A MID-CENTURY LOOK FORWARD AND BACKWARD
AN ADDRESS BY
RONALD A. McEACHERN, B.A., PH.D., EDITOR, THE FINANCIAL POST, TORONTO, ONT.
Chairman: The President, Mr. H. G. Colebrook
Thursday, December 1st, 1949
It is our pleasure to have with us today a keen observer of events and happenings who is going to invite us to take a look forward and backward from our present mid-century position.
Your Notices have given you details of our guest's background, which I shall not repeat, except to make brief reference to two important phases of his work; which are his weekly editorial "The Nation's Business" on the front page of the Financial Post--which I expect most of you read with interest--and his popular book recently published "Putting Your Dollars to Work", which I trust has been profitably studied by many of you.
I understand he applies that system very successfully to his golf game with special emphasis on "Your Dollar". I have much pleasure in introducing Mr. Ronald A. McEachern who will address us on his chosen subject.
I am not going to confine my remarks solely to what seem to be the prospects for business next year.
We now stand at the midpoint of our century. I think it is important at this time therefore that we should take a look at ourselves and at our society; try to assess the failures and accomplishments of the past 50 years; try to assess the probabilities of the next 50.
Only if we truly comprehend the years behind us can we walk with wisdom into the future.
In the laboratories, scientists can give guinea pigs nervous breakdowns by giving them a series of surprises, disappointments, frights and frustrations.
For us as human beings, the past half century has been very much like those labs have been to the guinea pigs.
For never in the history of the human race has any one generation been subjected to such a series of momentous shocks and changes.
In the realm of human tragedy and economic earthquake, we have had the two greatest wars in man's history. Though we call our age civilized, there has been more torture, more cruelty, more mass morder in the past 10 years in Nazi and Russian prisons.than in all the previous record of human society put together.
In the realm of science, our brief half century has brought the universal application of electric power, the internal combustion engine, the motor car, the airplane, radio and television. Every one of those has had a most profound effect on our way of life and on the economic life of our civilization.
Now we have learned something about the management of the atom and harnessing the power in nuclear fission. In the half century ahead it is virtually certain that atom power will be in use for peaceful purposes. We shall be in for another major revolution in our technological, economic and social structure.
Mere words are hardly adequate to emphasize the simply enormous effect which these developments have had and will have on our business lives, our personal lives and on our social organization.
In medicine, the past decade and even the past few months have seen greater accomplishment in new and fundamental ways of keeping man healthy and in prolonging his life than in all the previous history of mankind. The sulfa drug and penicillin opened up vast new fields for conquest over disease. A more sensational aspect of those discoveries was that here, almost for the first time, medical men were able to cure disease, not merely treat it, leaving time and nature to do the job. The new drugs put out disease like water on fire. Before that, apart from surgery, medical men could merely build firebreaks, help let the fire burn out.
Just announced a few months ago are the new things ACTH and cortisone which, according to medical scientists, are the most sensational developments yet in the cure and treatment of disease. Here science has got on to something far more important than all the other drugs and herbs, serums and chemicals in the whole pharmacopoeia.
It isn't just what cortisone has already proven itself able to do for things like arthritis. The really important thing about it is that it opens up wide new approaches for the fight against troubles of the heart and the arteries, and the whole mysterious business of why we grow old and die; why the body progressively loses its power to restore tired tissue and to keep organs functioning efficiently.
To medical scientists, cortisone is just as exciting in its possibilities as atomic power is to the physical scientist. The supply is still short, but one of Canada's outstanding researchers last week said "It's short now but a few years hence we'll have nothing to worry about."
The importance of this medical revolution of the past decade or two is not just what it has done and will do in preventing human suffering and in extending the life of certain individuals.
The social, economic and political results of having a much, much larger part of our population old and vigorous will, in the decades immediately ahead, call for important changes of many kinds--not least of which will be in our business practices regarding compulsory retirement, our pension and insurance plans. Caring for the aged will become an immense problem. When enough time has elapsed for this recent medical revolution to have its full impact on a whole generation, the effect on our institutions, on our ideas as to how to run a country, will be terrific.
But if, during the past half century, the developments in science and technology have been enormous, they have been no less revolutionary in the realm of ideas.
The great depression and the second great war have had an enormous influence on man's beliefs about his environment and on how society should be organized.
Now firmly fixed in the minds of the overwhelming number of voters is the idea that government must support the jobless, must provide something called full employment, that family incomes should be levelled, that it is right and proper to take money away from you to let him spend more. Here is another explosive idea which has gained popular acceptance only in recent decades.
The fact is that Canada and the United States, Britain and most other countries now have the welfare or handout state. We all have it, only the degree varies. Because the handout state is popular where the most votes are, we're going to have more of it regardless of the consequences.
Sumner Slichter of Harvard, today's most eminent philosopher and interpreter of business, very well summarized how the past 50 years have revolutionized the climate in which businessmen operate.
Three things have happened, he says
One is the transformation of the economy from one of free private enterprise to one of government-directed enterprise.
Second, is the rise of the welfare--or call it the handout state.
Third is the relative shift in power from business management to employees.
Now, we may or may not deplore these developments. We may or may not be fearful of where they lead.
But we can't deny that these very profound changes have taken place.
But fundamental as those developments are, revolutionary as the shift in power within the community has been, perhaps the most important new idea to emerge from the past half century is this:
It is the idea and the reality of an expanding universe, the actuality that the world can be a better, more abundant place for vast masses of people.
Up to the beginning of this century--yes and even up to very recent decades--men's ideas as to what was sound and proper policy for the conduct of business, government and their personal affairs were based on ideas which had evolved from the experience of the centuries before and which found expression in the nineteenth century philosophers like John Stuart Mill, Jeremy Bentham, and so on.
The fundamental concept was that nature was niggardly; that our world would be rapidly running out of raw materials like coal and iron; that because world population was increasing, there would be increasing hunger and a constant pressure downward on living standards.
In such a world, increasing misery for the masses was, so everybody believed, inevitable. No wonder then that those of superior energy and ability so often adopted the policy of "Me for myself and the devil take the hindmost".
It was on that theory of the inevitability of the increasing misery of the masses that Communist and to some extent Socialist doctrine was based.
What the people of the nineteenth century couldn't foresee, and what exploded the increasing misery idea, were the simply fantastic developments of science in the past two or three decades.
These developments, of which more great ones are now on the way, have compelled us to revolutionize our attitude toward our world, our thinking as to what is wise law, our practices as to what is the sound way to run a business.
Adjusting ourselves to this new world is going to be the main job for the second half of this century:
What do I mean by an expanding universe?
It is true that we are using up at an increasing rate the world's irreplaceable resources of things like iron and petroleum. But the skill of the geologists and physicists at finding these hidden treasures has pretty well kept up with our increased use.
Right now, if we really had to, we could adjust ourselves to a world in which we had neither iron nor petroleum.
At the moment, the main reason we are using iron and petroleum is not that they are indispensible, but that compared with alternatives we find their properties and, above all, their prices preferable.
And what about food. Our fathers and grandfathers were sincerely convinced that, as world frontiers were pushed back and as world population went on growing, increasing hunger would be the world's fate.
But remember that agricultural methods only 100 years ago were virtually the same as they were 3,000 years ago. Remember that the past 30 years pretty well spans the entire modern revolution in agriculture-gasoline power machinery, highly developed crop rotation, plant breeding, control and prevention of plant disease, and above all, chemical fertilizer.
The changes in our food picture are just astounding. Predictions that this will be a hungry planet have been completely exploded.
Then, of course, our newly expanding universe offers a staggering array of great developments and even greater promise in the fields of chemistry and power production.
Equally important in creating a better world for more people is another invention of comparatively recent date. Its period of widespread growth is confined almost to our own generation--that is the business corporation, which permits large size, full exploitation of machinery and research, and which commands access to large amounts of capital.
Some people talk about "soulless corporations". To some, bigness is in itself a crime.
That is nonsense. Only bigness has made it possible to spend the enormous amounts on research and on product development which in recent decades have changed our lives, and put armies of men to work at jobs which never before existed. Think of aviation, refrigeration, nylon, plastics, the thousands of products now coming from petroleum, electronics, aluminum, to mention only a very few.
Only bigness has made it possible so to increase mechanization that worker productivity has soared. Only bigness has made possible the stupendous achievement of filling our roads with cars, our homes with refrigerators and radios, putting nylon on our women, and silicone centres in our golf balls.
Another important fact is that with size goes responsibility. The little firm has only its own modest local reputation to care for or to lose. It can fire and lay off employees with only very slight impact on the community. Not so the big corporation.
Actually, the practices and the motivations in a corporation will often be a good deal better for the employee and the community as a whole than the practices and motivations in the owner-run business.
If I have my own business I can quite conceivably reach a state where I say I'm quite satisfied with the product, the volume, the net profit. Being a human animal, I shall, over the years, slow down in my efforts, content myself with lower targets. I may say I prefer to get more golf and take less profit.
But the corporation executive can very seldom take such a comfortable course. First, the corporation is run by hired hands, employees whose interests are almost precisely the same as those of the mechanics and elevator operators. Their assignment is to make the corporation grow and to maintain it in constant health. They are just incidents in the life of the corporation which, unlike man, need never die.
So-the greater the size, the greater the responsibility which the community forces upon the business organization-on its dealings with customers, with its suppliers, with its employees.
On this factor of responsibility I'm reminded of one businessman talking about his income tax. He said "When there was just myself and when my wife looked after the books, things were dandy. Then I hired a bookkeeper, and as the business grew, I had to hire another and another and all the time I had to get more honest about my income tax".
That's just one aspect of the truth that with increased size goes increased responsibility.
Charles Luckman, the dynamic head of the great Lever organization, vividly expressed in a tangible way this new concept of an expanding, bountiful universe when he said
"This may surprise those of us who believe that simply because we have the highest standard of living in the world we have everything we need. (But) .... 27 million Americans have no kitchen sinks, 18 million Americans lack washing machines, 25 million Americans lack vacuum cleaners, 1 million Americans need new homes this year, 40 million Americans have neither bath-tub nor shower. So let's not talk about what we've got .... because these needs provide dramatic illustration of the fact that we haven't finished anything-we're only beginning."
In recent months two major investigations of what our world will look like in the decades immediately ahead have been made by two of the most distinguished business philosophers of our time. One is the celebrated Slichter of Harvard, already referred to. The other is Moulton of the famed Brookings Institution. Both stake their great reputations on a future that is infinitely richer than the present.
Their yardsticks of growth can be applied to Canada with reasonable accuracy.
The Harvard prediction is for 1980--only 30 years hence.
Population will be up over 20%.
The number of people at work-earning money-will be up almost 21 %.
Output per man hour will be up 88%.
As incomes go up, the demand for leisure has always increased. In 1900, the average work week was 58 hours. By 1929 it was 48 hours. By 1940 it was 40 hours. The Harvard forecast is that by 1980, the 30 hour week will be almost universal in business and industry.
And here is the important figure
National income in terms of today's prices will be up almost 69%.
Is this forecast just optimistic hokum? There are yards of evidence to suggest that it is not--provided we do not go crazy and get our affairs bewitched with socialist or communist governments, and provided we run our affairs with at least as much sense as in the past.
The Harvard man says
"Suppose someone in the year 1900 had predicted that within 50 years the amount of goods consumed per person would have risen two and a half times, that nearly four out of five children of high school age would be in high school; that the number of university students would increase four times as fast as the population; that nearly every family would own an automobile, a telephone, a wireless receiving set; and that this would be accomplished after paying the cost of two great wars and while we were gradually reducing the work week from 58 hours to 40." The forecast, says Slichter, would have been quite accurate, but anyone making such bold predictions would have been regarded as irresponsible.
You will recognize immediately what all this portends for future business.
Certainly it means high taxes and high wages. But here's a point too often overlooked.
You can't do much business with people who can't afford shoes.
Years ago old Henry Ford startled everybody when he said: "I pay big wages so my men can buy my cars." The measure of our national health and wealth, the size of your market, is directly linked with the amount of money the masses of our land are able to spend.
All right. Now we are facing a new half century.
What's our contribution going to be in getting it off on the right foot?
First, I think it's going to be in getting a clear picture of where we stand now; a realistic appraisal of the actualities of our economic position, the actualities of public opinion.
The mastodon and the brontosauri of pre-historic times disappeared from the face of the earth because they could not or did not adjust themselves to their changing environment. There have been many changes we may or may not like. Many trends of the past 50 years may or may not alarm us. But we can ignore them only at our peril.
The second contribution we have to make at this point in our history is what I call, for want of a better name, public education.
All of us here are sorrowfully familiar with the extraordinary lack of public understanding there is about the simplest workings of our business system.
Here in our own beloved country which we regard as one of the most highly educated in the world, we have hundreds of thousands who associate bigness in business with badness.
Actually, bigness has made business more competitive. Chain stores and mail-order houses have made all retailing more competitive.
Bigness has increased rather than lessened competition by its ability to mechanize, to pay for research and to create new products and new uses for old products, to make jobs where jobs never before existed.
Another fallacy of our time, widespread, rampant in the pulpit and schoolroom particularly is that profit is a bad thing.
If the men of business don't help promote an understanding of how the business system operates, who will? Where there are no profits, there soon won't be any jobs. Without labor, there are no good things to consume or to possess. Without labor, there is no wealth to share.
There is no magic pool of wealth from which government can pay anything to anybody.
And one point let me emphasize.
Let's choke off some of these free enterprise speeches that we've been getting in recent years.
Some of its would-be defenders make free enterprise sound like something that even I wouldn't want.
The great thing about our business system is its capacity for change. The Communist system was set down in 1848 and has changed hardly at all since. The Socialist system advocated for Canada was set down in England in the late years of the last century and it has changed even less than Communism. The Socialists haven't done any real thinking in half a century.
But look at the enormous changes which have taken place in our business system. Let's make it very clear that what we want to keep and to improve is not the business system of 1900 but the business system of today and make it better serve the needs of tomorrow.
What about the year immediately ahead?
Ancient kings used to chop the heads off messengers who brought news they didn't like. Some people want to kick the telephone messenger. I hope that will not happen on this occasion.
As you are very well aware, business in Canada is profoundly affected by what happens in the United States and in Britain.
Britain is still a long, long way from getting out of her troubles. Unless British policy undergoes drastic revision, signs are already beginning to accumulate indicating the serious likelihood of still another British financial crisis, with yet another devaluation move. Canada's exports to countries other than to the United States are already showing, definite decline.
To make any forecast for Canada one must therefore make some estimation first of what is likely to happen elsewhere.
Here, then, are some comments about the Canadian outlook based on what can now be known about facts and about trends.
Canada's gross national production which this year is around $16 billions, looks as if for next year it may be $14 1/2 to $14 3/4 billions.
Investment--or let us call it expenditures on houses, plants and buildings of all kinds, equipment and so forth -is one of the key factors in the business outlook. 1949 gave Canada about the biggest investment boom in our history. For next year, it will be lower, but not apparently very much. There won't be as much investment in industrial and commercial plant and equipment. There will be fewer new houses built. But the utilities and various governments have very large building programs for next year, so the investment picture overall looks very good.
There will be rather less employment next year. This is a figure about which there is much popular confusion and some hysteria. You will probably see unemployment reaching a seasonal peak of 300,000 or about 6ofo of the working force. But to keep that picture in perspective remember that in recent years we have had actually a condition of more than full employment.
In other words, a substantial portion of the people who will at some time be listed as unemployed will be wives and boys and girls who have been working and adding to family income, but whose earnings are not essential to family welfare.
Remember I have said that might be a figure for the seasonal peak which is quite a different thing from saying that so many families are going to go without a job all year or even half of it.
Wages are going to be rather higher. What the unions are going to ask for I don't know, but their aim is to get an extra 10 cents an hour made up of higher wage rates and or pension and other benefits.
A general rise in union wage scales almost inevitably leads to some general rise.
A good many prices, on the other hand, by the end of 1950 will be lower though there may be some further increase in the cost of living meanwhile. Foods are one group of commodities where declines are indicated. Clothing is another. Price shaving in a good many consumer durables seems certain.
Incidentally, I think 1950 is likely to see the start of a good deal of commotion in the whole textile field. It will be at its worst in the United States, but we won't escape its effects here. Because of artificial props under both raw wool and cotton, both those prices are high and are likely to remain high. But just recently the synthetic fibre people have cut prices about 15%. More important is the fact that by next year a lot of research into synthetic fibres, their treatment and their manufacture into finished goods and fabrics, is going into the pay-off stage. During the year you will be seeing synthetic fibres turning up in many novel places--and in very much more satisfactory form than hitherto.
For many branches of business and industry, 1950 will be a year of lower earnings and profits.
It is probable that 1950 will produce some distress areas, both in certain sections of industry and in certain sections of the country. If so, we can expect to see direct intervention by the government attempting to do something about it.
What all this means to the advertising and sales industries will be obvious enough. It means more, harder and better work. Sales machines which haven't had a really good work-out in ten years are in for some excitement. The newer generation which has come into the industry will be in for some real eye-openers.
A lot of people are going to have their first experience in a long time with free, competitive enterprise.
Now let's get this perfectly straight.
There is every indication that 1950 is going to be a year of good business for most people. It will be a much busier year than any we had during the war years or before the war, or in that so-called bonanza year of 1929.
What I predict is that 1950 will be a good year.
It just won't be as good as the fabulously good 1949 and 1948.
Before sitting down, there is one point I wish to emphasize.
Necessarily, any business weather forecast must be in general terms. It can examine only what will happen to man in the mass.
But what you and I want to know most of all is what happens to us.
That to some degree will depend on the capacity of the managers of the company for which we work. As competition gets harder, as margins grow thinner, the less energetic, the less capable obviously find the going harder.
How are we looking after our physical, mental and emotional health? Are we keeping the right perspective on our job, and on ourselves? Everyday men are missing promotions or being guest of honor at office farewell parties because they didn't learn to use their heads, to develop good work habits, to become dependable members of a working team--all of which usually means that their mental and emotional health has been undermined.
Learning how to make constructive and absorbing use of leisure is an urgent and increasing problem for hundreds of thousands of Canadians not just in the shops and plants, but in the administrative offices. I raise a delicate matter, and one which it is perhaps impolite to mention, but everywhere we are seeing the unfortunate evidences of the fact that too much boredom and too much alcohol don't make a desirable weekend.
In the final analysis what 1950 means to you and to me depends on nobody but ourselves.