JANUARY 21, 1982
The Budget—Rule of Law vs. Rule of Man
AN ADDRESS BY John F. Bulloch, PRESIDENT, CANADIAN FEDERATION OF INDEPENDENT BUSINESS
CHAIRMAN The President,
BGen. S. F. Andrunyk, O.M.M., C. D.
Distinguished guests, members and friends of The Empire Club of Canada: Mr. John Bulloch, our esteemed guest speaker today, has been described as a visionary, a reactionary, an evangelist, a crusader and a zealot. When you look at his activities and his accomplishments over the past twenty years all of these descriptions seem to fit.
President of the Canadian Federation of Independent Business since its formation in 1971, he has virtually single-handedly built the 64,000 member federation into the loudest, the most visible and the most political action group in Canada.
Incensed by the tax proposals contained in Edgar Benson's White Paper on Taxation in 1969, John Bulloch formed the idea for a citizen's group to oppose what he considered blatantly unfair tax reforms. The next day he published a blistering letter to Mr. Benson in the form of one of his father's clothing store ads. He received such overwhelming support for his views that he left his teaching post at Ryerson to form the Canadian Council for Fair Taxation. The Council gained national stature and he received much of the credit for mobilizing opposition to the White Paper proposals. Eventually, the government completely revised its taxation position.
During the campaign against the proposed changes, John Bulloch realized that no national business organization or political party was responding to the special problems and priorities of owner-managed enterprises. This led to the formation of the Canadian Federation of Independent Business to be the permanent voice of small and medium-sized independent businessmen. The creation of a Minister of State responsible for small business is one of the Federation's most significant successes.
John Bulloch has developed an organization that is democratic and responsive to membership sentiments. He also exerts considerable personal influence based on his own background as an independent businessman. He was a salesman, a company manager and a proprietor of his own business. He is also a director and vice president of a family clothing business. In addition to his business experience he holds a Master's degree from the University of Toronto and last year he was honoured with a Ryerson Fellowship for his contribution to small business in Canada.
Ladies and gentlemen, please join me in extending a warm welcome to the President of the Canadian Federation of Independent Business, Mr. John F. Bulloch, whose topic of today's address is "The Budget--Rule of Law versus Rule of Man."
Ladies and gentlemen: I am certain it will come as no surprise to you that I view the recent federal budget as the most critical economic issue facing this country today. In my opinion, it is misguided, incompetent, arbitrary, insular, dogmatic, hasty and tyrannical. As you can see, I am upset.
It is misguided in that it strikes at investment when investment is our main weapon in the fight against inflation.
It is incompetent in that its drafters did not adequately understand the relationship between business practice and the tax system.
It is arbitrary in that it gives insufficient time for Canadians to react.
It is insular because budget secrecy and official inclination demanded it.
It is dogmatic in that it rests on theoretical principles, not actual practices.
It is hasty although there is no need for haste.
It is tyrannical in that it deliberately attempts to mislead.
But that is not my theme for today. Instead, I would like to talk with you not about what has happened but about why it has happened. I would like to explore with you how it is we have reached such an impasse; why we have government which is neither by, of, nor for the people; or in more Canadian terminology, no peace, order or good government.
Nothing I will say today should be construed as an assault upon specific individuals or political parties. My comments should be seen in the context of the democratic process having been wrestled away from our elected politicians.
I have said that the budget is misguided because it attacks the investment process.
Why does it do that? Why, when investment promises to be the only source of strength in an otherwise stagnant economy, would officials choose to extract about three billion dollars from changes in capital cost allowances in the next four years?
Are they part of some diabolical socialist plot? Hardly.
Do they believe investment will take place in equal magnitude without it? Not likely.
Do they feel corporations can attract funds from our vibrant capital markets? If so, they haven't been watching the market lately.
No, it must be the case that officials feel better positioned to make the right investment decisions for the Canadian economy than the market does, and they need money to implement them.
For example, the Economic Council of Canada says that the federal finance department, in its November five-year projection, is assuming that federal spending in capital assistance and subsidies will rise on average by twenty-two to twenty-seven per cent a year. It is the Council's opinion that these two categories should only rise about twelve to fourteen per cent a year--a difference of ten billion dollars between 1983 and 1985.
These officials are frustrated men. They see the monetarist experiments in Britain and Chile and find them wanting. They don't really believe Mitterand will succeed in his new economic course. Their own macro-economic Keynesianism--relying as it does on propping up consumer demand--hasn't worked. Things continue to fall apart.
Well, if they believe that both Keynesianism and Friedmanism--both relying on the private market--are dead, to what do they turn? To government!
Government's share of the GNP must go up in order to replace activities formerly undertaken in the private sector. In their minds, they have no choice. The science of economics, they believe, has let them down badly.
I have said the budget is a product of incompetence. Our tax reformers were not competent to reform our tax system. Peculiarities of the department's hiring practices aside, the fact is we are all incompetent when it comes to tax reform. No small group of people--ours or theirs--could be expected to foresee the intricacies of the multiple interactions among ten or twelve million taxpayers and six to seven hundred thousand businessmen who were touched by the budget's more than one hundred and sixty proposed changes. This budget was, to that extent, a product of immense technocratic arrogance.
We live in an extremely complex industrial society, the warp and woof of which is, in large measure, formed by our tax system. The greater the tax burden, and the more complex the tax system, the more they affect the decision-making of firms and individuals.
That should tell us several things. It should tell us that tax reform should always be in small pieces, not large chunks. It should also tell us that we should, over time, reduce taxes to reduce their interaction with economic decision-making. And it should tell us, above all, that the process of tax reform must embrace many more than a few actors.
There is another message we should be picking up: namely, the need for some clearly defined goals. Imagine if you will, this budget being brought down in Japan. Japanese theoreticians and technocrats read the same economic literature as their Canadian counterparts. Some, no doubt, share the same outlook. But in Japan, this budget would be such a clear and obvious violation of consensus around social and economic goals that it would never be proposed, let alone implemented.
The technocrats can only rule in the absence of goals. There is an urgent necessity for us to establish a national sense of direction.
I have said that the budget is arbitrary. And, in a sense, all budgets must be: someone has to make the final decision. But this budget, encompassing as it did more tax reform than economic policy, was particularly arbitrary. This has only increased tensions and adds to the lack of trust between our economic agents. What a mess we find ourselves in. There is no trust between Ottawa and the provinces. There is no trust between business and Ottawa. And there is no trust between labour and Ottawa.
A government which viewed these actors as its partners in economic development would have offered genuine proposals and engaged in genuine consultation over them. But officials, convinced of the "rightness" of their cause, cannot afford consultation. They must act swiftly. Democracy is too slow and might divert, sidetrack or derail the process.
For our part, we too mistrust. We mistrust the power in the hands of theoreticians. We prefer power in the hands of politicians who, by virtue of being accountable to ordinary Canadians, cannot as easily trample our rights and customs.
The tradition of budget secrecy ensured that the product would be that of a small group. However, we have always had to live with budget secrecy and it has never produced such an insular product. The insularity of this budget is unprecedented. It is a function of the complexity of tax reform. It is one thing to advise Cabinet that thirty-two rich individuals do not pay enough tax and to tell ministers that the budget intends to change that. It is another thing to explain to Cabinet the interaction of income averaging annuity contracts, the capital gains reserve provisions, interest deductibility and general averaging on individuals of moderate means.
These issues are mystifying even to accountants and tax lawyers. Our own Tax Advisory Council, for example, gets bogged down in the permutations and combinations and has great difficulty crystalizing and then conveying its concern. You need computers talking to each other to account for, and predict the outcome of, multiple changes. When computers are necessary, the technocrat rules.
That brings me to the federal technocrats, our federal officials.
I have said that the budget is dogmatic; tax reform was inspired by theory, not by practice. As tax lawyer Arthur Drache has shown, none of the key officials in the Department of Finance has had significant experience outside of government or academia.
For example, in theory, you could cut capital cost allowances, reducing internally generated earnings, and corporations will simply finance their investments by further borrowing. In practice, only two or three thousand Canadian firms have access to those alternatives, and even then interest rates are so high and capital markets are in such disarray as to tip the scale against the investment decision.
In theory, you could levy taxes on accrued life insurance income and put up with the reaction from the insurance industry. Separately, you could eliminate deferred profit-sharing plans for entrepreneurs. Again, separately, you could eliminate the tax-free status of employee loans and only invoke the anger of a few people.
We forget, however, that the businessman is also a citizen. He too has a life insurance policy. The effect of all the multiple changes, although the dollar impact may be relatively small, is discouragement. Society is not made up of a series of watertight compartments. Society and the economy are organic and interacting. What tax reform does to my brother affects me. What it does to my employees affects me as a businessman. A one hundred dollar post-budget difference in my bottom line is not the only thing on which I base my decisions. My decisions are also based upon what I believe might happen to my customers. And they are also based upon what I can expect from government tomorrow.
Today businessmen haven't the faintest idea what to expect tomorrow. The only certainty is that those decisions which are made in bureaucratic isolation will bear little resemblance to the reality of the marketplace. This distance between the textbook and the real world is immense and ever-widening. The political system which grants the technocrat freedom to exploit that distance is a system in great peril.
I have argued that the budget is tyrannical and that, I concede, is strong language. I believe, however, that in an important way it is tyrannical. The first principle of tyranny is ignorance. The weapons of tyranny are propaganda and the half-truth. Tax reform in a complex society lends itself perfectly to tyranny. The citizen must now be allowed to know the truth.
As a case in point, in a document released on December 18, finance officials produced a series of examples designed to show that the proposed system of forwardaveraging was nearly as good as the pre-budget availability of income-averaging annuity contracts.
The examples used a poor farmer and his dependent wife. They were not typical of farmers as a whole or of the small business community which, the example alleged, would be similarly and beneficially affected.
We know that this claim for the new system is not, in the main, true. It is somewhat true in a few individual circumstances. But it hides more than it reveals. How do we prove it?
We do not have the resources of the tax department because tax data is confidential to the private sector. We do not have fifty or sixty mathematicians to work out the fifty or sixty typical examples. We do not have the computers to perform multiple regression analyses or ten or twenty different cases with ten or twenty differing assumptions about the lifetime income and assets structure of fifty or sixty individuals. Furthermore, every single situation among all of Canadian taxpayers is unique. Fifty examples are inadequate to express that uniqueness. So, I ask you, how would you fight it?
Our only weapon is to sow the seeds of doubt. It is to require of our politicians that they slow the process down; that they get their own independent expertise; that they rely neither upon us nor upon the technocrats.
Where, fundamentally, does this tyranny, this arbitrariness, this dogmatism come from? It springs from one source and an old one. That source is human arrogance.
We have developed a society which is complex. We have educated people narrowly. We have told some of our citizens that, because they are economists, they should know how to run an economy. Collectively, we have led our citizens to believe that society is like a machine and any machine, properly understood, can be run.
But society is no more a machine than is the human mind. It can be pushed and prodded, but if pushed and prodded often enough it breaks down. Furthermore, no human mind, no matter how well technically trained, can encompass the world. We, and by we I do not just mean business, are the victims of the myopia of specialization.
Specialization--of education, of background, of training--created a group of powerful technicians in Ottawa who have the power to impose their sharply limited vision upon us all. Part way through this current crisis--and I use that word advisedly--we were invited to meet with the very officials who produced this anathema. We declined the invitation. Some were shocked, others were baffled. Did we not want an audience to explain our concerns to the king?
We knew, from long years of experience, that it would be pointless to meet with these officials. Why? Because, to a very real extent, we speak a different language, we breathe different air. In short, we cannot communicate. We stare at each other in total incomprehension. Let me give you the flavour of our differences. Imagine you are overhearing our conversation.
The Federation: "Black is black."
The Department: "Black only seems to be black. According to paragraph three, subsection four, line five, black is deemed to be purple."
The Federation: "But everyone knows black is black and for one hundred years we've called black, black."
The Department: "You have been mistaken."
So you part no further ahead. We, the Federation, choose instead to meet with politicians: people who may wish to change black to purple but who understand more clearly how jarring it is and how long it will take.
Let me tell you, ladies and gentlemen, dealing with this process is very radicalizing. The frustration can be infuriating. To feel, when you are talking to Ottawa, that you are talking to Martians makes you want to drive the aliens into the sea--or at least into the Ottawa River.
It comes as no surprise to me that many private citizens are driven to extreme political ideologies of the right or the left. If you cannot communicate, you cannot agree and society becomes a collection of armed camps. That's what Canada looks like today. Armed camps in the provinces fighting Ottawa. Armed camps in business fighting Ottawa. Unions fighting Ottawa. The whole country has been mobilized to fight Ottawa. Can the whole country be wrong?
There is a psychological term for official Ottawa's current behaviour as a government. It's called a napoleonic complex.
A person with a napoleonic complex is not necessarily dangerous. If he has no power, we institutionalize him. But if he can wield power he is very dangerous; dangerous because he is convinced of his mission and disdains the advice of others.
You cannot reason with Napoleon. You can only fight him.
The grave danger to Canadian society, now and in the foreseeable future, is the overwhelming concentration of power in Ottawa in a few hands and its unilateral exercise. The federal government's presence, steered by myopic technocrats, is too dominant. Countervailing forces are too enfeebled. The more Ottawa grows--and it is most assuredly growing in the wake of this budget--the more enfeebled its opposition. The more power it has available to it, the more that power will be exercised. As you enfeeble the private sector, the more reason you have to "take up the slack." The more you take up the slack, the more things fall apart. The more things fall apart, the more you must try to put them together again.
This means, willy-nilly, a departure more and more from the rule of law to a system of technocratic discretion. If you believe not only that you can and should control everything, but also that you must--since you have extracted so much of the resources normally available for adaptation, hence undermining the economy's basis for self control or self correction--then law alone won't suffice.
You cannot define in law all the things you want to "accomplish." You cannot foresee all circumstances. So you provide yourself with a catch-all. The catch-all is "at the Minister's discretion" or "the Minister may make regulations" or "subject to the approval of the Minister."
Of course, all of these are euphemisms only for the rule of man by man--pitting one judgement with power against another judgement without power. There is no court of appeal. Most importantly, opposition is silenced.
Democracy is at stake when any institution--private or public--is too powerful. Democracy is most especially at stake when the state with its awesome power grows too large, too centralized, too dominated by technocrats. Rule by discretion as opposed to rule of law makes the citizen fearful of the governor.
Which corporate leader, newly dependent upon discretionary grants or subsidies, will be heard criticizing government policies?
Opposition is silenced and the only view to be heard in the land is "the acceptable view."
Ladies and gentlemen, in company with farmers, professionals, the provinces and private citizens, we intend to fight this design. We in the small business sector will continue to fight for an economic system of maximum flexibility governed by the rule of law enshrined in tax legislation and governable by the courts. We will continue to fight for a more decentralized pluralistic society with many competing power structures. We will attempt to break down the structures of specialization which poison communication and we will fight for the elevation of politicians over technocrats.
In particular and specifically, you will hear us call for a break-up of the centralizing influence of the Prime Minister's Office. You will hear us advocate the dismissal of key federal officials. You will hear, over and over again, a demand which we have made from the beginning, that tax reform must be slowed, that a White Paper should be produced to open up dialogue, that the guillotine of legislation be lifted and that citizens be given a chance to be heard.
We will call for a forum in which public servants can be instructed by the public to run their computers based on the public's assumptions and goals, rather than their own assumptions and goals. We will do battle along with others for the hearts and minds of Canadians; we have more faith in their intelligence, honesty and common sense than do the technocrats. We also have a greater appreciation of their breaking point. We will attempt to persuade Ottawa that the word "economy" is just an abstraction. When leftwing and right-wing economists argue over whether the deficit should be slightly higher or lower, they are both irrelevant. The right-wing economists applaud the lowering of the deficit because it will make room for investment. The left-wingers feel the government should spend more. Both of them missed tax reform. The fact is, whether the deficit is marginally higher or lower is neither here nor there. Right now people are not going to invest no matter how much theoretical room government has left by lowering the deficit. Proposed tax changes cast a pall of suspicion, distrust, anxiety, and anger over the whole abstraction called the economy.
The economy is people. People such as our members, one of whom recently wrote to me:
Because of this budget I have cancelled an order for two more trucks which would have created work for four more men and fed and clothed four more families.... I do not intend to ever make an attempt to increase my operation. If I can survive, I will stay just as I am.
Two trucks, four families, demoralization, that is what the abstraction called an economy is all about. People live on hope. In its absence, people--and therefore their society and their economy--falter and then decline.
We must be careful with hope. We must guard it and nurture it.
Although government can take away our money, our incentive, our self assurance, and even our trust, we must never allow it to strip us of our hope.
It is through hope that the motivation is fueled to recover that which is lost, to protect that which is vital, to correct that which is flawed. It is hope which can make the impossible dream a reality. Hope is our defence against despair. It gives us the patience to be reasonable, as well as the courage to persevere against those persons and policies which are unreasonable. But today my hope is tempered with sorrow. I would much prefer to be standing before you in praise of a positive budget, than at odds with a damaging one. I find no cheer in manning the barricades. There is no solace in seeing my country bleed. There is no turning away from the anguish of the unemployed and the bankrupt, the misery of the old and the sick.
My life work has not provided me with the emotional armour to view such casualties indifferently or philosophically. I am an engineer and teacher by training, not a soldier. I am an entrepreneur in spirit and in practice, not a revolutionary.
In closing, I leave you with these questions:
Must this government wait until the economy is rubble before it admits there are serious cracks in the walls of its budget?
Will the personal careers of certain politicians and technocrats be given a higher priority than the nation they were elected and appointed to serve?
Will the voice of the people be heard, or will it be ignored?
Will the rule of law be replaced by the rule of man? For the sake of this great country and its great potential, I pray not. Maybe, just maybe, this time, Ottawa has finally gone too far and we, the Canadian people, are going to push back.
The thanks of the club were expressed to Mr. Bulloch by Bredin Stapells, a Past President of The Empire Club of Canada and a Director of the Empire Club Foundation.