Feds must study past report to lead the future, according to Audet
TORONTO – The Canadian financial markets suffer a bias against risk, which has led to an unfortunate under-investment in innovation, Cogeco Inc. CEO Louis Audet told the Canadian Club today at the Royal York Hotel in Toronto.
In a wide-ranging speech that touched upon a wide number of things, Audet tied them all to the problems he believes are afflicting Canada and its economy. He noted many of the developed economies around the world are now facing stagnant growth rates – but noted that as Canadians, we have the means to reverse that trend, only if we undo what he called the Canadian “productivity deficit” which is a “direct result of under-investment,” said Audet, who added a number of organizations and studies which agree with his assessment. (He’s pictured here in a file photo.)
“Innovation is hard work… Increased productivity is capital intensive, and hard work requires focus and determination. Common to both of them is the need for capital for investment. There is a need for owners of capital to be willing and eager to support new ideas and, above all, take risks in the pursuit of returns. And, with all due respect, I ask you the question: are Canadian financial markets really up to it?” he asked.
Audet pointed to the income trust frenzy of the early 2000s as an answer – evidence that our markets are not really up to it because the prior rules (the federal government eventually put a stop to income trusts) point to a long-standing, inherent predisposition against risk in Canada. “Capital expenditures were encouraged to be as low as possible and so called ‘tax-free distributions’ as high as possible (during the flurry of income trusts)… Operators were encouraged not to invest in new ventures in order to return cash to investors… The frenzy was so intense that it betrayed the pervasively flawed logic behind investor expectations: that returns can be achieved easily without incurring risk.”
That story reveals, said Audet, “an imbedded bias in our investment psyche, the notion that superior returns can be achieved without taking on risk! Should we be surprised that we suffer from this innovation and productivity deficit?”
A healthy, growing economy needs all sorts of inputs to keep it strong, and a big part of that is demographic growth. With our flat birth rate in Canada, that means immigration, said Audet. First generation immigrants now make up 22% of the national population, he explained, and more should be encouraged, including from war-ravaged areas of the world. As we have reported previously, Audet had sharp words for the former federal government on that issue.
“When the migrant crisis developed in the Middle East, our country did everything it could to look to other way and pretend it was not happening. Our leaders instead were encouraging us to consider our own well-being… Thank God, we shook ourselves out of this apathy and are now setting an example for the world to emulate of how a blessed, prosperous, democratic country like Canada can do its share to help resolve this planetary crisis and remedy its demographic deficit at the same time,” he said.
“We have become a nation of traders as opposed to a nation of owners." – Louis Audet – Cogeco
AUDET ALSO CALLED FOR the federal government to adopt rules which make it easier for company founders to pass on what they’ve build to their progeny (while acknowledging he looks “terribly self-serving” for asking, since his company is family-controlled). He pointed to Germany, where its regulations make sure, through tax exemptions and other rules, that companies can be passed on to the next generation of family members without punishing tax rates when the founder goes. Germany still has a formidable manufacturing base, partly because of that, said Audet.
Governments in Canada, he said, tax the presumed capital gain on family-controlled enterprises at 26.7%, meaning descendants are sometimes forced to sell the company to pay the tax bill. This can lead to sales of Canadian enterprises to foreign companies – or to their larger competitors, lessening the diversity of the marketplace thanks to increased consolidation – and potentially decreasing manufacturing at home.
“We have become a nation of traders as opposed to a nation of owners,” he added, acknowledging others have said the very same thing. “The whole financial chain of services is centered on trading and how a profit is generated in the process. This disposition is not in our economy’s best interest for the long term… Investment horizons have to lengthen substantially. And yet, investments bear some risk and mistakes can happen. That’s called the risk-return trade-off, and it’s normal and unavoidable.”
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Later with reporters, Audet addressed a number of additional issues, too:
On Heritage Minister Melanie Joly’s announcement that the federal government will undertake a sweeping review of Canadian culture rules rand the legislation which informs its policies:
“I think she’s nominally right that these laws haven’t been revisited for a long time, so they have to be brought up to date. The difficulty is that these are huge beasts to tackle. You don’t do that in a few months. It will take years to do. And in the interim, a number of things have to happen and in my opinion, there are two tracks: one is what has to be done now in the practical sense; and what has to be done in the long term. They can’t be put in sequence, otherwise we’re going to wait forever.”
On the CRTC chairman’s thoughts that we don’t have a proper broadband strategy:
“All of the thinking has been done. It’s all in the Internet infrastructure report that was produced by (now Governor-General) David Johnston in 2001… the structure, the principles on how things should evolve it’s already been done. We’re 16 years later and the principles are still the right ones… There’s enough work there that you don’t have to create a committee, you just start doing it.
“You start with re-assessing how the funds that are granted to operators to extend the networks to far out areas that are not properly served… how you apportion that money through RFPs, competitive bids. But you don’t just choose the lowest bidder, you have to make sure the lowest bidder can actually do the job and I think this has been lacking in the past in the last 5-6 years.”
“I wouldn’t say we don’t have a strategy, I would say we’re not finished implementing it… Government is going to have to put more money behind it to make it a reality… It’s the cost of occupying a territory… sometimes people live far (and) government support is required to build infrastructure.”
On Cogeco’s continued growth plans and whether he would look farther afield than adding more American cable systems
“Quite frankly, the potential in U.S. cable systems right now is so huge, that it is far easier to do than anything else I can think of.
