President & Chief Executive Officer
Royal Bank of Canada
Montreal Chamber Of Commerce
March 28, 2011
Cela me fait grand plaisir de me trouver ici aujourd'hui,
avec vous, dans l'une des villes les plus belles au monde,
avec son cachet historique tout à fait spécial.
The relationship between La Belle Provence and RBC is over
120 years old. Our first branches opened in 1890 here in Montreal,
and today we have almost 8,000 people working in Quebec. It
remains our official Head Office and we are very proud of
our relationships and customers throughout the province. I
should point out that, notwithstanding, that I have not lived
in Montreal since 1979 (as you can tell from my French), it
remains my hometown and my allegiance remains with the Habs
and the Alouettes.
There are a number of RBC people in the audience today who
represent us throughout Québec and who do an outstanding
job on our behalf. In particular, I would like to recognize:
Micheline Martin, President, Quebec for RBC Royal Bank - and
- Michael Fortier, Vice Chairman and Head of Quebec, RBC Capital
Markets, as well as, two of our directors - Paule Gauthier
and Jacques Lamarre. On their behalf and mine, we appreciate
the confidence and support of our customers who last year
ranked us #1 in client satisfaction, and you can be sure that
we are committed to making this a long term trend!
There is currently, in my view, an unparalleled opportunity
for Canada to experience a breakaway decade - to significantly
outperform the developed world in terms of economic growth
and social leadership.
The ingredients are in place for us to achieve unmatched
success if we ensure that we capitalize on our current strengths
and focus on our weakness. Today, I would like to comment
on why we are in such a strong position but, more importantly,
what we have to do to ensure we capitalize on it and, indeed,
make this Canada's breakaway decade.
When you look at our relative strengths in a world that is
grappling with so many issues, our potential seems limitless:
- We live in the second largest land mass which is rich
in natural resources;
- We live our lives largely free of social upheaval and
- Our economy, despite the challenges of the recent financial
meltdown, continues to show remarkable resilience;
- The value of our housing market --- the greatest source
of individual wealth in Canada - is now slightly higher
than the pre-recession peak -- whereas our neighbours to
the south are dealing with housing prices 30% below that
high water mark;
- Eleven years of fiscal surpluses leading up to the economic
crisis provides us with tremendous flexibility at a time
when other countries have little room to maneuver and face
- Canada has a banking system lauded globally for its strength
and stability, along with a sensible, effective regulatory
framework that was well tested during the recent financial
- Our corporate tax rates are a clear competitive advantage
in attracting international companies to locate in Canada.
Canada today is an attractive place to live, work and build
successful businesses. And with continued fiscal responsibility,
we should be able to avoid the current plight of many countries
that will be forced to undergo painful restructurings to address
their systemic failures.
So, all of these facts allow me to say with confidence that
Canada is facing the possibility of a breakaway decade.
Note, however, that I've purposely used the word 'possibility'.
I think we can succeed, but we cannot lose focus on what got
us here and we have to address some challenges that could
set us back in terms of our global competitiveness.
Three areas that I would highlight are:
- the importance of restoring fiscal balance both at the
federal and provincial levels;
- the necessity to maintain sound immigration targets and
policies to ensure our country continues to grow; and
- the requirement to deal with our Achilles' heel - innovation
I would begin by commenting on our low productivity which
is one area holding Canada back from maximizing its potential
in an increasingly globalizing world. Innovation-fueled productivity
is the lever we can pull to increase the economic pie we all
share, and in doing so, improve our standard of living and
gain competitive clout in the global marketplace.
I have to admit I felt a bit hesitant about bringing this
topic to your attention today. Canada has had more conferences
and speeches on productivity and innovation than any other
place on earth. Even the Montreal Chamber of Commerce has
heard from no fewer than three speakers on the subject in
the past three years! Adding one more speech to the pile isn't
going to help. We need action and follow through to address
our position as among the least productive and least innovative
industrialized nations in the world.
We should be proud of our successes and prosperity as a nation,
but we cannot be complacent and notwithstanding strong performance
on most economic measures, our competitive position in a globalizing
world has slipped. In this new world order, we are not longer
competing against the G8 -- but also with emerging economies
who are making significant investments in innovation and production.
Our productivity and competitiveness will be a key driver
in determining whether we can continue to outperform.
If we don't address our Achilles' heel, Canada's productivity
gap will continue to consume large chunks of Canadians' pay
cheques. Productivity measures how much is produced for each
hour worked and today, our citizens produce thousands of dollars
less per capita than Americans.
Low productivity affects employment, trade, new company formation
and where businesses chose to locate. Ultimately productivity
is a key driver of GDP growth and a nation's living standards.
One of the challenges is that it's hard to create a sense
of urgency about productivity as it is a complex area to understand
and because we look around us and see that Canada is a prosperous
country. Our GDP per capita is strong and, as I said earlier,
relative to most developed countries, things are pretty good.
In many ways, sound policies of the past combined with a little
bit of luck significantly shifted our global positions as
we managed through the recent economic crisis. But as we increasingly
rely on emerging industries and value added exports to drive
growth, productivity will be essential to employment and prosperity.
If we don't take advantage of our current strength to ramp
up investment, we will have wasted an opportunity and it will
impact us in the long term.
Productivity has been a challenge in our country for a long
time. In the last thirty years the productivity gap between
Canada and the US has more than tripled and leading up to
the crisis, we had lost considerable ground in terms of economic
performance. This productivity gap reduces each Canadian's
share of output by $12,000 per year. Our weak dollar combined
with strong demand for our commodities helped compensate for
this productivity gap but we have now lost at least half of
that advantage as the expectation is for our currency to remain
high. And while strong demand for commodities is helpful to
Canada's growth, it will not create the jobs of the future.
What do we have to do to correct it? And who is "we"?
To correct it, we have to make innovation central to business
strategies and the 'we' is all of us: business, government,
labour and academia, working together.
Our governments are on board with the innovation agenda.
They've cut regulatory and tax burdens. Our universities,
hospitals and a new generation of research institutes in every
province are also taking research out of the lab and getting
it working in the marketplace where it can create jobs, companies,
and even industries.
So, in the main, I think that business needs to take up this
cause, to undertake more R&D and for us to collectively
focus on ways to improve the commercialization of our science
I think it's our turn as business leaders to say, thanks
to the government for the tax reform, and now we are going
to use it to invest and make innovation part of our agenda.
And there are many companies who have done just that, here
in Quebec and across Canada. They're the companies who know,
absolutely, that the velocity of change in their markets is
just going to get faster, and that their revenues five years
from now will come from products or services that don't exist
today. Their sense of urgency to anticipate change and act
on it reflects a world economic order that is changing at
Quebec's aerospace industry is a shining example of what
innovative companies are doing and while we don't want governments
to pick winners, having an industrial strategy around a specific
segment is both a smart and proven policy. CAE is a world
leader in providing simulation technologies and integrated
training solutions for the civil aviation industry and defense
forces. Bombardier is a global leader in aerospace and rail
transportation. And there are other companies in all parts
of the aerospace industry in Quebec that are innovative, supportive
and that continue to flourish with strong support from both
government and academia.
And productivity is not just about high tech industries.
Bombardier Recreational Products spends proportionately more
than their competition on R&D to maintain its competitive
Dollarama, with world-leading cost and profitability metrics
in its industry was born and raised in Quebec and it's established
itself as the world's leading sourcing operation for low-priced
merchandise in low-cost countries - that's productivity. The
same can be said for Montreal-based Gildan, which now markets
and manufactures clothing all over the world. And then there's
Yellow Media, which is transforming from the old to the new
--basic print to digital and internet.
These are great examples of the power of productivity investment
but we need more and from all sectors including small and
medium sized enterprises that ultimately drive our economy.
Strangely, these innovative, home grown companies won't be
found by googling the words 'Canada' and 'innovation'. If
you do that, you'll discover that Canadians invented many
things -- insulin, the zipper, standard time zones and the
telephone. (Also notable would be the snowmobile --- and of
course my favourite -- poutine.)
But productivity is less about invention and more about making
existing things better and more efficiently. I call it innovation
with purpose. What is the future of telecom, smelting, energy
or banking? There are thousands of smart and engaging people
trying to find ways to better serve clients, improve margins
and power growth. And if we don't do it in Canada, someone
else will do it for us.
In my industry, we assume that to compete globally we must
offer better products, through multiple platforms and at a
lower cost. The only way to do that is to constantly improve
At RBC, we're aggressively pursuing innovation and we currently
have the highest level of capital expenditures in our history.
- We're making major investments in our technology infrastructure
to streamline processes so that experiences like opening
a new account is not about the client filling out multiple
forms but about helping us understand how we can best advice
and help the client with their financial goals.
- The way that our customers buy products and the way we
fulfill those products is changing dramatically. As an example
we have a new banking application that can be used on any
hand held device that's one of the most downloaded banking
apps in the market.
- In our capital markets business, a new leading edge technology
called "Thor" helps our institutional investors
execute large volume trades instantaneously at the best
available price in the market. Our clients have benefited
from Thor, and we have benefited from the competitive advantage
we've achieved through this innovation.
RBC is also very active in supporting the commercial success
of knowledge-based industries. We have a group dedicated to
growth companies of all sizes in emerging market sectors that
are R&D oriented, highly innovative, export oriented and
with high growth potential.
We're honoured to be the leading bank in this sector of the
Canadian marketplace, and we got there by building teams of
specialists in information and communication technology, cleantech,
media and entertainment, and life sciences and healthcare.
Another important industry to Canada is oil and gas and just
last month, The Globe and Mail had a headline which read "A
country built on crude". Yes, our oil and gas industry
is an absolutely vital part of Canada's economy, but it too
is a world leader in technological innovation.
Its enormous R&D investments improve production efficiencies,
reduce emissions and water use, reclaim land, and address
other environmental issues. Commercialized innovations like
Carbon Capture and Storage and Toe to Heel Air Injection will
end up contributing to Canada's future productivity.
Whether it is aerospace, banking, energy or any other industries,
we have the ability to be global leaders if we continue to
invest. Doing that requires R&D spending, and in Canada,
companies in aggregate have been reducing R&D spending
for the past three years and we constantly under spend on
a relative basis. When you look at patents - another marker
for innovation -- again we are a laggard. We must take advantage
of our current strength to reverse this trend.
A large part of innovation and productivity gains will also
come from small and emerging businesses. Canada has some extraordinary
organizations that are pushing innovation agendas and playing
important partnership roles with entrepreneurs and emerging
I'm Chairman of one such organization - MaRS in Toronto,
and I've seen many examples of how the simple commitment to
innovation can generate explicit commercial success and a
myriad of other benefits. At MaRS, we connect scientific discovery
with market opportunities and help develop, nurture and grow
ideas into businesses and commercial success.
Other promising trends are also emerging. Many of our scientists
are returning home and new research chairs are being created.
Our innovation centres and think-tanks are in place and active.
Connections among academia, business and government are growing
stronger every day. The more these connections happen, the
more ideas will cluster together into new products and services,
and the more we'll see new companies emerging.
We have put in place a lot of the ingredients for success
but, frankly, we have yet to reach the milestones required
but we can't back away. We have to keep up the pressure and
continue to support and expand our programs even in the face
of government spending cutbacks.
It is difficult to maintain programs and spending on innovation
at a time when government is assessing all spending programs
but it will in the long run pay dividends (U.S. example).
Finally, business has to step up and seize these opportunities
Another key ingredient in ensuring Canada's economic growth
and productivity enhancement is by ensuring we capitalize
on immigration and our strength as a multi-cultural society.
Our population is aging, and underwriting their retirement
years and health care will present a serious fiscal challenge
- nowhere more so than in Quebec and Ontario.
After 2015, almost one in five people will be senior citizens,
and we will increasingly rely on new Canadians to sustain
the tax base, support our health care system, build businesses
and contribute to Canada's productivity and intellectual capital.
We need and want a steady inflow of educated, talented, hard
working and innovative immigrants to fuel and grow our standard
of living. And given what is going on in the United States
and Europe, we stand out as a country with both the capacity
to attract and the ability to integrate new Canadians.
I believe that our ability to attract and our capacity to
absorb is an incredible competitive advantage for Canada and
each of its provinces, and essential for growth and enhanced
productivity. Today, immigrants are our main source of population
growth, and we need this population growth to achieve economic
The other irrefutable fact is that businesses that take strategic
advantage of this pool of talent will see their productivity
and bottom line grow. We have certainly experienced this first
hand across all of our businesses and geographies.
The final area I would emphasize to ensure it is Canada's
breakaway decade is to encourage our governments to maintain
fiscal discipline. For Canada to continue to set itself apart,
we cannot allow our fiscal position to deteriorate further.
We cannot let the advantage gained through 11 years of fiscal
responsibility slip away. Notwithstanding, the political challenges
of fiscal restraint - it is, in my view, essential that the
provinces and the federal governments aggressively work their
way back to fiscal balance.
Other countries like the United States and many in Europe
will face significant challenges as a result of their fiscal
imbalances. The math suggests inevitable restructuring - higher
taxes and less spending - which will impact their flexibility
and growth. If we can maintain our discipline, it will give
us a huge competitive advantage and the ability to invest
in infrastructure and areas that will ultimately make us more
competitive. For us to forfeit this advantage would be tragic.
We can easily muster the spirit and will to win at the innovation
game in Canada. We need only look back to the Winter Olympics,
just over a year ago, when Canada, suddenly, out of nowhere,
won more gold medals than any other country in the history
of the Winter Olympics.
In my view, this was the outcome of one of the most successful
R&D program in the history of our nation: the Own the
Podium program. It was innovative, it was focused, it captured
our attention and enthusiasm as an important undertaking,
and it was funded.
It's now the turn of Canadian business to begin thinking
in an Olympian way - and make its own investments in dramatically
We have never been better positioned - our fiscal position,
our talent capacity, our tax competitiveness, our resources,
our educational institutions, our multiculturalism and our
recent economic performance.
We have never been in a better position to invest, to innovate
and to do the things that will close our productivity gap
and create wealth. But we can't be complacent. We must keep
our foot to the pedal on all fronts.
We must continue to hold our doors open to immigration and
make integration, diversity and multiculturalism work. We
must continue to maintain fiscal discipline. And finally we
must close the productivity gap and ensure that we grow the
next generation of Canadian success stories.
If we can rise to this challenge, all Canadians will benefit.
It will ensure that we capitalize on our unparalleled position
to ensure Canada does have a breakaway decade.