JANUARY 13, 1977
Keys to Canada's Future
AN ADDRESS BY John D. Allan, Esq.,
PRESIDENT, THE STEEL COMPANY OF CANADA, LIMITED
CHAIRMAN The President,
William M. Karn
Reverend Sir, distinguished guests, ladies and gentlemen: The steel industry of Canada has progressed a long way since 1736, when the first commercial metallurgical plant in North America began operating on the banks of the Saint Maurice River in Quebec at Les Forges, between Trois Rivieres and Shawinigan. That company, called Les Forges de St. Maurice, reduced local bog iron ore with hardwood charcoal, producing an excellent grade of iron to serve the needs of early settlers, and local industry. It continued in business for 150 years.
Down in Nova Scotia, entrepreneurs established an iron industry in 1790 with the encouragement of the Assembly, and although it expanded greatly and diversified, adverse economic factors have been such that it survives today partially because of federal government assistance. During its development, it even included an organization by the name of the Steel Company of Canada from 1873 to 1913, which had no connection with the present corporation by that name.
Meanwhile in Montreal, hardnosed men of vision like John Bigelow in the 1790's, and his son Thomas, Randolph Hersey, Mansfield Holland and others were laying foundations which were later acquired by Montreal Rolling Mills Company under William McMaster. Financier Max Aitken then entered the scene and in 1910 completed the merger of one of Ontario's primary steel facilities with Montreal's rolling and fabricating plants, forming the Steel Company of Canada Limited.
The continuing application of sound technological, financial, and managerial expertise has raised this organization to a position of prominence not only in Canada but throughout the big league of world steel.
Today as in the 18th century, an adequate supply of steel is an essential requirement for the economic growth of our country. Although Stelco is producing about six million ingot tons per annum, 40% of Canada's total, the company is looking ahead and embarking upon a multibillion dollar twenty to twenty-five year expansion project on a 6,600 acre site at Nanticoke, which will eventually double its steel capacity and probably triple the company's dollar volume of business in the early 2000's. The first phase, originally planned for completion in 1978 but now stretched out to 1980, will cost $1.2 billion. Guiding this massive undertaking, while simultaneously managing the existing business is our guest of honour today, Mr. John D. Allan.
Mr. Allan, a native of Vancouver, began his career with the Steel Company of Canada in that city in 1947 upon graduation from U.B.C. with a B.A.Sc. degree in Mechanical Engineering. After holding various management positions in the operating and marketing division, he became General Sales Manager, Rolling Mill Products, and then Vice-President, Eastern Region, Montreal, in 1965.
Each promotion was merely preparation for the next. He became Vice-President, Market Development, Hamilton in 1968; VicePresident Corporate Planning, Toronto in 1970; and Executive VicePresident in 1974. In April of 1976, Mr. Allan was elected President.
In addition, he is serving as a Director of the Royal Trust Company, and until recently was very active in the Canadian Cancer Society.
Ladies and gentlemen, it is a privilege to ask Mr. John D. Allan, President and Director of the Steel Company of Canada, Limited, to now speak to you on the subject "Keys to Canada's Future".
Mr. Chairman, ladies and gentlemen: It is a privilege to have this opportunity of addressing the Empire Club. I say this, not by way of a routine opening formality, but rather in recognition of the fact that I have been provided with one of the most prominent and respected public forums in Canada from which to communicate to you some thoughts which I trust will be of mutual interest and concern.
Our society is living in an environment quite different from that which has characterized the recent past. The euphoric, and perhaps somewhat brash, self-confidence that epitomized the Canada of the Sixties--exemplified by the philosophy of "the difficult we do immediately, the impossible takes a little longer"--has been replaced by the self-doubt and uncertainty of the Seventies. This attitude has manifested itself by a growing questioning of and a hostility toward many of the values and institutions that form the basic foundations of our nation and have contrib. uted so much toward its development and progress.
This growth of self-doubt and uncertainty is disturbing, but scarcely surprising, given the fact that Canada, and indeed the world, is going through an era of change that is probably more profound and far-reaching than in any other period of modern history. Within our own society, for example, a generation that has never really known anything other than economic progress and rising living standards is now having to face economic recessions.
A generation long accustomed to unlimited and varied employment opportunities must now come to grips with the spectre of growing unemployment. A society conditioned toward abundant and apparently limitless supplies of energy upon which to base its economic and social development now face a shortage of this vital commodity. Coincident with all this has come what is perhaps the most sudden and massive redistribution of wealth between one segment of world society and another ever to take place in history, with all the stresses and strains this has brought in its wake.
Given all this turmoil and change, some in our society are tempted to look at our current institutions, decide that they are not performing as they should and seek to replace them with something as yet undefined. Before we engage in any such orgy of self-destruction, however, I think we would be well-advised to ponder most carefully the words penned by Kenneth Clark in his epic work Civilization and I quote:
One doesn't have to be young to dislike institutions. But the dreary fact remains that, even in the darkest ages, it was institutions that made society work and, if civilization is to survive, society must somehow be made to work. I believe that order is better than chaos, creation better than destruction.
The relevance of these sentiments to our current situation is obvious. It might well be that certain of our basic institutions are not functioning as they should in today's fastchanging environment, but in view of their impressive record of past success, I think it is essential that we first ascertain why this is so before we undertake radical--and perhaps unneeded surgery.
One institution that has come under particularly strong,. criticism and attack in recent years is our economic system, despite the fact that it has given Canadians a standard of living exceeded by very few other nations. While it is probably true that our economic system is not performing as well today as it has in the past, there are reasons for this which are not necessarily of the system's making and for which society as a whole must share some measure of responsibility.
To begin with, I think we are all beginning to realize that we are coming close to exhausting our economy by our quest for an ever-rising level of social amenities. More importantly, however, is the fact that we seem as a society to have lost sight of the crucial role played by competitiveness, innovation together with achievement, initiative together with incentive, sound management and communication, in the functioning of a healthy, vibrant and dynamic economy and in the consequent ability of our economic system to deliver that which we are demanding of it in the first place.
In my view, these elements are keys to Canada's future and our economic health will be directly related to the degree to which we succeed in reintegrating them into our system of economic values. I propose, therefore, to elaborate further on each of them.
Just as surely as any business enterprise will fail if it is not competitive, so will a nation's economy falter if it becomes uncompetitive. Anyone who has travelled abroad on business realizes only too well just how fierce competition has become in the international marketplace and this state of affairs will almost certainly continue into the foreseeable future. We in Canada are becoming increasingly exposed to this economic fact of life and, since almost 25 % of our Gross National Product depends upon exports, twothirds of which go to the United States, more and more Canadians will become increasingly involved with this concept of competitiveness. Individual efficiency and productivity will become of ever-increasing importance, just as the attitude of "that's not my problem--it's management's or it's government's" will assume less and less relevance.
Because of the fact that Canada is a trading nation with particular links to the economy of our neighbour to the south, what the Economic Council recently had to say with respect to our position in the world marketplace is of vital importance.
The Council observed that despite the relatively rapid rise in Canadian export prices for agricultural and resourcebased materials, Canada's share of world exports of manufactured goods (excluding automotive products) has been declining more or less steadily since the mid-1960s and that much of the dynamism of Canada's export trade during that period resulted from the automotive agreement. As a result, Canada's current account balance deteriorated from 1970 onward with the deficit reaching some 3.3% of gross national product in 1975--a situation unparalleled since the foreign exchange crisis and recession of 1959-61.
This question of international competitiveness also reaches into the sphere of foreign investment where, after several decades of "most favoured nation" treatment, Canada is facing increasingly stiff competition for investment dollars, especially from the United States. In that country, labour costs have increased less rapidly than in other nations. In addition, the United States has a relative abundance of many raw materials and, perhaps most important of all, it offers an environment of economic and political stability free from the constant threat of nationalization and other socialistic endeavours. The Steel Industry is particularly concerned about any trend whereby potential consumers of basic materials are siphoned away to another environment. Our growth plans are based primarily upon home demand, therefore a domestic economic environment competitive with that of the United States is of vital importance to us.
Competitiveness must also be a continual item of dialogue between management and employees, in view of the fact that competition from other nations is becoming such a critical concern. If a business is engaged primarily in the export market, this factor will be omnipresent. If an organization is predominantly manufacturing for the domestic market, the trend of competition from imports must be carefully watched. A high level of imports competing with domestically produced products could mean unfair competition or dumping, and, in my view, as international competition becomes more aggressive, the federal government must react more swiftly in support of domestic industry when this happens. On the other hand, it could also mean that Canadian costs, service and quality, individually or collectively, have become uncompetitive and that consumers are no longer purchasing the domestic product. In such a situation, I think any organization or industry could expect to be faced with stringent scrutiny of its efficiency and productivity before governments could justify quotas or other forms of support. Consumers would demand nothing less.
Another crucial cog in a healthy and efficient economic system is the encouragement of individual initiative supported by appropriate economic incentive.
There is strong evidence that self-interest, at least to some extent, motivates virtually every form of human endeavour and this is certainly true of economic activity. The Scottish philosopher, Adam Smith, elaborated very clearly just how and why the natural instincts and capabilities of free men caused economies to change and progress.
The American economist, Otto Eckstein, describes capitalism as the only engine that has been developed so far that encourages people to be highly innovative and to develop new products and processes. In contrast, centrally managed economies have rarely done well in developing civilian high technology industry--largely because inventors lack incentive. In many socialist economies, the same lack has led to shoddiness in many of the goods and services that provide life's amenities.
The British experience, in particular, is something that must be pondered most carefully by our national policy makers. In a recent London-based article, John Crispo outlines very clearly the squeeze that is currently taking place on the British working middle class and the detrimental effect this is having on that nation's economy. As this squeeze hits increasing numbers of managerial, professional and skilled personnel, the more it detracts from their ability to apply full concentration of their talents to their work. The end result has been a flight of talented individuals to more attractive environments elsewhere. Mr. Crispo speculates quite correctly on just how long a society can continue to hand out such punishment to such a vital group before creativity, confidence, motivation and productivity are irreparably undermined.
Incentives aimed at the growth of small and mediumsized companies are also vital to Canada's economic future, since in many cases they are created through the activities of entrepreneurs and innovators. Risk capital is an-important ingredient for their success and the current trend away from equity investment should be a source of concern to all of us.
We in basic industry can also attest to the need for risk capital and an economic environment in Canada that is conducive to the entrepreneur because it has been our experience that many of the latter have developed creative and innovative products and services for the marketplace. It is essential to our future economic well-being that we retain this type of initiative here in Canada and not lose it to the United States.
In any discussion of initiative and incentive, I would be remiss if I did not make reference to the current Federal Prices and Income Controls. In our response to the federal government's "The Way Ahead", Stelco indicated that wage and price controls should be lifted as quickly as possible, subject to other actions taken by the federal government within its jurisdiction.
It is our contention that, if controls continue for too long a period, distortions in normal economic activity will become too deep-rooted and overkill could take place with respect to investment, initiative, creativity, efficiency and productivity . . .the very elements required to combat inflation.
A considerable amount of Canadian innovation and achievement has come about as a result of a high concentration of economic activity in major projects constructed since the late Forties. These projects were geared primarily toward energy supply, transportation and resource development. Need I call your attention to such major accomplishments as the St. Lawrence Seaway; TransCanada Pipe Lines; Interprovincial Pipe Line; Churchill Falls and, of course, our Centennial highlight Expo 67, a project of immense social as well as economic significance.
During this period, skills in design, construction and project management techniques were developed to an extremely high degree, coupled with the development and training of large construction work forces. New and innovative construction materials of all kinds were developed by many suppliers together with the production capacity necessary to handle such demands. In Canada, we now have a construction network with skills second to none and with the ability to handle projects in the fields of energy supply, transportation and resource development of any magnitude. Because of inflation, it is going to be more difficult to undertake such projects in the future. Nevertheless, it is vital that the human resources and talent that have been built up and developed continue to be utilized.
Surely this record of achievement should be enough to eliminate any doubt or cynicism there might be about the ability of Canadians, for example, to develop and transport energy from our northland. The difficulties and challenges inherent in such undertakings are immense, but nevertheless, in my opinion, pipelines can be built safely, with adequate protection of the environment and in keeping with the best interests of all Canadians.
Talking about innovation, I might mention here that Stelco is currently involved in the largest single development ever undertaken in the history of the Canadian steel industry. At Nanticoke, on the shores of Lake Erie, we are currently constructing a new steel plant from the ground up that, by the 1990s, will double our current annual steel-making capacity of six million tons. Canadian talent is handling this massive project and we are taking innovative approaches not only toward steel-making and rolling technology but also toward preservation of the environment, including the creation of greenbelts and the planting of over 50,000 trees and shrubs before a single ton of steel is produced.
Another crucial element of a healthy economy is effective, management. This has been defined as the ability to plan, to set and communicate clear goals and not to overlook the long-run consequences of short-run decisions. It also involves the capacity to follow through to ensure that policy is being implemented wisely and well and the ability to anticipate costs. In the years ahead, it is my belief that the private sector's management activities will be under pressure to become more expansive and exhibit a readiness to communicate to a broad range of public audiences; to become involved in the early stages of the legislative process; to research and develop the technology that will be required to produce the new and changing amenities that western society will require ten and twenty years from now.
There is increasing evidence to support the growing belief that many of the credibility problems currently being experienced by government stem from a failure to manage effectively. For instance, in the development of social programs, sound management principles are invariably tossed overboard.
A recent article in the New York Times brings this contention into focus by observing that the welfare state of today has been constructed in such a headless, often mindless, way that, like so many reformations, it creates as many problems as it solves. The wasted billions of the modern welfare state are not to be found in the older social insurance schemes, but rather in later efforts to solve "social problems", that is to take every disagreeable condition and convert it into a "problem" or perhaps even a "deprivation". There are vested interests attached to each program and any move against them will be denounced. It is only when the money runs out that a sense of realism tends to sink in.
There is little question that the current economic era calls for governments to manage their collective bargaining process effectively, tying wage increases to demonstrated gains in productivity. It also requires, on the part of government, a commitment to the development of sound personnel management skills in order to achieve increased productivity. Business needs this backstop from government if its efforts to achieve greater efficiency and competitiveness within its own environment are not to be undermined.
The stress that I have laid this afternoon on competitiveness, initiative, innovation, sound management and incentive is compatible with the industry with which I am associated and my own company in particular, since these elements have all played a major role in the success achieved by the Canadian steel industry. Moreover this success has been achieved by virtue of a range of operations and activities that have been conducted in the best interests of the country. This was precisely the conclusion reached by Chief Justice Willard Estey when, in his report on the Canadian steel industry, he stated and I quote:
Fortunately, by progressive management, technological pioneering, the investment of risk capital, the availability of skilled work forces, equitable tax structures, and a community atmosphere which fostered the growth of a stable relationship between industry and government, Canada has a steel industry of world class-technologically, industrially and financially.
It is, however, because of my personal involvement over many years in the day-today business of Stelco that I am able to indicate to you, with some degree of assurance, the role played by these elements in maintaining the well-being of our enterprise--one, incidentally, which because of its basic product, provides an important barometer for the Canadian economy.
Since joining Stelco in 1947, I have seen investment decisions taken that have not only thrust raw steel production from one million to six million tons annually, but have also provided for environmental control equipment valued at well over $200 million. As a result of those initiatives, Stelco's ranks have swelled from ten thousand to over twenty thousand, persons from every part of the country (a mobility we seem to have lost these days in Canada), individuals from many social, ethnic and economic backgrounds including the skilled, the unskilled and the professional, all developing and growing on the job.
Over these same thirty years, Stelco's constituency has grown by leaps and bounds and now numbers well over one hundred thousand--employees, retired employees, shareholders and their families, together with suppliers, customers, contractors, consultants and others, all dependent upon the well-being of our company, and all fairly treated because we have been successful and profitable.
New technologies have been developed both by individuals and teams, with applications ranging from the metallurgy of steel pipe under high pressure that will safely withstand the low temperatures of the Canadian northland to the tighter gripping qualities of "ARDOX" nails that the hardware store sells. Quality control on all our products has become more and more precise; sales engineers have been organized to assist our customers to make more efficient use of our products; operating crews have broken world records and our products now are distributed throughout the world.
The large corporation with its so-called "power" is currently the target of considerable criticism within our society. There are those who seem to be dedicated to breaking up such institutions, changing them drastically or putting other restrictions on them. The increasing intrusion on the part of government on all levels into the private sector would seem to bear this out.
But surely Stelco's performance over the years would scarcely seem to be typical of an institution that has consistently ignored the needs of Canadian society, or one that is incapable of adjusting to new situations. This same type of history can be repeated for many other companies across Canada, large and small, foreign-owned and Canadian-owned. If the ingredients I have outlined can carry Stelco intact through sixty-six years of ever-changing business environment, surely they have some relevance when it comes to dealing with our national economic future.
Lastly, I come to the element of communication. In an era such as the present, it is essential for the leaders of all our national institutions, be they government, business, labour, consumers, to understand that their economic decisions will have a greater impact than ever before on the stability and well-being of Canadian society. We cannot afford to make mistakes or be indecisive. It is for that reason that communication must be bolstered and understanding fostered.
For instance, despite the fact that Canadians today are better educated than ever before, the role of profits in building this nation is generally not understood or is deliberately propagandized into a more sinister role by forces both from within and outside of a company constituency. The key issue, of course, is how profits are used.
It is unfortunate that only a few of our secondary schools today emphasize in their curricula studies of our economic system, although I am happy to report that an organization called "The Canadian Foundation for Economic Education" is striving to correct this shortcoming. This organization is supported by both business and labour and I take particular pleasure in the fact that Stelco was one of its founders.
The need to communicate is paramount within our society and it is encouraging to note the moves that have been made of late to achieve improved communication and dialogue between business and government. In this vein, I would like to see more attention given to identifying the issues that should be dealt with through this linkage. For example, two economic issues which, in my view, require urgent attention are exports and capital spending. In each case, the national objective should be a dedication toward steady, unfaltering real growth.
It is also encouraging to note that more and more of our nation's political leadership is showing signs of seeking to bring about a greater dedication toward more efficient management within their jurisdictions. Hopefully, at the same time, they will seek to bring about a national economic environment that stresses competitiveness, initiative and innovation. To our political leaders, I say--"Don't turn Canada into a society where its citizens walk away from hard economic reality and think that someone else will always be there to look after them no matter what their problem. Instead, strengthen their resolve for personal initiative and allow them commensurate reward."
To our political leaders I also say--"Make more use of the practitioners of business. Help diffuse the unfounded cynicism about our business institutions by having more faith in their ability to co-operate and assist rather than turning to the theorist or to the inexperienced."
Votes versus profits are not always compatible but politicians should not condemn or curtail profits, particularly those that are working and doing what society wants them applied to, namely:
- building new plants to create construction jobs as well as permanent operating jobs;
- replacing old plants to remain internationally competitive and thus maintain jobs;
- installing machinery to reduce costs to remain internationally competitive and thus maintain overall job stability;
- developing and installing environmental control and energy conservation equipment to keep abreast of changing social needs;
- supporting major research projects;
- supporting community funding of health, educational, cultural and United Appeal programs.
For the sake of our future economic health and vitality as a nation, we must rekindle faith in the business and entrepreneurial institutions of our nation and awaken once more the spirit of enterprise and initiative that forms the foundation of our national well-being.
No one could have put this need in more eloquent terms than Neil Carothers when he stated:
Look back along the endless corridors of time and you will see that four things built civilization--the spirit of religion, the spirit of creative art, the spirit of research and the spirit of business enterprise.
The appreciation of the audience was expressed by Mr. Sydney Hermant, a Past President of The Empire Club of Canada.