Editor: Please tell our readers about your illustrious background as Deputy Prime Minister of Canada as well as serving in the portfolios of Industry, Foreign Affairs, and Finance. During what time period did you serve and under which Prime Minister?
Manley: I was a member of Canada’s House of Commons from 1988 to 2004, and I served in the government of Jean Chrétien from 1993 to 2003 as Minister of Industry, Minister of Foreign Affairs, Deputy Prime Minister, and Minister of Finance. During that time we dealt with a lot of very significant changes in Canada, having gone from having the worst fiscal situation in the G7 to having the best. We eliminated a deficit that exceeded six percent of GDP and began running surpluses. As Minister of Finance, I ran up a surplus. Within my Industry portfolio, we dealt with the emergence of the Internet and the expansion of our telecommunications industries, among many other things. We contended with 9/11 and with the difficulties in Afghanistan, where Canada had troops from the very beginning. When the U.S. decided to enter Iraq, our government chose not to do so. They were busy and interesting years.
Editor: During your time in government, you were named Chair of the Committee on Public Security and Anti-terrorism, and in recognition of your fine services in the post you were named by Time as Newsmaker of the Year. Please tell out readers about this honor and your collaboration with the U.S. Secretary of Homeland Security, Tom Ridge.
Manley: When 9/11 occurred, the prime minister made me responsible for speaking on behalf of our government to the Canadian people on our management of the issues that arose from 9/11. As Foreign Minister that particular morning, I was returning from Europe. Most aircraft bound for Toronto that day were diverted, landing in different points in Canada. My plane however was not diverted from Toronto, so that I could make it back to the capital. It was, for Canada as well as for the rest of the world, one of those days when the sympathy for the United States and preoccupation with its challenges were universal. We formed a cabinet committee on public security and anti-terrorism, which I chaired, given my role in the government. My counterpart in the U.S was Tom Ridge, who was named in the first instance White House Advisor on Homeland Security. We built a very close working relationship that continues to this day, even though we are now both out of office. We worked closely together to create what was called the Smart Border Accord, which endeavored to increase security at the U.S. and Canadian borders while minimizing the impact on commercial activity. I found Tom Ridge to be very familiar with Canada, very aware that Canada was a vital trading partner of the U.S. and somebody whom I could rely upon. We could call each other to discuss the issues that we had to deal with. We instructed our officials to ensure that when we were going to meet that we had a common briefing on issues. In my 10 years of government, this working relationship with Tom was one of the highlights.
Editor: You are currently President and Chief Executive Officer of the Canadian Council of Chief Executives. Please describe this organization and its mission. What are some of the public policy developments instituted by the CCCE?
Manley: For U.S. readers, it would be best to say we are the equivalent of the Business Roundtable. Our members are CEOs of large Canadian companies that control about $450 trillion in assets and have annual revenues of about $850 billion. They employ about one and a half million Canadians. Most of the businesses they represent are Canadian controlled while some are foreign controlled, the ratio being about 75 to 25. Of that 25, a little over half are U.S.- based. We mainly focus on broad, national economic policies – trade policy, energy, the environment, and competitiveness. And we try to formulate views that would be helpful to government in dealing with the economic challenges that Canada faces.
Some of our notable achievements include championing the Canada-U.S. free trade agreement of 1988, a very controversial agreement at the time. The Council also supported the government (of which I was member) in its efforts to reduce and finally eliminate our federal fiscal deficit – and later championed lower tax rates once we balanced the budget. Today, we are working on issues related to Canada and the impact of the growth of the Asia-Pacific region on our trade patterns. We are working on issues related to skills training and on how to prepare university and college graduates for the workforce. And we continue to work on matters that Tom Ridge and I used to deal with – to support improvements in efficiency at our borders and regulatory harmonization between our two countries.
Editor: In a recent address at the University of Calgary you discussed the rise of the Canadian dollar. What factors do you think contributed to its rise?
Manley: It is largely a U.S.-dollar story. When you look back and compare the Canadian dollar and the U.S. dollar and look to other currencies – the Euro, the pound, the Australian dollar – you can see that the fluctuations, although not identical, follow one another fairly closely. So what we’ve seen is a fall in the U.S. dollar relative to other currencies, with some variations from time to time but with a consistent pattern. Some of the factors contributing to the rise in the Canadian dollar include the fact that the Canadian dollar became, for a period of time, a bit of a darling. We have very strong price stability, we have a very good fiscal position and our economy was doing extremely well. Much of global savings were going to Canadian and, to some degree, Australian dollars. That has been mitigated as yields have shifted. I think that you can expect that the Canadian dollar will remain a fairly strong currency but probably at or below par with the U.S. dollar.
Editor: What influence do higher energy and commodity prices have on the value of the Canadian dollar?
Manley: On a short-term basis, sometimes you can track the fluctuations of oil prices to an increase in the dollar, but it is not a perfect parallel. If you look back over a number of years, you will see that the Euro followed a very similar pattern to that of the Canadian dollar against the U.S. dollar. I think isolating it to energy prices or even other natural resources doesn’t give you the true story about what is happening. I believe it’s primarily a story about the U.S. dollar.
Editor: Canada prides itself on a stable banking system. To what do you attribute this source of strength for the country?
Manley: There were no government bailouts in the Canadian financial industry. Canadian financial institutions came through the recession and the global financial crisis in very good condition, relative to banks around the world. I think there are a several factors that contributed: (1) we went into the downturn with a stricter national regulatory system than many countries had; (2) we didn’t have the sub-prime crisis – mortgages in Canada tended to be kept on the balance sheets of the banks and have performed extremely well because Canadians don’t historically default on their mortgages in very large numbers. We had proper verification of income and a reliable system of property value appraisals; loan-to-value ratios were always kept fairly conservative. Canadian bankers, like Canadian business leaders, have been fairly conservative in their approach. So the risk profile of Canadian financial institutions was lower and their asset base in residential mortgages was more solid. I'm not saying that the Canadian institutions breezed through the crisis, but where they did suffer any losses, these were mitigated by better performance overall. They were regulated by the federal Superintendant of Financial Institutions in a way that was consistent with moderate risk.
Editor: And what is the state of Canadian manufacturing today?
Manley: Manufacturing is coming back, but it tends to be with fewer jobs than was the case before, owing to an increase in automation. I don’t think that we should ever think that we are going to see the massive number of entry-level, blue-collar, high-paying jobs that we used to enjoy in sectors like automotive. Certain sectors are doing well, such as the automotive parts sector. We have several large players, Magna being the largest. I think there is a good future for North American manufacturing – “North American” because I think we should be trying to exploit the opportunities that the NAFTA presents, where we all bring different strengths to bear. One of the CCCE’s missions is to reduce the number of border obstacles that add costs and reduce competitiveness among our North American industries.
Editor: Canada has growing labor market mismatches. To what do you attribute this factor and how can it be overcome?
Manley: That is something that we are working on over the next few years. We think there are issues around people without jobs, which is why our unemployment rate remains stubbornly north of seven percent. But our CCCE members continuously see that they are having trouble finding people for the jobs that they are creating. Some of it has to do with the rather poor record that we have in employer-based skill development, apprenticeships for example. Some of it has to do with the fact that we have this demographic bump that has moved through our labor force in Canada and the United States – a peaking of workers in their 50s and 60s occupying a lot of jobs that are highly skilled, in many cases experientially based. As those people retire, we’re going to need people who can take their places. There is a great deal of concern that we are not producing graduates from our colleges and universities that meet the skill requirements that the labor market faces. We need to examine how we train our people, how we educate them, and how we reward them going through the educational process in order to develop the kinds of skills that we will need in the 21st century.
Editor: Why do Canadian companies need better access to global markets? Has NAFTA made a difference in improving Canada’s balance of trade?
Manley: NAFTA made a huge difference – all of the trade patterns show that. But we continue to be heavily reliant upon the U.S. market. Increasingly the realization is that the old paradigm – we produce stuff and we sell it somewhere else - has given way to very complex, globally connected supply chains. So whether you’re in manufacturing, transportation or commodities, you must find your niche in global markets. It’s no longer enough to just produce and then sell to a customer at the other end of the phone. It is far more complex than that. We see the supply-chain phenomenon, especially in the automotive sector. The average North American motor vehicle rolling off the assembly line in Canada, the U.S. or Mexico has component parts that have crossed one of the two borders an average of seven times, as the different sub-components, that have come from elsewhere, are put together into a final motor vehicle. Other sectors of our industry have this complex web of supply-chain relationships, and it’s important that companies find their way into those relationships.
Editor: Canada has had one of the highest rates of GDP growth among the G-7. Do you expect this to continue?
Manley: In the developed world, Canada remains well positioned. We have every expectation that our federal government will go into fiscal balance in fiscal year 2014-2015, which, in our view, is fundamental to long-term sustainable growth. Like other countries, Canada went into deficit in the downturn in order to maintain demand at a reasonable level. But long term, Canada needs to get its fiscal house in order. We are confident that this is happening, putting us in a good position for continued and prolonged growth, which enables us to keep taxes down, to make investments in public projects – whether they are infrastructure, or medical care, or education and training - and to support an economy that can maintain those high levels of well-being.