AFTER THE CRISIS THE CLEAN-UP
An Address by
MICHAEL BARKWAY Editor and Publisher, The Financial Times
Thursday, November 8, 1962
CHAIRMAN: The President, Mr. Palmer Kent, Q.C.
MR. KENT: May I introduce to you today Mr. Michael Barkway, Editor and Publisher of the Financial Times.
I believe most of you know Michael Barkway quite well. For some years now you have been reading interesting articles by him in newspapers and magazines and you have been listening to his comments on television. News reporters and commentators are much like ministers in church in that it is difficult to reply or ask questions regarding their views. But we still like to hear what they have to say.
Mr. Barkway was born in Yorkshire, England, and is the son of an Anglican Minister. While at Cambridge University, he was president of the debating union. After graduation, he joined the news department of the British Broadcasting Corporation. From this he became B.B.C.'s first U.S. correspondent and later, he joined the Psychological Warfare Division at Supreme Headquarters of the Allied Forces. After the war, he asked for a B.B.C. assignment to Canada. He spent four years in Toronto, thirteen years in Ottawa for the Saturday Night, the Financial Post and then for The Toronto Star. Last fall he became an economic reporter for the Southam News Services which supplies articles for eight newspapers across Canada owned by Southam-Maclean Publications Limited. An article in the Canadian Edition of Time Magazine on September 7th, last, when he assumed his latest assignment says he has a "hard nose for news and an ability to convey hard facts lucidly".
He will now address us on the subject "After the CrisesThe Clean-Up".
MR. BARKWAY: I am most grateful for the invitation to come back to you at this Club, both because of subject matter, since I hold that we can never have too much discussion on the plight in which we find ourselves and also because of the occasion. I am grateful to have been asked on the occasion, as it were, of the coming publisher of the Financial Times. I have addressed this Club before, if I remember well, both as a resident of Toronto and a resident of Ottawa and now I can speak as a resident of Montreal and I am sure you won't hold it against me.
Becoming an editor or, perhaps even worse, a publisher, is a fate that overhangs newspapermen. I was tempted to say "overhangs good newspapermen," but perhaps it overhangs some of the bad too. Having avoided it quite successfully for quite a long time, the best excuse that I can make for now having succumbed, the traditional excuse of the unmarried mother: "It's only a very small baby." And, like the unmarried mother, I wouldn't have taken on any other kind. In a sense, I suppose there is always something arrogant about parenthood. When you start to raise a family, you are in fact making a declaration to the world as you consider yourself capable of bringing up an infant who will be a credit to society. So, I hope I am being no more arrogant than all you fathers in believing that we can raise Financial Times to perform a useful function in the Canadian state-in less than 20 years.
Now, Mr. President, the task you have set puts me in something of a quandary. I am to talk about Canada's economic crisis-its causes and cures-and yet I am gently reminded that political comment would be out of place, from this platform. I find myself in the unfamiliar role of Agag, who walked delicately. That great pillar of Canadian literature which you quoted, Mr. President, in your introduction, in the same article from which you quoted, described me as having "glided gently" around Ottawa for some years but, gliding has never been my favourite mode of progression. I shall, however, attempt for the next 15 minutes or so to glide delicately through shoals of political controversy.
Perhaps the best way to start this is by saying that a real "clean-up" of Canadian affairs-after the years of turpitude and mismanagement which culminated in the June crisisrequires both a longer view and a deeper diagnosis than we are getting from either politicians or economists. If you look behind the proximate causes, over which I must glide quickly-it is obvious that our exchange crisis has been predictable ever since 1955, at least. It was indeed predicted by a few hardy prophets with increasing vehemence from then on. You will find it tragic in the deepest sense, and also highly salutary, to go back now and re-read the speeches which were being made in the boom years of the mid-fifties by most business leaders and economists, and most politicians, lead, of course, by Mr. C. D. Howe.
In the gay abandon of the boom, when the huge influx of foreign capital was persuading most Canadians that we were all going to get rich without effort, when we were selling our resources into foreign ownership at a greater rate than any other country has ever done before, the spokesmen of the Establishment, supported by the motley ranks of academic economists, repeatedly assured us that the foreign capital would easily pay for itself and leave us with a big profit. Our huge deficit in international payments was nothing to worry about, they said-it would correct itself. Indeed, when the rosy glow of their optimism grew red hot, they even promised us that Canada would soon be able to buy back the priceless natural resources which were being sold into foreign control. In those days it was highly unpopular to suggest that they were talking nonsense. One felt like the small boy who dared to announce that the Emperor had no clothes on.
That's why I say we need a longer view. If we concentrate on only a few months' span the theoretical economistsbless their cotton-pickin' hearts-will soon persuade us that all we need is yet more foreign capital. Like gospel evangelists, they will tell us that we need only to make a more complete surrender to the eternal gospel of Adam Smith. We also need a deeper view, or we shall remain bogged in the morass of cheap politics, which accounts for our present plight quite as much as bad economics-perhaps even more. The awful difficulty in dealing with the economists' and financiers' simple-hearted faith in unlimited doses of foreign capital at the present time is that in the very short run they are right and more right today than at any time in the last ten years.
Having landed ourselves in a situation where we chronically spend at least $1 billion a year more than we earn in foreign countries, we can only cover it by persuading American and European investors to put more money into Canada. It is yet perfectly true that the immediate causes of our weakness was the reduced inflow of foreign capital, within the last 12 months. It is equally true that we cannot survive without reviving the inflow. But this does not prove that we were right to become so dependent on foreign capital; nor that we can continue such a scale of dependency without provoking an even worse crisis in an even shorter time.
If you won't think it unduly conceited of me, I would like to give you one quote, with respectful acknowledgments to the author, from something I wrote five years ago. In August 1957, I wrote: "If you express anxiety about some of the consequences of the growing flood of American investment, Canadian economists are apt to look at you in an oldfashioned way-like a medieval bishop looking at a heretic.
"Canada, they tell you, is the envy of nearly every country in the world, because nearly everybody is short of capital, and most countries can't get enough. Of course, they are right. Yet, if a man has drunk so much whiskey that he cannot stand on his feet, it's no help to remind him that other people would have liked just one drink. Before we finish the bottle,"-said this distinguished author in 1957"Canadians would be wise to take a look at the cost, besides the stimulus."
Let me remind you of just one part of the cost. By far the biggest item in our balance of payments deficit is the service of foreign investments. Last year we paid $771 million in interest and dividends to foreigners-over half a billion in dividends and over a quarter of a billion in interest. Ten years ago, the total was less than half a billion. Five years ago, when it was already worrying some of us heretics, it was only $523 million. It is still rising, and within a few years it will be more than a billon dollars a year, apart from the added costs of the new investment we are now able to attract.
I have been chided again and again over the last seven years for insisting that it is a mad kind of rake's progress to keep on selling your patrimony and incurring new debts, merely to pay the dividends on your alienated resources and the interest on your previous debts. If the exchange crisis has done nothing else, it has surely shown that foreign investment does not automatically pay for itself. It has confronted us with the simple fact that ten years' overdependence on foreign investment has piled up an annual obligation for interest and dividends which we have no possible means of meeting out of current earnings. To put it very simply, our monthly instalment payments are quite beyond our current earning capacity as a nation. This is what makes it so desperately difficult to do a thorough clean-up after the crisis.
By devaluation and import surcharges, by a more imaginative trade policy (such as Mr. Hees seems to be developing), by imposing restrictions (if necessary) on our luxury spending abroad, it is conceivable, it is possible-I hope it will happen-that a determined government might correct the tourist balance and curb our easy habit of hiring foreign consultants and buying foreign services. We might even balance our merchandise trade within a few years.
But after the binge of the last decade, that isn't enough. We've also got to earn enough to pay these dividends and interest. For a few years, at best, the only way to meet these obligations will be to "go back to the bottle"-to borrow some more, or to sell some more of our national resources. It isn't enough to stop the creditors from closing in. We must also persuade them to put in fresh capital to protect their previous investments.
Obviously, there is only one way in which this can be done. The creditors must be persuaded that the rake has reformed. To deny that necessity-as some of the academic economists, some of the profit-seeking financiers and some of the popularity-seeking politicians seem to be doing-is to ruin Canada's chance of cleaning up the mess.
I know that a starving man cannot be too choosy about the source of a meal. But a starving man is subject to several forms of illusion. In the frozen north, in wintertime, when the daylight is brief and the mercury is never above zero, the danger is a deep and peculiar lethargy which I have experienced myself. In the equally hard world of the cities, you will find that the bum who asks you for the price of a cup of coffee believes himself to be a better man than you are, if only the world had treated him equally fairly. I think Canada suffers from a combination of lethargy and "folie de grandeur".
Today at least, whatever is the case in the past, I think there are signs that the Government is aware both of the short-term necessity and of the desperate need not to let the short-term necessity land us in even worse trouble. But the wise men of the Government cannot resolve the dilemma unless the public has a far better comprehenison of the problem.
I do not myself see how we can get out of our present mess, without a terrible crash that would reproduce the conditions of the Thirties, until our political leaders can be brought to face our underlying condition more honestly. So long as the ruling party feels bound to insist that everything in the garden is lovely, while the opposition parties automatically cry blue ruin, the public is bound to be confused and suspicious. We are where we are today mainly because, for the past ten years, our elected leaders have found Canadians to be so happy in their illusions, and so flabby in their resolves, that no government dared to tackle the basic distortions in the economy. We can all blame the "damned politicians". But whose fault is that?
Before you turn your wrath on the politicians, I suggest you should consider why so many Canadians, who are apparently thoughtful and educated (as well as prosperous) acquiesce so readily in the debasement of our political life. Why do so many of us say admiringly: "Sure, it was dishonest as hell, but it was smart politics."? I wonder, sometimes, when we preach the great superiority of Western democracy over Communism to the new nations of Africa and Asia, do we expect them to copy the shoddy kind of smart politics that we pretend to admire? Will we preach free enterprise to the new nations as a system which requires the successful man never to risk trouble by expressing an opinion which might possibly offend somebody?
You asked me, sir, to talk about the economics crisis, but I can only conclude that the Canadian crisis is more than economic or financial. It is basically moral, and there will be no thorough housecleaning, however smart our financial direction, so long as we reserve all our moral indignation for the Communists, who are a long way away and about whom we know shamefully little, while we cynically blame all our troubles on the "damned politicians", as though it was none of our business. We could use quite a lot of moral indignation much nearer home, with much greater profit.
THANKS OF THE MEETING were expressed by Mr. Alexander Stark, Q.C.