Formula For Growth
Publication
The Empire Club of Canada Addresses (Toronto, Canada), 10 Nov 1960, p. 81-93
Description
Creator
Twaits, William O., Speaker
Media Type
Text
Item Type
Speeches
Description
Some superficial similarities, and differences between the depression in the thirties and the current economic situation in Canada. A review of some of the solutions tried in the 1930's. What did provide the recovery and growth of recent years. Two influences of persistent technological improvement through sustained investment of new capital; and persistent development of markets where Canada has enough advantage to permit production at a profit. Some examples. The key to Canadian economic problems as a combination of market development, i.e. development of economic markets, together with persistent technological progress achieved through the investment of capital under the stimulus of free competition. Applying proven principles of market development and technological improvement to some current problems. Some suggestions. The public debate over the subject of foreign investment in Canada, particularly American. Securing adequate and economic outlet in the U.S. market. Canadian energy development and its dependency on being competitive. Two hurdles to be overcome in order to chart our national economic future or progress. The importance of communication. Improved communication between government and business. Establishing a better basis for consultation. Co-operation between the economic and political elements of society. Examining those markets where we have an advantage and orienting ourselves accordingly. A reaffirmation of principles that led to growth over the past 25 years.
Date of Original
10 Nov 1960
Subject(s)
Language of Item
English
Copyright Statement
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.
Contact
Empire Club of Canada
Email
WWW address
Agency street/mail address

Fairmont Royal York Hotel

100 Front Street West, Floor H

Toronto, ON, M5J 1E3

Full Text
FORMULA FOR GROWTH
An Address by WILLIAM O. TWAITS President, Imperial Oil Limited
Thursday, November 10th, 1960
CHAIRMAN: The President, Alexander Stark, O.C.

MR.STARK: William Osborn Twaits, President of Imperial Oil, began his career with the company after graduating from the University of Toronto in 1933. He gained a broad experience of the oil industry by working in many of his company's departments before joining Imperial's Board of Directors in 1950.

Born in Galt, Ontario, in 1910, Mr. Twaits grew up at Sarnia, where Imperial has its largest refinery. It was not until he was nearly ready to graduate from university that he considered entering the oil business. His career has since followed the pattern of Canada's oil industry. In the oil-hungry war years, he worked on production control and was involved in the polymer synthetic rubber development which Imperial helped to set up. Soon after the company's Leduc discovery revealed western Canada's oil possibilities, he was in Calgary as a member of the management group in Imperial's western producing division. With marketing assuming growing importance in recent years, he has been directly concerned with shaping the company's marketing policy.

After joining Imperial's board, he was appointed a VicePresident in 1952, Executive Vice-President in 1955, and President in 1960.

Mr. Twaits has an active interest in higher education in Canada, and holds an honorary doctorate from Acadia University. He is a member of the Board of Governors of the University of Toronto and of the Board of Regents of the University of Ottawa.

He has been on the National Executive Board of the Canadian Arthritis and Rheumatism Society for four years, and was its President for two. He is active in the United Community Fund and the Canadian Welfare Council. He is a Director of Maple Leaf Gardens, and a member of the Advisory Board of the Toronto Argonaut Football Club and the University of Toronto Athletic Association.

Mr. Twaits is married to the former Frances Begg and has two daughters. At home, in Toronto's Forest Hill Village, he relaxes at the piano or listens to records. Biography and historical fiction are his reading favourites. He has a golf handicap of four, and likes to hunt and fish whenever he can. I now present to you William O. Twaits, who will speak to us on the topic, "Formula for Growth".

MR. TWAITS: The other day when I was watching some television reporting on the recent American election, I noticed a large picture poster of Franklin Roosevelt and I couldn't help wondering whether I wasn't back in the early thirties-about the time I started my business career. Then the price of gold went up, and I was sure I was back.

Once you begin such a train of thought, the superficial similarities between current public discussion and those of the middle thirties multiply and the process of comparing the two periods becomes very thought-provoking.

We had a terrible depression in the thirties. We hear much today about a "recession", but we now know this is not a depression (and perhaps not even a recession) because our statistical information has greatly improved. We know that employment is increasing although unemployment is also on the increase. We know what is happening to the national income; we know what is being paid out in unemployment insurance-which didn't exist in the early thirties-and we are therefore in a much better position to appraise the economic situation than we were thirty years ago. After examining the numbers, some call this simply "the smallest boom in history", for the current level is much higher than a few years ago! But for those who don't know the economic data, or for those whose jobs are directly affected, conditions today look very much the same as if a depression existed. One result of this is that what one might call the "sound-effects" of today are beginning to sound pretty much the same as those of an authentic depression. If one were only going by what one hears, it would be very difficult to tell the difference.

And that is probably the most serious danger that Canadians face. Elections are not won by statistical reviews and economic summaries. They are won by what people think and feel, and the great danger of the current situation is that people will feel that conditions are much worse than they really are and think that drastic remedies are the only solution.

Quite a few drastic solutions have been floating around recently and it might be worth recalling what became of some of the drastic solutions which seemed so impressive thirty years ago. For example, few people in the U.S. nowadays hear of the "Blue Eagle", the National Recovery Administration, and the many codes which Franklin Roosevelt and his advisors set up in 1933.

In Canada, our experiments with "dynamic" government intervention of the 1930's are equally difficult to recall. "Funny Money" as a political platform died with the thirties to be replaced by the much more orthodox approach involving easy and tight money, although no one seems willing to admit that such policies exist!

Prime Minister Bennett's three 1935 acts for the control of the economy, one of the most dramatic incidents of the time, either lapsed or were declared ultra vires within a few years.

But perhaps the place which has seen the most complete change from the thirties is not North America at all, but Europe. Comparison of the Germany of Hitler and Schacht with the free enterprise Germany of today presents sharply the contrast between developments then, under economic nationalism, and development now in a period of vigorous enterprise and widening markets.

But if the dramatic solutions adopted in the 1930's didn't stand up-and I think it is vitally important to recognize that they did not stand up-what did provide the recovery and the stimulus for the great growth of recent years?

I would suggest the two following influences: l.) persistent technological improvement through sustained investment of new capital; and 2.) persistent development of markets where we have enough advantage to permit production at a profit.

The working out of these two influences is very clear in some of the industries which were depressed in the 1930's. The Atlantic fishing industry, for example, was once widely heralded as having been saved by the co-operative movement. But this didn't solve the basic problem which lay in technical and marketing factors. What has finally put the industry on its feet is better mechanized methods of catching fish, a better technology of marketing through freezing and supermarkets, and the opening up of the U.S. market to the Canadian industry. Improved technology and new markets solved the problem.

A similar history can be found in the pulp and paper industry. Capital investment and technological improvements to increase productivity combined with a wider U.S. market, provided the growth impetus for that industry.

In wheat, a tremendous technological improvement has taken place since the thirties. The wheat depression of those days was due in part to high production costs, and these have largely been reduced by mechanization and large-scale production. Unfortunately, the marketing side of the wheat problem has not been solved by government marketing and commodity agreements. The wheat example is significant because it reveals the fact that unless technological improvement is accompanied by "sound" market development, recovery and growth cannot take place.

These few examples will show why I believe that the key to Canadian economic problems is a combination of market development-and by that I mean development of economic markets-together with persistent technological progress achieved through the investment of capital under the stimulus of free competition.

I would suggest that this recipe applies very generally in all countries, but particularly in Canada. In my company, where the use of committees is widespread, we frequently remind ourselves of that old saying, "The camel is an animal put together by a committee!"

It is worth noting that this country was put together by a committee-the Fathers of Confederation! Like the camel, we have an unusual structure, but remember that the camel is an exceedingly intelligent, useful animal which has successfully resisted displacement by modern transportation methods.

We must also remember that a camel can be ornery and refuse to work at all if he does not like the way things are going!

We Canadians, too, while highly industrious, can be temperamental at times. The wise administration of "affairs Canadian" must take this into account, and the corollary is that economic solutions for Canada must be correspondingly carefully designed.

Of course, my analogy of the camel is simply another way of saying that we Canadians should beware of the glamourous, dynamic, and spectacular in the way of economic solutions, and we should stick to the industrious and persistent application of the proven principles of market development and technological improvement. The experience of the last twenty-five years cannot be disregarded.

How can we apply these principles to some of our current problems?

In the first place, a true evaluation of the current situation must start from recognition of two facts. First, in this country we are making economic progress measured by such standards as growth in G.N.P., working force, earnings, etc. This progress, however, is not at a rate sufficient to absorb the increase in working force, which is not only desirable, but necessary if we are to expand our population.

Secondly, the Canadian economy is a much different machine from what it was even ten or fifteen years ago. As this process of change has ended, we have returned--and I use the word "return" advisedly--to a "buyers" market in which the emergence of new trading blocs and new foreign competition present the Canadian producer with new market factors. All of these have combined to make us suddenly and acutely aware of basic cost handicaps which have long been obscured by a "sellers' " market. Part of our adjustment problem is that for many years we were able to sell almost anything we could produce, and we have a generation of people unaccustomed to normal competitive pressures.

High and relatively rigid costs are inherent in the Canadian economy not only because of geography and our low population density, but also because of the social and welfare standards that we have imposed upon ourselves. Our high cost structure is typical of North America, and it would be foolish to think that we could clamp down on the desire of our people for a rising standard of living.

Of course, the simplest, if theoretical, method of improving our competitive position internally and externally would be a drastic reduction in the standard of living. Parenthetically, it might be noted that the premium on the Canadian dollar, by hampering our industries, has an ultimate tendency toward correction. But some current spokesmen are intentionally or unintentionally advocating a programme of austerity. I don't feel competent to judge the extent to which democracy, as we practise it, could accept a planned reduction in living standards relative to other countries.

However, I am sure of one thing and that is that the progress we desire will not be achieved through spectacular solutions based on emotionalism or destructive criticism. I am equally sure that solutions cannot emerge by government action alone, but only by careful assessment and joint participation of all the elements of society. For indeed this is a responsibility of all of us and not of one section.

Nowhere is emotionalism more evident than in current public discussion over the subject of foreign investment in Canada, and in particular, American investment. The bogey of "American control" has become an excuse or an explanation for almost every problem.

I noticed recently to my amazement in a current book, that Imperial "sold out" to the Standard Oil Company in the 1890's. In actual fact, Imperial needed large sums of equity capital to expand with the then growing western frontier. Unable to raise the money in Canada, or in the U.K., the Canadian owners persuaded the Standard Oil Company to invest in Imperial Oil, thereby creating an interest which has continued unchanged for some 70 years. It is not an exaggeration to state that this interest made possible the western Canadian oil development after many years of frustration and large expenditure. I suggest to you that the circumstances that led to this American investment in the 1890's are substantially the same as those which prevail today.

In regard to foreign investment, we must accept the fact that productive investment is the very foundation for the economic progress that we desire. This is a big country! It requires large-scale projects and large-scale efforts which are only possible if access is maintained to equity-that is, "risk money". That increased Canadian ownership in our productive system is desirable goes without saying. That equity capital (on which the return is only payable out of earnings) is more desirable than loan capital (which requires amortization and interest coverage), also goes without saying.

The positive approach to our problem is how to raise more Canadian equity capital for ownership of productive capacity in this country. We face the fact that Canadians are already saving at a relatively high rate compared to other countries-on the order of 23 to 24 per cent of G.N.P. We face the fact that much of this saving is going into institutional channels and thence to debt securities.

It seems obvious, therefore, that a programme to increase Canadian ownership must include the education and inducement of the Canadian investor to save by purchasing and holding common stock. We must also take steps to permit the diversion or release of institutional savings into this form of investment. This will require tax incentives, changes in regulations, etc.

However, you can't regulate or legislate the ownership of securities by the nationality of the owner without jeopardizing the whole process of investment! What, for instance, happens to security values if stocks and bonds can only be traded on presentation of a birth certificate? Can we, for instance, practically limit the places where government--all levels of government--can borrow?

I think you will agree that raising more money in Canada for productive investment is a long-term programme that cannot be accomplished by any magic formula. We must remember that this country never had the period of rapid capital accumulation free from high income taxes that built the large reservoirs of investment capital still available in the U.S. and European countries. We need a positive approach to capital formation and not a negative approach via investment control to solve this problem.

To my mind, a much more important aspect of foreign investment, and one which has not been touched on in public discussions, is the fact that a large proportion of our productive capacity, by virtue of U.S. investment, is oriented to the U.S. market. It can only compete in the U.S. or against U.S. producers.

The significance of U.S. investment in this country is not a matter of sovereignty and not a matter of control, but a matter of current and potential markets.

While generalization is dangerous, I believe we could broadly categorize American investment in this country in two ways. First of all, there is the investment in manufacturing operations destined to supply the Canadian market plus markets in the Commonwealth preference system. Secondly, and of increased importance in the postwar decade, there is the productive capacity which can only find its outlet in exports to the U.S. market.

In this category fall such industries as pulp and paper, natural gas, iron ore, crude oil-industries whose capacity could not conceivably be absorbed by the Canadian market.

Any attempt to regard such industries as purely domestic is bound to have violent repercussions. Under no foreseeable conditions could many such industries find an adequate outlet either in Canada or overseas. Their only hope of progress depends on access--and continuing access--to U.S. markets.

Whether we like it or not, our cost structure and the nature of our industry means that much of our capacity in this country can only secure adequate and economic outlet in the U.S. market. It seems to me that this is the real significance of U.S. investment; namely, that it can and must be used as assurance of access to the U.S. market.

This trade orientation is a rather old feature of the Canadian scene. Perhaps the outstanding example of a trade-oriented industry is our major manufacturing and exporting industry--the pulp and paper industry. This industry could not have developed to its present state if it had had to depend on the domestic market. Its prosperity and continued growth remain dependent on the U.S. market. It has maintained its position not only by the advantage of forest resources, but by know-how and competitive technique. Success of the pulp_ and paper industry depends on its ability. to compete against not only lowergrade forest resources m the United States, but also offshore competition from the Baltic.

A more current and dramatic example is to be found in the enormous iron ore developments in the lower St. Lawrence, extending into northern Quebec and Labrador. Here are vast projects, including new towns such as Schefferville, railways, docks, and mining and benefaction operations involving investments running into hundreds of millions of dollars before a ton of ore is shipped. There are numerous other places which are able to supply iron ore to the large U.S. market.

The Canadian development depends on being competitive with these alternative sources. It depends also on getting a large enough volume to overcome high investment costs, a volume which is many, many times the size of the whole Canadian market.

The oil development in western Canada is another example of a trade-oriented investment. It has been clearly evident since 1949 that the huge western Canadian basin showed a large oil potential, that ultimate development of the resources in this basin depended on access to markets much larger than the domestic economy could provide--markets that could only be obtained in the United States. A basic problem was to surmount the handicap of long overland transportation costs, provide oil at a competitive price in those markets, and still leave an attractive price at the wellhead as an incentive to exploration for replacement. That such incentive diminishes as development moves northward in the basin raising costs in transportation and exploration, is elementary in the oil industry as it is in other mineral-prospecting industries.

Thus, for a period of eleven years throughout the development of the major transportation systems ranging from the west coast to Toronto, the basic problem-and I repeat -the basic problem in the oil development in western Canada has been to preserve large enough markets at a price which will provide the necessary continuing incentive to full exploration of this basin.

The experience of our industry over the past two years has convinced me that any charting of our national economic future or economic progress must overcome two particular hurdles.

The first is the serious problem of semantics involved in explaining the details of highly technical problems. In public discussion, such technical problems tend to result in misunderstanding and oversimplification. In the case of our industry, it is very difficult to explain the unbalanced system of crude oil production in western Canada, where output is severely shut-in in one province but not shut-in in others. This can only be understood if the listener has a thorough grounding not only in the technical but also the legal and regulatory aspects of the western Canada crude oil and gas producing industry.

The second point which the discussion in our industry demonstrates is the importance of differences in the time-span contemplated by various groups. Some look for results in a matter of months, although many projects in our industry require five to ten years between conception and completion.

Where industry frequently must plan investments good for decades, governments have four- to five-year terms. The outlook and needs of industry can therefore be considerably different from the outlook and capacity of governments. This, to my mind, can only be remedied by public acceptance of the fact that government and industry can seldom achieve in a few years' time solutions to long-term problems or effect fundamental shifts in economic direction. Efforts by government to achieve what was impossible in the time available lay behind many of the worst mistakes of thirty years ago.

How can one best solve these two problems that I have mentioned--the difficulties resulting from the technicalities of industry, and the problems caused by the conflict between economic considerations which are usually of a long-term, and political considerations which frequently are of a short-term nature?

I think the answer basically lies in communication, and for our particular group of industries, it is in this role that I think the recently formed National Energy Board can render its greatest service. Because it is equipped to deal with technical problems, it is in a position to improve the communication between government and industry and in so doing, help to reconcile long-term needs and short-term pressures.

This improvement in communications is, I think, essential in the present situation, and a good deal of the responsibility for the improvement must rest on the businessmen themselves. I think, for example, of the distinction we so frequently draw between primary and secondary industry (as though the former were a primitive activity of an essentially undesirable nature, and the latter, on the other hand, represented the ultimate in desirability). It is clear that industry must rid its efforts at communication from sweeping and inaccurate generalizations of this sort.

Our facts and figures, too, require careful preparation and presentation. We must constantly keep in mind that the government is being bombarded by proponents of the Galbraith school of economics, which tells them to spend and tax more, and by the Northcote Parkinson school, which tells them they are already teetering on the brink as a result of over-spending. The improved communication between government and business, under such circumstances, must overcome a certain amount of "jamming" from extraneous sources.

Naturally, no one individual can come up with the answers to all our problems but in order to fulfill in some measure the title of this address, let me suggest two broad lines of action.

First, and to my mind the most essential, is to establish a better basis for consultation between business and government regarding economic problems. There is co-operation now, and agencies for furthering the interchange of ideas already exist. But I think we need not more, but better machinery for equipping both business and government with a full knowledge of the facts concerning specific problems. The Royal Commission is a useful device for collecting and sifting the evidence in a specific field. But for industrial problems of a persistent or a recurring nature, we need quicker methods of obtaining the facts and translating them into action. It is unthinkable in this day that political action can be taken without regard for its economic effects. And I repeat that the only means of reconciling short-range political policies with long-range economic needs is through the medium of close co-operation.

Only on the basis of co-operation between the economic and political elements of society, is it possible to examine all means of providing incentives for growth as distinguished from protecting or subsidizing marginal operations which have no growth potential.

Secondly, we must examine those markets where we have an advantage and orient ourselves accordingly. Governments do not make markets, but they can help open the door and keep the door open. This has a particular relevance to Canada's current situation in which a number of dominant industries must find a major portion of their outlets in a North American continental market.

There have been pressures to bring Canadian rates of pay up to U.S. levels, an objective which no one would deny as being admirable. But I think we should recognize that this is not possible unless and until we can develop the large-scale economies which result from adjacent markets. In addition to developing broad new markets throughout the world and retaining our Commonwealth markets, a substantial proportion of our eggs are and must continue to be in the U.S. basket. As Mark Twain said, when this happens, you should watch the basket.

In short, my formula for growth in the sixties is to reaffirm the principles that led to our growth over the past twenty-five years. A better basis for business-government co-operation, together with planned tax and other incentives, will produce that persistent technological improvement which is an essential element of all economic growth. And the persistent pressure of business and government toward widening markets, particularly nearby markets which offer a good return, will provide the other element which is as essential to growth today as it has been throughout our past.

THANKS OF THE MEETING were expressed by Mr. C. C. Goldring.

Powered by / Alimenté par VITA Toolkit




My favourites lets you save items you like, tag them and group them into collections for your own personal use. Viewing "My favourites" will open in a new tab. Login here or start a My favourites account.

thumbnail








Formula For Growth


Some superficial similarities, and differences between the depression in the thirties and the current economic situation in Canada. A review of some of the solutions tried in the 1930's. What did provide the recovery and growth of recent years. Two influences of persistent technological improvement through sustained investment of new capital; and persistent development of markets where Canada has enough advantage to permit production at a profit. Some examples. The key to Canadian economic problems as a combination of market development, i.e. development of economic markets, together with persistent technological progress achieved through the investment of capital under the stimulus of free competition. Applying proven principles of market development and technological improvement to some current problems. Some suggestions. The public debate over the subject of foreign investment in Canada, particularly American. Securing adequate and economic outlet in the U.S. market. Canadian energy development and its dependency on being competitive. Two hurdles to be overcome in order to chart our national economic future or progress. The importance of communication. Improved communication between government and business. Establishing a better basis for consultation. Co-operation between the economic and political elements of society. Examining those markets where we have an advantage and orienting ourselves accordingly. A reaffirmation of principles that led to growth over the past 25 years.