Money is a Coward

MR. HERMANT:

Ladies and gentlemen: The definition of success is one of those elusive and very subjective commodities which almost defies description. Probably there is no proper delineation, but one that caught my eye as I was doing some research was credited to Stephen Birmingham writing in Holiday magazine some years ago. Naturally, his comments were more attuned to the United States, but, nonetheless, they have a relevance to our guest of honour today.

In this country, success is commonly regarded as an exclusively American product and it is advertised on matchbook covers and in the back pages of adventure magazines, accessible by way of a high school education or a new truss. It is thought by some to have a distinctly bitter taste, not unlike a mouthfull of dimes. But its smell is generally conceded to be sweet.

Our guest of honour today, Mr. Zoltan Merszei, is acknowledged to be a successful man. He heads one of the world's major corporations and has worked his way through the corridors of the business complex since his arrival in Canada from Hungary in 1949.

Mr. Merszei is a graduate architect--raised and educated in Switzerland and Hungary. Immediately upon his arrival in Canada, he joined the Dow Chemical Company and became a pioneer in the rapidly expanding Dow enterprise.

He has occupied managerial positions in various corporate operations throughout the world--including Japan, the Netherlands, Switzerland and Latin America. He has been a member of the board of directors of his company since 1968--on the executive committee since 1971. He became executive vice-president in 1975 and finally president and chief executive officer in December of 1975.

As part of his business life, Mr. Merszei serves on numerous boards of directors, including the Dow Banking Corporation and Handlesbank of Zurich, Switzerland, and he is a trustee of the Northwood Institute. Additionally, he has received a number of honours--including the Grand Cross of Order of Merit awarded by the Spanish government, the decoration of Commander of the Order of Oranje, Nassau, awarded by Queen Juliana of the Netherlands and Doctor of Laws awarded by the Northwood Institute.

Truly an outstanding and illustrious career--bringing to mind a quotation attributed to Calgary Bob Edwards. "People are always ready to admit a man's ability, after he gets there."

And yet there's something different in this meteoric rise to the heights of the business structure.

First, it is unusual to find a Canadian citizen in such a position--but more than that, it is a triumph to realize that Zoltan Merszei arrived in Canada as an immigrant. Well trained, to be sure, but, nonetheless, faced with many of the same challenges that confront immigrants to Canada today, if not more so.

And yet he has not only made a contribution to his adopted country but to a world-wide enterprise. And I suggest to you, when next we're tempted to solve some of our short-run problems in this country by blaming what are really inherent economic weaknesses on those who have come here to better their ways of life, that we consider the achievements of Mr. Merszei and look elsewhere for scapegoats.

Dr. Wilfred Grenfell said, "The real value of life can only be gauged by what it gives to the world. Life is redeemed by achievement. All its fun is in doing things."

If that quotation holds any truth whatsoever, Zoltan Merszei must have had some fun along the way. It is a pleasure for me to introduce to you the president and chief executive officer of the Dow Chemical Company of Midland, Michigan, Mr. Zoltan Merszei, who surely must agree with Dale Carnegie when he said, "Success is getting what you want--happiness is wanting what you get."

Mr. Merszei will address us under the title, "Money is a Coward".

MR. MERSZEI:

Ladies and gentlemen: In preparing my remarks, I asked myself several questions. The first was, "What hat should I wear?"

As you know, I am a Canadian citizen. I am also the president of a company which has substantial Canadian investments and employs nearly three thousand Canadians; in fact, I am chairman of the board of our Canadian organization. My third hat is that of an entrepreneur who manages investments and markets products on a global basis.

The global hat seems to fit best. This permits me to put Canada's problems or opportunities in perspective in relation to the rest of the world.

The second question was, "With the knowledge that Canada has serious economic problems, could I find a message of hope rather than doom?"

The answer was very easy. I am an optimist. If I had nothing positive to say about Canada's future, I would have declined to be your speaker.

A third question, of course, was, "Should I express my personal opinion on how to solve the Quebec issue?"

I believe my comments on this issue should be something like a local politician who was accused of being unwilling to take a stand on the whiskey-by-the-glass question. He wrote a letter to the editor of the local newspaper which, in substance, said, "When you say `whiskey', if you mean the devil's brew, the poison scourge that defiles innocence, dethrones reason and creates misery and poverty, then I am against it with all my power. But if, when you say `whiskey', you mean the oil of conversation, the philosophic wine that is consumed when good fellows get together, that puts a song in their hearts and the warm glow of contentment in their eyes, that puts the spring in an old man's step on a frosty morning, and the sale of which brings taxes to provide care for the underprivileged, then I am for it."

He added, "This is my stand. I will not retreat from it and I will not compromise."

Let me assure you that I do have some personal opinions on how the Quebec issue should be resolved. Obviously you cannot afford a continued preoccupation with an issue which started on or before the Plains of Abraham two centuries ago. Canada's leadership needs all the available time to concentrate on the serious economic enigmas of the day. If that is not given high priority, the strength of Canadian confederation will quickly wane.

Having opened the door on the Quebec problem, I will not hedge as the politician did on the whiskey question. The issue boils with human emotions.

There is nothing new about dissension born of human differences in culture, religion or native tongue. Such differences must be outgrown, not only in Canada but throughout the so-called civilized world. Our planet, with its nuclear arsenal, can no longer afford the age-old tensions of the Middle East, or the strifes of Vietnam or Africa or Ireland--or, for that matter, Canada.

History reminds us of the torment and torture inflicted on men because of intolerance of one philosophy by those who adhered to another. All the world's great religions seek understanding instead of myopic vision that fosters distrust or contempt for those whose tongue or customs differ. Certainly, bickering among men can deter progress. Newsman Richard Malone put it plainly when he wrote, "There are opportunities and plenty of room for everyone in Canada, except political bigots."

It is my plea, then, that both sides invoke brotherhood instead of rancour. Let both sides give not a little but a lot. Let both sides identify those qualities which bind people together as Canadians.

The curative powers of tolerance are magnificent. There is no such thing as an overdose of tolerance. Just look at the example set by the Swiss, who live amicably together, but with great pride in the many differences of languages, dialects and customs. Altogether, Switzerland stands as one of the most stable economies in the world.

Some pessimists claim Canada is on the brink of ruin, or economic disaster, or industrial stagnation. Certainly there are some signs which might seem to make this outlook valid.

Undoubtedly many of you read the story by Richard Malone last November in the Toronto Globe and Mail. Mr. Malone observed, "The conviction grows that our nation, despite all its advantages of wealth and social advancement, has lost direction and is sick with an ancient disease. The symptoms are inflation, unemployment, disunity, a falling dollar, enormous debts and public apathy."

However, Mr. Malone, after a lengthy documentation of economic ills, commented, "The picture is bleak . . . but not hopeless.... Our leaders tell us that our problems are largely due to general world conditions and there is not much we can do about that.... False! There is a great deal we can do about our future and our fate. . . ."

Mr. Malone's comments are in accord with my own convictions. Personally I suggest to you that Canada could be on the brink of greatness.

It will take some doing to shift the economic gears and gain momentum but, today, let us weigh Canada's strengths against its weaknesses.

Canada is one of the wealthiest nations on earth. The western world looks with envy on the Arabs. We over-react on the significance of their energy wealth. They have oil, and lots of it; but they are lacking in many resources, particularly human resources.

What do we have in Canada? We, too, have oil and natural gas. We also have tremendous forest and agricultural reserves, coal, iron ore, nickel, lead, uranium--you name it! Perhaps the greatest wealth of all, not often thought about by Canadians, is called "water". What do you think the Arabs would give for ample fresh water supply? They are talking about towing an iceberg down from the Arctic!

That's a product you have not thought about exporting. Why not sell them one!

Yes, the Arabs have lots of oil, but they are a little short on welders, electricians, carpenters, engineers, chemists, pipe-fitters--and we have them in abundance. It would take the Arabs a generation, if they knew how to do so, to develop the technical skills which abound in Canada. Canada has more than resources and skills. It is close to markets. Take a look at the Japanese. They have virtually no resources. All the Japanese really have going for them are ninety million over-achievers! Think what the Japanese would give for Canada's resources.

Well, let's see if we can identify some valid answers to Canada's current economic problems. What does Canada need to attain a renewed world industrial leadership and an enduring prosperity?

Frankly, your vast resources are not being utilized wisely--or at all. Those which remain in the ground are money in a bank, but it is a bank which pays no interest. Resources that are extracted are, too often, exported as raw materials which are converted and multiplied in value manyfold by other countries.

Canada gains little by sending iron ore and coal to Japan--and buying back Toyotas. Canada gains little in industrial strength by sending the wood from its great forests to the south--and buying back furniture or plywood. Canada gains little by sending natural gas to the United States--and buying back polyethylene in the form of shoes, plastic wraps and other products.

Probably more than half of all the goods purchased in Canada by over-taxed workers is made elsewhere from coal, oil, natural gas, wood or other materials extracted from Canada's plentiful reservoir.

So what does Canada lack?

The economic answer is a very simple one. Canada does not lack capital; it lacks the economic climate to encourage the investment of capital in Canadian manufacturing. Since the end of World War 11, Canada has visibly lost strength and status among the world's more powerful industrial nations.

What happened?

A fact of life is that money is a coward. Money crosses national boundaries freely. Investment capital will not flow down a hazardous, unlit street where the risk is visibly higher than the potential reward. Money has no national loyalty. Like poker chips, money has no permanent home.

As you know, many Canadian companies, particularly manufacturers, are now investing in the United States to supply both U.S. and Canadian markets. They readily see an advantage in wage rates, capital costs and market size. The sad truth is that the rest of the world--the investment world, that is--has taken a hard look at Canada and will not support the life style of 1978 Canadians.

Last September, the Japanese shocked Premier Davis and his delegation on a mission to Tokyo by telling them Canada had priced itself out of the Japanese market. They said, rather emphatically but pointedly, "We have to make a profit. We are not a charity."

In effect, the spokesman for the Japanese was really saying, "What your people produce is not worth what our people produce." That is what the trading nations of the world are trying to tell Canada. This is why the dollar has skidded to new lows.

Now I am not suggesting that the Canadian worker in the private sector does not work hard. He does. But he cannot produce more without someone's providing additional modern plants and tools.

Understandably, the Canadian worker in the private sector is bitter. With relatively high wages, he sees his purchasing power diminish. He looks in the windows with hunger for the wondrous products of our time, but he has little money with which to shop at the inflated prices of Canadian hard goods. Costs are so high workers wonder if they can afford to be Canadians!

A high percentage of Canada's people live on or near the U.S. border. Daily they see television commercials advertising goods at attractive prices:

- Automobile ads name a price as much as $2000 lower than Canadian prices. This is particularly irritating when perhaps the automobile was manufactured in Canada in the worker's own city--Oakville, Windsor or London.

- Home appliances are offered at substantially lower prices in the United States. Many U.S. models are identical to Canadian models built in Canada by the same U.S. headquartered company.

- Housing prices are much higher in Canada. Also, mortgage interest rates, at times, are more than double and they are not tax deductible.

- Higher personal income taxes required to pay for social programs add to the frustration.

If you were to ask a former Canadian resident now employed in the United States what it would take to get him to return to Canada, he would certainly tell you that his income would have to be much higher.

It is no economic mystery why individual purchasing power has diminished. Canada ranks third on the scale of the highest personal taxes, topped only by Denmark and Sweden. Canada, of course, is not alone in putting a price tag on social programs so high as to invite economic stagnation. The United States is trying hard to match Canada's folly. Even so, it is still a more attractive investment market for other nations.

The bargaining mechanism in private industry has been a total failure when applied to government employees. The failure of the government to bargain with the public sector has put undue pressures on the private sector to equal the wage gains of government employees. The worker in private industry is probably bitter since he does not know how he can protect himself from government policies that reduce his income and job opportunity.

Until profits are adequate, the Canadian corporation cannot help the worker increase his real income. Few companies have dollars to build more efficient, larger plants to create more jobs or to pay higher wages.

One of these days, some country--whether it be England, Denmark, Sweden, the United States or any other country--is going to recognize that a restoration of the incentive system will bring amazing prosperity almost overnight. The first country to recognize this is going to get all the marbles.

I believe Canada could well be that country, and that capital will flow across her border beyond one's highest expectations. Much of the capital to be invested in Canada need not flow from other countries into Canada. Canadian companies must be encouraged to invest within Canada's borders.

Let me prove to you that my confidence in Canada's awakening is more than mere rhetoric to please members of The Empire Club.

Dow Chemical of Canada alone has invested over 450 million U.S. dollars in Canada since 1942. In five years, that figure will exceed a billion dollars; if you talk in Canadian dollars, about 1.4 billion. My company has invested these dollars, not without considerable risk. However, we are prepared to take this risk in return for the prospect of remaining globally competitive in petrochemicals. Our largest single investment is in the Alberta petrochemical development project. This operation must be able to compete with the major chemical complexes on the Gulf Coast in the United States. It should be remembered that Alberta is landlocked; therefore, transportation and other costs must be reasonable and reasonably non-inflationary if the project is to be competitive with U.S. production.

Two new Canadian investments will triple the nation's ethylene production by 1980. As pointed out before, Dow's Alberta project is the largest single venture our company has ever undertaken anywhere in the world. It probably

represents the largest single investment and construction project under way by any company in Canada today. This project could not have been undertaken without excellent co-operation by the government in Alberta and without the help of the Alberta Gas Ethylene Company, Ltd., a wholly-owned subsidiary of Alberta Gas Trunk Line Ltd., and similar help from Dome Petroleum Ltd.

Canada can anticipate a substantial downstream spin-off in terms of new industries and jobs created by the Alberta project. A study of the cumulative effect of job multipliers is mind-boggling. For every four jobs required in processing ethylene, twenty-six more are created in the manufacture of its first derivatives; forty-six more in second category derivatives; and over one thousand jobs in a final category.

There will be adequate opportunity for Canadian companies to take the products produced by our new petrochemical projects and displace a substantial level of fabricated plastic products that are currently being imported into Canada.

Along this line, last September in a speech in this city, our president of Dow Chemical of Canada, Limited, Robert Naegele, made some observations which bear repeating. Mr. Naegele pointed out that if Canada were to divert only one and one-half per cent of its natural gas production--some 100 million cubic feet per day--to the production of ethylene, this would translate into 30,000 Canadian jobs in plants consuming ethylene-based derivatives at the consumer product level.

Look at the measurable and favourable impact this would have in reducing unemployment, in enlarging the tax base and in improving Canada's deteriorating balance of trade picture.

Mr. Naegele further stated, "Canada should use its existing energy surplus to negotiate bilateral trade agreements with the United States, in particular, to promote substantial growth of the manufacturing sector in Canada. For example, if Canada were to export several hundred million

cubic feet of natural gas a day to the United States to assist in their current natural gas shortage situation, is it not logical to ask that some of this export be in the form of manufactured products derived from Canadian natural gas?"

You can see Mr. Naegele's point. Current indications are that the United States is willing to discuss such an agreement.

In the long run, there is probably a need for Canada to make bilateral agreements for free trade pacts with the United States, its principal trading partner, for given sectors of manufacturing. Surely Canada should bargain on a bilateral or multilateral basis access to its raw materials in order to gain access for its manufactured goods in foreign markets.

Steady and carefully phased lowering of tariffs is mandated until the costs of goods approach the U.S. competitive costs.

There are hundreds of examples on how Canada can bolster its economy by the value-added process of Canadian plant investment and manufacturing. I won't belabour this point; I give your thought leaders, your government officials and investment analysts due credit to carry my observations into greater detail.

The key to materializing this transformation from the pain of no-growth to dramatic expansion is investment capital. The word is money.

Truly, in the free enterprise system, it is money that talks. Remember, it is money that is a coward. Canadians are not. In free enterprise, if the entrepreneur is given a relatively free marketplace, money will flood into Canada like Niagara.

There is nothing wrong with Canada that cannot be cured if economic boldness will overpower timidity, and confidence erase the preoccupation in planning the economy. Profits are the missing magnet which will pull investment dollars out of hiding. One should not regard profits as money left over after the books are balanced. Profits are the seeds of growth. If Canada creates a climate that generates such seed money, the economy will respond rapidly.

At the outset, I told you I am an optimist. It is my bet that Canadians will soon recognize this economic fact of life, for Canadians, throughout history, have generally shown the ability to think and act smart. That is why I firmly believe Canada is on the threshold of regaining the industrial leadership that could make her the envy of the western world.

The appreciation of the audience was expressed by Mr. Harry T. Seymour, a Director of The Empire Club of Canada.