and this is why we think it's so important for us to sell the facts abroad as well as domestically.

There are some disturbing trends, though, and I think David summarized that quite well. Yes, we have some striking assets today, and we do lead in certain sectors, but we have to maintain that lead. Whereas it's early days of the race and it's easy to get a jump start in something like distance education, will we be the leader in two years' time? For that to happen, we're going to have to make a lot of fundamental changes, which is what we're here talking about today, because a lot of countries are not moving very swiftly in these areas.

Mr. Matt Holland: We think there's a very compelling story to be told about our successes, and it is relative to the reality. The perception currently is below what we believe the reality is.

The reality could be a lot stronger, and we're working on those fronts as well. But we've decided we need a parallel process. We can't fix everything and make it the best place and not celebrate the successes that we've had to date, because they are very compelling. It's all part of creating this more robust environment for the development of e-business.

Mr. John Wetmore: I would just say on perception and reality, the answer is yes and yes, unfortunately.

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I think John and Matt have talked about the perception. The reality, though, against the U.S. small businesses is the real gap. If you look at information technology spending as a percentage of GDP around the world, which we do, Canada is ranked fourth in the world, which is a pretty good investment track record. Unfortunately, our largest trading partner is first by quite a margin. So there is a real gap going on, and we do lose jobs to faster, smarter companies that might be just over the border, or something like that.

There is, however, a big perception that we're not as far along as we are. So I think there's a bit of both in that.

Mr. James Rajotte: In terms of closing that gap, one of the things that was talked about was the venture capital regulations being restrictive, and government regulatory policy. I wonder, then, if you could provide some detailed examples as to how it is being too restrictive now and what you would suggest as policy-makers to change that.

Mr. John Eckert: I can give you a number of examples. I mentioned that the level of participation by institutional investors in the venture areas is quite minimal relative to the U.S., which we estimate to be about 35 times more active, far in excess of the 12 to 1 or 14 to 1 rule that I guess we look to the States for today.

We have, for instance, a regulation that says if an institutional investor invests in a limited partnership and it is not what is termed a qualified limited partnership, which is a technical definition that is difficult to meet in and of itself, the investment is classified as a foreign investment. There's no linkage at all to the fact that the limited partnership may invest exclusively in Canada. It's still classified a foreign investment.

As you know, there's sensitivity surrounding the amount of money that institutions can invest outside, and there's competition for where those moneys shall go. But why would you have a strike against the venture community by virtue of this restriction that, quite frankly, makes little sense? It did make sense at some point in, an historical context, but has long outlived its usefulness.

A second example, and one that I think, if we could address it, would unleash an incredible amount of interest and flow of capital into Canada, surrounds the ability to raise money from offshore. I'm referring again to the U.S., but now also Europe and Asia.

I'm referring to the large, passive capital pools that typically aren't going to invest by virtue of coming in and investing in a specific opportunity, or even opening up an office in Toronto or Ottawa to invest in technology start-ups, but pools of capital that are managed by portfolio managers who want international diversification. They now look to Canada and say, how easy is it to actually invest in a fund managed by, for instance, McLean Watson, or Ventures West, or Brightspark, an incubator in Toronto? It's very difficult.

First of all, they're fiduciaries, and we force them to work through special limited partnerships resident elsewhere. There's also a risk—it may be small—that they may be deemed to be carrying on business in Canada by virtue of working through a manager, albeit at arm's length. They don't want that risk. They don't want any chance that they're going to have to explain to their trustees and their constituents that they got caught in some little tax loophole and Canada is making them pay tax, and, yes, they'll get it back on some credit basis, and so on. They just don't want it.

So whereas we could sit there and convince them easily that Canada is a great place—it's the size of California, extremely well educated, with a track record of outstanding technology development and company success stories—because of these technical barriers they don't care. They'll go and invest in Michigan.

Portfolio diversification would suggest, yes, invest abroad, and why wouldn't you go to the country that is your greatest trading partner and closest to you culturally and from a legal and accounting standpoint? But we're not getting our share of capital. Israel gets more money than we do, and a number of other countries do, as well. So if we could remove barriers such as that, I think we would see a much more vibrant venture and private equity environment in Canada.

The Chair: Thank you very much, Mr. Rajotte.

Ms. Torsney, please.

Ms. Paddy Torsney (Burlington, Lib.): Thank you.

First, let me commend you for your great work. It's really very exciting. Certainly, on the communications side, each of us as members of Parliament has the capacity to mail to every single household in our riding, and we're more than happy to help. This is the kind of meaty stuff people are interested in. They just might read it.

• 1230

Locally, I know our chamber is extremely active and has a really good, broad membership, and presentations of this kind to them about how to get up and running would really increase the number of companies. I have a great example for you, which I'll give to you later.

I think of the antique dealer at a kiosk in Aberfoyle in the pouring rain telling me how it was okay, he was able to make his living in spite of the terrible weather conditions because he was on eBay and had a website, and he did a lot of business. I stood there thinking the antique dealer is on eBay and this is working. It enabled him to actually have a full-time job. It was amazing.

The other thing I'm wondering about is that part of the issue with the kiosks in Ontario and with any change, and certainly with government contracting and everything else, is a desire not to invest in technology that quickly becomes obsolete, I would think. Taxpayers don't want to hear that they spent all this money and they set up all these systems and two years later, sorry, you have to have a new one. I know my staff is always trying to explain these things to me when I say “What do you mean we have to spend more money on the computers? Didn't we do that last year?” They're saying it's forever.

In talking to some of my American university friends who are dealing with this huge rebound in the economy, it seems like we're a bit like the turtle and hare. And, yes, government is investing in all of this technology, and helping to drive Canadian business and innovation and being partners in that, but I wonder, compared to the United States, if we're going to get there anyway in some ways and there'll be less of a displacement in the economy. When you talk to people right now in New York and Boston, and everywhere else, they're saying they're looking for new jobs, or they're looking for jobs, or they just took pay cuts because the company is in a huge protraction because things were flying a little too high.

I don't want you to think I'm saying we shouldn't be making these investments and getting there, but I do wonder if their strategy has more severe drawbacks.

Mr. David Pecaut: I think that's an excellent question: you look at the turmoil and you say maybe we'd be better to wait a little bit for proven technology and so on. On the e-enablement—and leave aside the leading-edge companies, the dot-coms and so on—on the e-enablement of core processes, delivering drivers' licences online, paying your taxes online, the technologies are proven.

In the U.S. this year $1.5 trillion will be paid to the Internal Revenue Service electronically from touch-tone keypads or on websites. The Internal Revenue Service has shrunk the float on that substantially below what I think has been achieved in other countries, and it puts billions of dollars in their pocket because they don't have to wait for the cheques to clear and so on. So that kind of proven technology is out there.

Ms. Paddy Torsney: We're doing that.

Mr. David Pecaut: The second thing I'd say is I don't think the government should take the risk of the dot-com. I think that should be in the private sector. But let us not lose sight of the fact that capitalism is this wonderful engine. So yes, a company gets funded and maybe it does some foolish things and it goes bankrupt, but the assets don't just get flushed down the toilet.

If you look in this particular area of government procurement, there's a company in New York called govWorks that was started about two years ago. It's the subject of a great documentary film out in Canada today called startup.com. They had $61 million of U.S. venture investment and they went out to put state and local governments online. For example, New York City parking tickets are paid online on the web today. They built that business. That company went into bankruptcy in February and all the assets were purchased out of bankruptcy by a much larger company called govOne, backed by First Data. That company took over all the contracts, and they say that by the third quarter of this year they will be profitable. Of course they didn't pay anything close to $61 million for those assets, but 20 of those employees are in the new company. The software moved over, the contracts moved over. That's what capitalism does.

So in a lot of that investment there were excesses, there were a lot of things that were crazy. The federal, provincial, and municipal governments in Canada should not be at risk there. They should be a good buyer. But you should be thrilled to have people taking those risks, because that will help move the ball forward, and for every govWorks out there, one out of ten, two out of ten, John, are going to turn into a Research In Motion and create thousands of jobs.

The spirit of capitalism is government can't pick those winners, the marketplace has to. But government's own procurement power can be a stimulus to fostering the innovation and to being a good customer. Government should just be a great customer here.

Ms. Paddy Torsney: Let me suggest to you then that the other part of your communications work will be when the Auditor General or the opposition parties ask, how could you have bought this technology when that company was obviously doomed to failure? Because those American governments do not have a question period, do not have the same kind of oversight, so you'll need to be shoring us up as we get our heads knocked off publicly.

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The Chair: Thank you, Ms. Torsney.

[Translation]

Mr. Brien, you have the floor.

Mr. Pierre Brien (Témiscamingue, BQ): Thank you, Madam Chair.

I can see what you are doing and I find it extremely interesting. However, it is my impression that this is an area of technology where supply exceeds demand at present. A whole generation of consumers is unfamiliar with it. Take my family, for example. My five-year old surfs the Internet, but my mother has never turned on a computer.

There will be a certain transition period, during which the private sector and governments will have to serve two client groups. I do not know what you are doing to stimulate demand or make this technology more appealing to these consumers. Do you have any initiatives, as a group or collectively, that are designed to stimulate demand? I do not feel much pressure from people who want more electronic services from government. I know that it could do more, but I do not sense that people are aware of what additional services could be provided. You are saying that more could be done, but I do not feel there is a demand from my constituents. Are you working on this too?

[English]

Mr. John Wetmore: Let me take a run at answering the question a couple of ways.

We had to decide, as a round table, how we would come at the subject. If you look at the amount of money that's being spent in e-business and you break it out between business-to-consumers investment, so consumer-oriented investment, and business-to-business investment, the business-to-business pool of investments is ten times or a hundred times larger than the business-to-consumer investment area.

So we tried to major on a business-to-business kind of discussion with Canadian businesses, and that was the focus of the round table to start with. We felt that in many ways if we can justify these investments on a business-to-business basis, which has a higher probability of having a better return on investment, then once you get the infrastructure in place you can use that infrastructure to sell retail or whatever.

So most of our focus and our activity through the first year and a half has certainly been on a business-to-business basis, but in the course of our travels we've had lots of opportunities to talk to very large groups that represent consumers, and you can see the surveys show that the business-to-consumer growth is actually closing the gap to the U.S. almost a little faster than we are on a business-to-business basis.

So we are making progress in Canada on a business-to-consumer basis. It's again not as fast as we'd like, but it's a byproduct of businesses getting online and people becoming more familiar with the technology and so on.

Quite frankly, as I read in an article the other day, one of the fastest-growing new Internet user groups is 60-year-old and plus people in North America who have the time and the interest to get engaged. So it's not just restricted to our children. They're certainly a generation who are growing up and living with this technology. There are lots of opportunites. It's a very empowering concept for people with disabilities, for the elderly, for disadvantaged people.

We talked a lot about the digital divide and that it is a two-edged sword. There's an opportunity that the divide gets bigger, but quite frankly there's an opportunity to bridge that divide if we're smart about the things we do through our SchoolNet program, through our extension of broadband to communities across Canada, through our focus on communities that are disadvantaged. The great thing about this technology is it can bridge these divides very quickly if we're smart about how we deploy it.

So I think you're on a really good point. I think the business-to-business area is where we see more of the activity in the short term. The business-to-consumer is going to grow naturally over time, I think; we're seeing it increase.

[Translation]

Mr. Jean-Pierre Soublière: Your question is an excellent one. The way we see it, as I said earlier, this is not a technology issue, it is basically a question of restructuring the way our governments operate. It is interesting to note that all of the governments of countries having fairly advanced economies throughout the world want to be leaders in serving their citizens using the Internet.

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I said earlier that we are talking about more than having a Web site or an Internet interface. The functioning and efficiency of our economy, as well as the efficiency of governments, are also involved.

Canada has a program called the Community Access Program or CAP. This is a wonderful program. I have seen something of it. Not long ago, I happened to be in a library. I noticed that the small computers were all in use. I wandered through, and I went around three times to see what the users were doing. I did not go around a fourth time, for fear they would think me strange. At these computers, one person was looking for a job, another was buying tickets or finding out about a jazz program, and another was enrolling in a university program. None of them likely had a computer at home, but they were attracted by computers and they realized that this is a much more efficient tool than our old technologies. We are only at the threshold of this new era.

Mr. Pierre Brien: I would like to ask one last question. How are we doing on the security issue? The security of electronic services is a concern with consumers.

[English]

Mr. John Wetmore: I'll take your question. I know security is an area Mr. Alcock has a lot of interest in.

We're making great strides forward in technology. Trillions of dollars move around the world every day in online systems that are very secure. I talk about this subject a lot, and I talk about security as an investment: you put in firewalls, virus protection software, processes, and so on.

Privacy, which often gets linked with security, is a different issue. That's really an issue of morals—of making a statement of what we stand for, and living up to those standards. The two often get intermixed. But I think if we make the investments in security, in hardware and software, we can make networks today very, very secure.

At IBM we do a lot of security audits for our customers: we go out and test their systems. Interestingly, a lot of the problems we find have to do with people and processes: people leave passwords in an open drawer in their desk, or somebody leaves the business and you don't follow the proper process to make sure they can't get into your system again—things like that. Security is both hardware and software, but it's also processes around your systems. But there's enough skill and experience around the world to make systems very secure.

I think the bigger issue for all of us is privacy. What do we stand for in privacy? It's up to all of us business leaders to step up and make sure that our companies make statements about privacy, and that we live up to them. If we do it right together, we can really move forward in the business arena.

The Chair: Thank you.

Thank you very much, Monsieur Brien.

I'm just going to remind members to try to be a little briefer. Some people have other commitments, and we're going to run out of time here.

Madam Jennings.

[Translation]

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Thank you, Madam Chair. Thank you very much for your presentations.

I have a few questions to ask. You raised the issue of immigration and you said that changing our immigration policy would benefit or would help the e-commerce industry.

Have you formed a working group to conduct a study or consult immigration experts regarding the government bill? In the first place, this bill is not unanimously supported by immigration experts across the country, for a number of reasons.

In the second place, although certain parts of this bill deal with recruiting specialized workers by means of temporary permits or independent immigrant status, we are experiencing problems. One of these problems is that the Immigration Department currently does not have sufficient financial resources available for independent immigrants.

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I obtained some figures recently. In my riding alone, there are 15 engineers from Lebanon and Syria who have applied. They are qualified engineers, and most of them studied in England, in the United States or in France. They applied in 1999, but they have received nothing more than an acknowledgement of their application.

It is all very well to have a bill that, once it is passed, will be effective. However, if the necessary resources are not allocated, nothing will come of it. I would like to know whether or not you looked at this issue in the course of your consultation. That is my first question.

My second question is the following. We talk about connectivity and about small and medium-size businesses that are getting into e-commerce. Nevertheless, there are some rural or remote regions where people are still using party lines for telephone service.

Until telephone companies offer more modern services to these regions... As you know, in Quebec, there are some municipalities within a hundred-kilometre radius of Montreal that are still using party lines.

You touched on this matter in your report. Have you consulted with or pressured telephone companies to have them deal with this problem quickly?

Third, you said that certain provinces had committed themselves to releasing their plans to make their services available on the Internet. What are the five provinces?

Fourth, you mentioned that one province used to be a leader in this field but no longer was, because of the developments that had taken place in the United States. Which province was it?

[English]

The Chair: I'm going to have to cut you off there, because we're never going to get to everybody if I let everybody ask five questions.

[Translation]

Ms. Marlene Jennings: The answer could be given rapidly.

[English]

The Chair: Yes, but if you ask five questions in five minutes—well, we'll see how far we get.

Mr. Pecaut.

Mr. David Pecaut: If you want to ask us other questions outside the committee, we'd be happy to dialogue with you.

I'll be very brief in my response. On the first question of resources, we totally share your view. We have been making representations to Minister Caplan, and will continue to do so, that the resourcing needs to be there in this area. We've heard similar stories, so we're very sympathetic to that.

Secondly, on the rural—

[Translation]

Ms. Marlene Jennings: The Finance Minister, the Industry Minister and the Human Resources Development Minister should also be included. It was a Cabinet decision, not just a decision by Minister Caplan.

[English]

Mr. David Pecaut: Right.

The Chair: It's not just an immigration department responsibility; it's shared.

Mr. David Pecaut: We'll repeat that to everyone.

On the rural and remote regions, we had to decide where we would focus. John and others sit on the broadband task force. We gave them an input paper that really focused on that issue. Again, we're sympathetic. I think that needed to be taken up.

As regards the provincial governments, we'd be happy to give you some background materials. It was the Government of Ontario that started this kiosk program, which by the way is still a great program: you go to a kiosk and you can get your driver's licence. It's terrific. But it needs to go the next step and allow you to do that online—as governments in the U.S. do now. Moving to that online process is the next generation of technology. It's unfortunate that something that was seen as a world-leading program just four years ago has now been leap-frogged. Our point was that this could have been the beginning of a position of leadership in provincial services.

The Chair: Okay.

Mr. John Wetmore: Ontario is doing quite a bit now—it's got a pretty active online program going across a whole bunch of ministries. It would be unfair to characterize the province as being behind any of the others.

The Chair: Thank you.

Thank you very much, Madam Jennings.

Mr. Brison, please.

Mr. Scott Brison (Kings—Hants, PC): Thank you, Madam Chair.

Thanks to all of you for your interventions.

The first question is about the state of angel investing in Canada. It strikes me that early-stage angel investing is a really challenging area for a lot of companies. This is particularly the case—to be parochial for a moment—in Atlantic Canada. A number of individuals are starting to participate a little, in terms of angel investing. But I'd appreciate your input on tax measures that would create a greater level of incentives for these people to invest in some early-stage opportunities.

I'd also appreciate some feedback on the federal SBIC program in the U.S.—whether there's a potential in terms of small-business investment companies.

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On the commercialization side, coming from a province with 11 degree-granting institutions, and of course we're pleased to see Kelvin Ogilvie's involvement—Acadia University is in my riding—what can government policy do to create greater and more effective levels of commercialization in Canada?

The next question concerns securities rules. Right now in Canada, we have ten provinces with ten sets of securities rules. That is a huge problem when companies are trying to raise capital. It's good for the corporate lawyers and accountants, but it's not very good for the companies.

Those are the three areas I'm interested in.

Mr. David Pecaut: John, maybe you want to take those on.

Mr. John Eckert: I could address the issues you raised of angel investors and securities rules, Scott.

We don't track angel investment in Canada. It's a bit of a chicken-and-egg thing, in that most angel investment comes from successful entrepreneurs who have harvested one company and are now very interested in getting involved in other endeavours. They may have an affinity for the technology, or the opportunity, or the people involved, and they're willing to roll the dice again.

This has grown quite dramatically in Canada, particularly in the clusters—which makes sense. Ottawa has a very vibrant angel community. I believe Canada does this reasonably well. It can be improved, but I think it's not bad compared to some of the other issues that need to be addressed, such as financial markets and flow of capital.

We have adopted a rollover provision, which was first set out in the February 2000 budget and then refined in November's mini-budget. It allows an investor who has made money to reinvest his profits on a tax-deferral basis. It's somewhat restricted in terms of company size and timing, but it's reasonably favourable.

We would like to extend the time available for investment, and also open it up to other kinds of investors. We don't see much difference between an angel investor who wants to reinvest, or a corporation or small business that's in a taxable position.

We're also not bad when it comes to capital gains exemptions and R and D. We have the lifetime $500,000 exemption in place, and relatively generous R and D tax credits—which are actually ranked as the best in the world. But where we fall down is with the medium and larger-sized companies, where we tip if we don't go much further. Entrepreneurs tend to cash out—sell to a U.S. player or someone else. But getting to the world-class, leading institutions that the U.S. is so well-celebrated for has proven difficult.

In fact that leads me to your second question, on the raising of capital, and securities regulations in general. We believe we do inhibit both entrepreneurs and investors relative to the States, which is a very large, deep capital market with relatively free barriers to the flow of capital.

We tend to have unique solutions here in Canada, and we somehow view the regulators as needing to protect the unsophisticated, rather than letting the entrepreneurs and those willing to risk capital play the dominant role. That's why we have restrictive rules regarding the raising of private capital: if you just want to raise a small sum of money, it's cumbersome.

Lawyers get fat on those issues, and they should be addressed. The rules should be made much more simple, and the limits should be greater, so entrepreneurs don't have to spend half their time raising the money, but can instead spend 90% of their time deploying the money and building a company.

We also have uniquely Canadian solutions to escrow, which deals with liquidity and getting a return. We feel that our entrepreneurs and investors should be locked up for very long periods before they can sell shares, whereas in the U.S. there are no restrictions except for a six-month underwriters contract, after which they're free to sell.

So if you're an entrepreneur and you have an opportunity to go public, where do you go? To the States, if at all possible, because it's much more favourable. They're our largest trading partner, and barriers are coming down globally. Money is like water: it flows downhill; it tends to seek the most natural and easy path.

Those are the issues we think need to be addressed.

The Chair: Thank you.

Mr. Alcock, please.

Mr. Reg Alcock (Winnipeg South, Lib.): Thank you, Madam Chair.

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I'm delighted to be here, and sorry I was late. I was actually speaking at a conference in Winnipeg a few minutes before I had to come down here.

I want to start by congratulating you. I think you do great work. I've followed your work from the beginning, and I think it adds greatly to the national discussion on this topic.

On the other hand, I also think you're part of the problem. Mr. Wetmore and Mr. Soublière will understand this, because I've spoken with them—and I'm dying for an opportunity to debate it with your group.

I think the problem is that you fundamentally don't understand government, so you keep coming at us with business model solutions on the service side. And those are not unimportant—I agree absolutely with what you said about them. Government can do services—its electronic filing system is as good as any we see in the States, and some of its call centres are as high-quality as you could get anyplace. Government can do that at the first level.

It's the point you made about moving to the second level. That kiosk problem—I studied kiosks years ago in California, and just as we started to put kiosks up here, they were taking them down. There's a different problem, one Mr. Soublière talks about: the problem of governance. But because you guys have most of the intellectual capital in the development of large systems, you keep coming at us from the service perspective.

You've got to help us; you've got to get more engaged with us in the true role of government. Part of that is services, but that's only one part. I want to make a value proposition to you: I would argue that the greatest single investment the government could make in Canadians' quality of life and in the effectiveness and efficiency of the economy would be to invest in the public service—to give it the necessary resources, training, and tools to get it online as quickly as possible, and make the move to the next level of e-government.

Now it's a discussion about issues like democracy, accountability, and governance. Mr. Wetmore is absolutely right, the privacy argument isn't a security argument at all—it's an accountability argument. It's a matter of actually understanding what happens when you accumulate all that information in one source, and understanding what the beast is doing. Right?

It's going to take a lot of pushing to get us there. Do you agree with my value proposition?

The Chair: Mr. Soublière.

[Translation]

Mr. Jean-Pierre Soublière: You know, I am on the board of directors of United Way Canada. I would like to tell you a story that applies here. A few weeks ago, we were discussing the fact that 40 or so of the 126 United Way Canada agencies do not have computer resources.

[English]

The argument was that for the 40 groups that didn't have any technology in their infrastructures, we had to keep the old way of communicating with them. But my feeling was that we should provide them with the tools to be able to move up, and not just accept that we have to stay in the old age. This is the type of investment you're talking about. This is part of the digital divide argument. But yes, absolutely, I'd agree that the investment is necessary.

The Chair: Thank you very much, Mr. Alcock.

Mr. Bélanger.

Mr. Mauril Bélanger (Ottawa—Vanier, Lib.): Madam Chair, a quick comment on the immigration side.

I assume the industry you represent is aware of the pilot project created a couple of years ago, largely because of the support of Paul Swinwood of the Software Human Resource Council. It's now bringing in 2,000 to 3,000 people a year, on a fast-track basis. I think perhaps we've got the makings of a larger enterprise there. Instead of reinventing the wheel, we should perhaps build on what's working.

On the capital side, I understand the desire to reach where it is, but that might bring about the kinds of problems you've noted, sir, the end result being that we lose our companies: they're drawn or forced somewhere else, following the venture capital. So I'd be more inclined to encourage you, if I could, on the matter of how we build our own capital.

I want to ask you, in your discussions, are public pensions, OMERS, Caisse de dépôt—are they involved in venture capital? Have you approached them?

Mr. John Eckert: In fact those two institutions are among the most active participants. Unfortunately, there are only about three other active institutions. At that point, it almost stops. So the caisse, OMERS, teachers, the hospitals of Ontario, and the B.C. treasury would all be quite active. There's a whole raft of mid-sized and small corporate pension funds and other quasi-government entities that have pension funds under management that are not.

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Mr. Mauril Bélanger: Fine, I'll let you go after them.

There are two more that perhaps you want to approach. Those were created recently by this government. They're public, they're arm's length, so unless we revise the legislation, we can't tell them thou shalt. I'm talking about CPP and the superannuation funds. Both of those are now real money, reinvested, and they're growing rapidly. Perhaps you might approach them to encourage them to do that.

I'd like to throw out another concept. If you take 0.2% of our national debt, that's about $1 billion, and I'm rounding off here. If you took 1%, you'd have about $5 billion. That might be interesting in terms of a venture capital pool of money. Perhaps there might be a way of converting some of our debt, which is now in long-term bonds and treasury bonds, into a pool of money that could be creating a pool of venture capital. The only problem, I would submit—and I don't know if you've addressed that, and I would encourage you to look at it—is whether or not we have in Canada the capacity to manage it properly. And if not, how do we go about creating a capacity to manage larger pools of venture capital?

The Chair: Mr. Eckert.

Mr. John Eckert: You raised some good points. In fact we have contacted the CPP in particular, who will be speaking at the annual venture capital conference in Halifax next week. They'll be on a panel, discussing this point specifically. I appreciate your suggestions.

The issue of management in Canada is an interesting one. I would suggest we do not have the same history, the same length of time that we've been in venture capital, or the depth of management skill in the venture industry, in general. Yet in the last two years we've made enormous strides. We've seen the industry grow by several hundred percent. On any given day, I see résumés cross my desk that make me think that if I were trying to get in the business today, I'm not sure I'd even get an interview.

We're seeing the best and the brightest. And we've seen a large influx of very talented and skilled professionals from investment banking, consulting, and industry at large who have moved into venture capital. So I think we do now have the experience and ability within the venture industry to manage a much larger amount of capital.

It is chicken and egg and it has taken some time. Going back five, ten years it was safe to say there was not the level of expertise, it just was not that sexy an area to be in, but that has all changed, and it will continue to do so. So I'm very optimistic in that sense.

The Chair: Thank you very much, Mr. Bélanger.

Mr. Lastewka, please.

Mr. Walt Lastewka (St. Catharines, Lib.): A number of members, including Mr. Brison, talked about the areas where we could make some changes in venture capital in getting more funds. You gave us a few hints here and there and so forth.

One of the problems for me, coming from witnesses, is I never see the whole playing field. I'm sure you've taken the U.S. and Canada and compared, and this is where Canada's good and this is where the U.S. is better. Is it possible that you could forward to the committee that playing field chart so we could look at it and your priorities to it?

Mr. David Pecaut: We would be very happy to do that. Some of it is summarized in a very high level in the book as well, but we can send you some more of the background documents, absolutely. Also, our first report had a more detailed chart, and we'll send that as well.

Mr. Walt Lastewka: Okay.

I'm also really concerned that the small-business field in Canada has moved so slowly, and in some areas of the country even pathetically slow. Some areas in the country have moved faster, like the greater Vancouver area.

What are your suggestions for helping the small-business field to adapt to what we're trying to get done, to what you're trying to get done? What are the priority areas we should be doing with small business to make it happen?

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Mr. John Wetmore: That's really what the subject of our acceleration team is all about. We're pulling together this how-to kit, and as we get those materials together in the next 30 days, I would suggest we get it out so you can have a look at our very specific suggestions. It tends to vary industry by industry. So when you go to a small retailer, you have a different set of suggestions from what you would if you go to a manufacturer, a distributor, or a wholesaler. That's why we've engaged the industry associations to ask where the opportunity areas are in this particular small business, and that's what this how-to kit is all about.

I would also suggest that when Industry Canada rolls out its e-business you can go to the website and there's an adviser that would take you through a suggested road map of how to push forward.

So we'll get that material out to you. It's a good suggestion.

Mr. Walt Lastewka: I appreciate it.

The Chair: Thank you very much, Mr. Lastewka.

Mr. Cannis, please.

Mr. John Cannis (Scarborough Centre, Lib.): Madam Chair, I don't know where to start.

Gentlemen, perhaps you could talk to us about a comment I heard some time back at a conference about self-regulation of the industry and about the relationship in terms of the European Community and what they're doing, and how it ties in with us. I'm sure you're aware of some of the legislation we've brought in, the Privacy Act, the Canada Business Corporations Act, and some of the changes that are now being made.

I say to Matt it's a good story. In some ways, Matt, you contradicted yourself. You talked about good things we've done and why we're not doing it and we're not doing so many good things. I think it's also incumbent upon you, the corporate world, to talk about the good things that have happened.

I saw the report from a meeting you had in the States. I heard the gentleman—I can't remember his company—who said “We didn't know you had such a good story to tell”. So it's incumbent upon you, along with government, to tell that story, because we've heard it from CEOs. And I'm not going to name a giant telecommunications company that keeps pounding the message, “We need tax relief”. Well, we've done it. The U.S. is attempting to do it.

I plead with you on that one. Okay, we have security, we have privacy, we have the business corporation changes and so on. So please talk to us about the self-regulations that I heard about, and how we can put the consumer at ease. What about the recourse for users out there? Because that's part of their concern.

Mr. David Pecaut: We did have a team this past year that worked on that, led by Peter Nicholson from BCE, the chief strategist. We called it the trustmark team. They have worked with a number of organizations in Canada to coordinate the trustmark efforts, and I think that team actually made a lot of progress.

There is now an international effort through something called the Global Business Dialogue on Electronic Commerce, on which Jean Monty is the Canadian representative. It includes private sector leaders like Steve Case from America Online and others from Europe and government folk. That dialogue is trying to raise the profile of some of these issues internationally.

The environment has changed quite a bit in the last year. The perception now, from most of the statistical studies, is that Canada is in relatively good shape on these issues. This would be reflected also from organizations like VISA that are at the front line of the security issue.

I think John put his finger on it, though; the privacy issue has not yet been really tested. The fact is that many consumers sign up for privacy statements. If you were to ask them what they think they've signed up for, they wouldn't know. And if you were to ask them how the data is being used, they wouldn't have a clue.

So I suspect we will see the privacy issue continue to grow in concern in this area as we see how it's being used. On the security side, we're in relatively better shape.

Finally, we totally take your challenge of the private sector needing to be out there. We have from the beginning said that this is not about pointing fingers one way or the other; we're all part of the problem, we're all part of the solution.

To that extent, the dinner that I mentioned we hosted with the Minister of Finance in New York was exactly that kind of meeting. It was to have some folks come down from the private sector in Canada, from the round table and say, we're here to tell you what we think is happening, we're here to hear what you think about Canada and to have a real dialogue there.

And Matt's branding team is taking the message on the road with mostly a private sector group, a sort of e-business round-table team.

Mr. John Cannis: Have you talked to the European Community?

Mr. David Pecaut: Yes, we're actually looking at doing a London session similar to the CEDC session that would target European business executives. So we hope to set that up and do that.

Mr. John Wetmore: You would have been very proud of our Canadian team in New York City. We're here to talk about the areas we're working on, but when we were in New York we were selling Canada big time, and it was a different tale.

The Chair: We want to thank you very much, Mr. Cannis.

On behalf of the committee, I want to thank each of you from the E-Business Opportunities Roundtable for being here today and for the work you're doing on behalf of Canada. We look forward to the opportunity to meet with you when your work is complete—as it evolves is probably a better way to describe it—in the coming year.

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The meeting is now adjourned.