Canada—A Nation or a Satellite
Publication:
The Empire Club of Canada Addresses (Toronto, Canada), 16 Apr 1964, p. 339-350


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Douglas, The Honourable Thomas C., Speaker
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Text
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Speeches
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More and more of Canada falling into foreign hands by the steady acquisition of industries and resources by American corporations. Some statistics and recent occurrences. Benefits to Canada from foreign investment. Trading relations with the United States. The problem of developing a branch plant economy in Canada. The example of the Canadian automobile industry. The problems of subsidiaries which explore and develop natural resources for export to the parent company. An additional problem when the parent company rather than the Canadian subsidiary is carrying out the firm's research programme. The steady loss of Canadian "brain power" to the United States where most of the technological research is being done. The most serious problem of maintaining Canada's political independence. Some serious consequences of foreign investment. What Canadians can do about the foreign ownership and control of our economy. The proposal of the establishment of a Canadian Development Fund and what it might do. The responsibility of this generation of Canadians to find the answer.
Date of Original:
16 Apr 1964
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English
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The speeches are free of charge but please note that the Empire Club of Canada retains copyright. Neither the speeches themselves nor any part of their content may be used for any purpose other than personal interest or research without the explicit permission of the Empire Club of Canada.
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Full Text
APRIL 16, 1964
Canada--A Nation or a Satellite
AN ADDRESS BY The Honourable Thomas C. Douglas MEMBER OF PARLIAMENT
CHAIRMAN, The Second Vice-President, R. Bredin Stapells, Q.C.

MR. STAPELLS:

Distinguished Guests, and fellow members of the Empire Club of Canada.

A Parliamentarian of the stature of "Tommy" Douglas hardly needs an introduction to the Empire Club, quite apart from the fact that we have enjoyed the pleasure of greeting him before.

Our speaker has lived a life full of challenges and highlighted by accomplishments which are a tribute indeed to those qualities of character, and dedication, which have won him the respect of political friends and foes alike.

The distinguished leader of the New Democratic Party might well attribute these qualities to his Scottish heritage, but they were certainly tempered during his upbringing and service on the Canadian prairies while his sense of devotion and duty and high moral principles are undoubtedly a reflection of sincere religious background.

Not yet sixty years of age, the former Premier of Saskatchewan has enriched the Canadian House of Commons with his wisdom, his wit, and his eloquence, and it is indeed a pleasure to introduce to you The Honourable T. C. "Tommy" Douglas, M.P., who will speak to us on the subject--"Canada--A Nation or a Satellite".

MR. DOUGLAS:

How often have we sung "O Canada", we stand on guard for thee", apparently unaware that more and more of Canada has fallen into foreign hands, not by conquest or armed might but by the steady acquisition of our industries and resources by American corporations. Increasingly we are like a man who started out by renting some of the rooms in his attic to his neighbour and now finds that he has rented one room after another until he and his family are living in the basement. Indeed, unless he acts promptly, he will find himself sleeping in the garage while his home is occupied by those who came as paying guests but stayed to become masters in this man's house.

There is no other country in the world where so much of its economy is owned and controlled outside its borders as is the case with Canada. In November, 1962, the Finan cial Post put out a special issue with the streamer headline "Tidal Sellout of Canadian Companies to Foreign Owners Threatens the Survival of Canada". This and many other warnings have been given to the Canadian people but so far we have taken no effective action to retain control of our economy.

It is estimated that nearly 70 per cent of the major segments of Our economy are owned or controlled by foreign corporations, mostly in the United States. Outside investors first moved into the extraction industries and gained control of vast quantities of Our natural resources. Consequently 80 per cent of the petroleum and natural gas industry is in foreign hands. Sixty-one per cent Of the mining and smelting industry is Owned by foreign companies. In fact, 100 per cent of the nickel, iron ore and aluminum industries is owned in the United States.

From the extraction industries foreign investors moved into manufacturing with the result that 59 per cent of our manufacturing is now owned by companies located outside of Canada. Foreign control now extends to 90 per cent of our rubber industry, 55 per cent of the agricultural implement industry, 67 per cent of the electrical apparatus industry, 52 per cent of our chemical industry, 96 per cent of the automobile industry and practically all of the aircraft industry.

More recently foreign investors have invaded the fields of insurance and finance. In 1961 alone, nine Canadian fire and casualty insurance firms passed into foreign hands. Canadian controlled companies now write only 22.4 per cent of all the fire and casualty business done in Canada. Of the 375 companies registered to do fire and casualty business in Canada, only 48 companies are controlled by Canadians. Little wonder then that Mr. K. R. McGregor, Federal Superintendent of Insurance, said in his report,

"It is doubtful whether there is any major country in the world other than Canada where such a large proportion of the fire and casualty business is transacted by companies from alien countries."

Since 1955, the control of seven life insurance companies has gone abroad with the result that of the thirty-six companies registered to write life insurance in Canada, eleven are now foreign-controlled. I need hardly point out what this means in terms of vesting in persons outside Canada the authority to determine what policy will be adopted with reference to the investment of funds which belong to the people of Canada. The recent purchase of one of our chartered banks by a firm of American bankers may be the first step by foreign investors to enter the field of Canadian banking with all the financial control this would entail.

This take-over of the Canadian economy has been proceeding at an accelerated rate. The Financial Post estimated that since 1950 there had been 240 important take-overs of Canadian companies by foreign investors. More than 5,000 companies in Canada are owned abroad and the number is increasing at an alarming rate. Since 1950 foreign groups have paid out $715 million to acquire control of fifty-one Canadian companies with total assets of more than $1.5 billion. In just five years foreign investment in Canada has zoomed from $13.5 billion to over $23 billion. Foreign capital is always needed to develop a young country but foreign investment in Canada now represents about 60 per cent of our gross national product as compared to the United States where in 1914 it was 15 per cent of their gross national product and has now dwindled to 3 per cent.

In the light of these facts it is not surprising that Mr. Frank S. Capon, Vice-President of Dupont of Canada Ltd., said,

"Canadians are alarmed not only at the present degree of foreign control but also at the speed with which it is increasing. There is not much left to sell."

A noted Washington economist, Edward M. Bernstein, appearing before the Royal Commission on Banking and Finance, said,

"It is unseemly for Canada to have a level of capital inflow so much higher now that it was in 1950 when the country now is 25 per cent to 30 per cent richer." Now, let us readily admit that we have derived some benefit from this tide of foreign investment. It has provided us with access to technical know-how that is unequalled anywhere in the world. At the same time it should be remembered that it has also discouraged the development of our own technology and research to a considerable extent. Foreign investment, by increasing our productivity, has also raised our living standards, but we may be reaching the point of diminishing returns in this field. A large part of our economic expansion has been in the extraction industries which provide relatively few jobs per unit of investment. These raw materials are going in the main to the United States where secondary and tertiary industries provide much greater employment for every dollar of capital invested. In other words, we are exporting jobs when we allow ourselves to be relegated to the role of suppliers of raw materials, fuels and hydro-electric power.

I am not one of those who blame the Americans for the growing foreign control of the Canadian economy. We have no one to blame but ourselves. For years we have taken the path of least resistance. At the turn of the century most of Canada's investment requirements came from Great Britain. This did not constitute any major problem, partly because much of the British investment was in the form of loan capital which did not involve ownership and could easily be paid off from increased production. British equity capital presented no problem because our exports to the United Kingdom have always exceeded our imports from that country. Consequently we were able to maintain our balance of payments with Great Britain.

Our trading relations with the United States, on the other hand, have been quite different. Although our population is about one-tenth that of the United States we have always bought from our southern neighbour a great deal more than they bought from us. Since the end of World War II we have had an adverse trade balance with the United States of roughly $600 to $700 million a year. Instead of facing up to this imbalance of trade we took the easy way Out and encouraged the Americans to invest an equivalent amount in Canada in order to equalize our balance of payments. As a consequence of this policy our debt to the United States in the form of interest and divdiends has grown to such an extent that we now owe them another $700 million annually. Last year Our exports of wheat to China and the Soviet Union temporarily relieved our balance of payments problem but they have not solved it. For years our balance of payments deficit to the United States has been around one billion dollars a year and a windfall of wheat exports has not materially altered this situation.

Canada is very much like a farmer who meets his obligations each year by mortgaging part Of his farm. He may feel that he has solved his problem when in fact he has only postponed and aggravated it. For not only will he run out of land which he can mortgage but each year his interest bill will continue to rise and some day the principal will come due. This generation of Canadians has mortgaged its heritage to meet its current obligations; the next generation will have to pay the piper and the time is drawing dangerously near.

It is comparatively easy to become emotional about this subject and to exaggerate its importance. This is no time for sloppy sentimentality. A degree of foreign investment is essential to the development of any young country. What we must concern ourselves with is the extent of foreign ownership and the serious social and economic problems it can create.

The first and most serious problem is that we are developing in Canada a branch plant economy. Many foreign-controlled businesses are subsidiaries of large American firms. Often these subsidiaries are set up mainly for the purpose of selling on the Canadian market or to supply the parent company with raw materials. Consequently they are discouraged from making any serious effort to seek out export markets. This deprives Canadians of the income and employment opportunities that entering the larger world markets would provide.

A case in point is the Canadian automobile industry which is almost entirely American-owned. These branch plants were put here to avoid the Canadian tariffs and to supply the Canadian market. There is growing evidence that the parent companies in the United States do not want their Canadian subsidiaries competing with them in world markets. They are encouraged to sell in the Commonwealth in order to benefit from the Commonwealth preferential tariffs but not in markets where the parent companies are operating.

Recently I have been trying to pin down the refusal of the Canadian automobile companies to sell automotive parts for export to Mainland China. There is some evidence that they have referred all such appeals to their parent companies in the United States and the latter have taken the position that the policy of the American government forbids any such transactions. This would seem to indicate that what we have in Canada, insofar as the automobile industry is concerned, is a branch plant economy in which the Canadian subsidiaries are subject to United States policies rather than Canadian.

A second problem sometimes arises in the case of subsidiaries which explore and develop natural resources for. export to the parent company. In some cases the parent company also has other subsidiaries producing raw materials in other parts of the world. It sometimes happens that the parent company seeks to develop its holdings in these areas first with a view to getting the raw materials out "while the getting is good". Meanwhile Canadian enterprises either lie idle or operate below their capacity. This has been particularly true with reference to the Canadian oil industry.

A third problem arises by virtue of the fact that the parent company rather than the Canadian subsidiary is responsible for carrying out the firm's research programme. This tends to aggravate the already retarded state of Canadian technology and to perpetuate our dependence upon the research of the United States.

Equally important is the steady loss of Canadian "brain power" to the United States where most of the technological research is being done. In this era of the scientific revolution

a country's development will increasingly depend upon its ability to train and retain its best research and technical personnel.

The most serious problem, however, is the maintenance of Canada's political independence. Political power always tends to follow economic power. Whenever any country has a substantial investment in another country it quite naturally becomes concerned about the future safety of that investment. Consequently it concerns itself with the opinions and attitudes of the people, their political parties and the policies they are likely to adopt. Ownership of resources, factories and insurance companies is usually extended to radio and T.V. stations, magazines and periodicals, all designed to influence public opinion in the desired direction.

I am not suggesting that the United States is plotting to take over Canada. One look at our national debt and the condition of our highways would quickly discourage them on that score. But there is the danger of becoming not only an economic satellite of the United States but also of losing our sense of Canadian identity. Professor Lower wrote a history of Canada called Colony to Nation. Ironically enough during the very period when politically we were becoming a nation, economically we were becoming a colony. What we have to ask ourselves is whether economic domination will not lead inevitably to political interference. It is significant that during the last federal election American periodicals were more savage in their attacks and more forthright in their participation than ever before.

Almost unconsciously some of our policies are being decided in Washington. For instance, does anyone doubt for a moment that if the United States recognized Mainland China and voted for her admission to the United Nations that Canada would not quickly follow suit? I am not antiAmerican. All I am pleading for is a course of action that will preserve Canada's political and economic independence so that we can stand on our own feet and be masters in our own house.

It seems to me that some of those who are trying to weaken the bonds of Confederation might do well to look at this problem of foreign control. They should realize that unless we quickly find a solution to this problem there won't be any Canada in which to enjoy either bilingualism, biculturalism or any of the other earmarks of a Canadian identity.

Let me now turn to what we Canadians can do about the foreign ownership and control of our economy. I don't believe the answer lies in barring foreign investment. We shall need foreign capital in Canada for many years to come. But there is much we can do by way of tax incentives to persuade Canadians to invest more of their savings in equity capital. We should, as much as possible, direct our foreign borrowing into loan capital so that ownership continues to be vested in Canada. But these measures in themselves will not provide a solution. We must be prepared to take much more imaginative steps and I would like to suggest several proposals for your consideration.

First, I propose the establishment of a Canada Development Fund, one of the purposes of which would be to enable Canadians to play a larger share in the future development and direction of the Canadian economy and at the same time to ensure that this power would be broadly distributed among the people and exercised in their interests. Canada must generate more of its own capital and, if sufficient private capital is not available, then we must provide public capital to do the job.

The capital for such a fund would come from a variety Of sources. Some Of it could be raised by the competitive offering of bonds and preferred stocks in the open market to individual investors, and these monies would be administered in a manner similar to the Investors Mutual Funds. An equally important source of capital for the fund would be the financial institutions--other than chartered banks--particularly insurance companies, trust companies, instalment and other finance companies, trusteed pension plans and investment companies. These institutions have several billions of dollars in the funds under their control and they tend to invest them in gilt-edged securities in areas of the economy that are already largely in Canadian hands. I propose that the capital raised through the Canada Development Fund be put to work for a variety of purposes--one of which would be to enable the Canadian government to participate directly in the future development of industrial raw materials. Thus Canadian public capital would in effect compete with foreign private capital in much of our future natural resource development.

However, I do not think we should confine the activities of the Canada Development Fund to the development of raw materials. A large part of Canada's problem is that we have never produced enough Of Our own heavy machinery and equipment for the processing of raw materials and the development Of secondary industries. I would like to see the Canada Development Fund, either by means of loans to Canadian companies Or by direct government participation, extend Canadian ownership of heavy industry and secondary manufacturing.

We should also set up in Canada research and development institutions along the lines of the National Research Council with a view to improving our technology and pro viding opportunities for Canadian scientists, engineers and technicians.

The Canada Development Fund should have the power to purchase shares in existing foreign enterprises in Canada. It large enough blocks of shares were purchased the Canada Development Fund could claim representation on the boards of directors of some of these firms. The mere presence of Canadian representatives speaking for the Government of Canada might be sufficient to prevent decisions being taken which are contrary to the public interest of Canada.

There is no reason why the Canada Development Fund should not on occasion enter into partnership with either Canadian or foreign companies for the development of our resources and the establishment of new industries. For example, provincial governments which are responsible for granting the applications for mineral rights, oil leases and timber limits might require all applicants for such rights to incorporate under Canadian laws and to take the provincial government or the Canada Development Fund into partnership.

This course has been followed in Israel, Great Britain, Sweden and several other European countries with a great measure of success. By this method they have secured all the benefits of foreign capital and technical know-how without losing control of their economic destiny.

I am not asking you to believe that these are the only solutions. I am asking you to consider them, and I invite all thoughtful Canadians to present alternative proposals. The worst possible course is to do nothing--to dream and drift in the hope that this problem will go away. It won't! It is the responsibility Of this generation to find the answer. If we do, another generation of Canadians will be able to sing "With glowing hearts we see thee rise, the true North strong and free." And when they sing these words it will not be a mere empty gesture. It will be the declaration of a strong and resolute people determined to be masters of their own destiny.

Thanks

Thanks of this meeting were expressed by The Reverend E. M. Howse.

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Canada—A Nation or a Satellite


More and more of Canada falling into foreign hands by the steady acquisition of industries and resources by American corporations. Some statistics and recent occurrences. Benefits to Canada from foreign investment. Trading relations with the United States. The problem of developing a branch plant economy in Canada. The example of the Canadian automobile industry. The problems of subsidiaries which explore and develop natural resources for export to the parent company. An additional problem when the parent company rather than the Canadian subsidiary is carrying out the firm's research programme. The steady loss of Canadian "brain power" to the United States where most of the technological research is being done. The most serious problem of maintaining Canada's political independence. Some serious consequences of foreign investment. What Canadians can do about the foreign ownership and control of our economy. The proposal of the establishment of a Canadian Development Fund and what it might do. The responsibility of this generation of Canadians to find the answer.