Frank Stronach, Chairman, Magna International Inc.
OPERATING WITHIN A GLOBAL ECONOMY
Chairman: Dr. Frederic L. R. Jackman President, The Empire Club of Canada
Head Table Guests
Tom Wells, President, T. L. W. Consulting and a Director, The Empire Club of Canada; Flamino Carelli, grade 13 student, Humberside Collegiate Institute; George C. Hitchman, President, Fineline Circuits Limited; Jan Rush, Assistant Deputy Minister, Sector Development Division, Ontario Ministry of Economic Development and Trade; The Hon. Barnett Danson, P.C., Consultant and an Honorary Director, The Empire Club of Canada; Paul O'Donoghue, Chairman and CEO, Marsh & McLennan Ltd.; Anne Libby, Co-owner, Libby's of Toronto Art Gallery and a Director, The Empire Club of Canada; The Rev. Cameron Brett, Minister, St. Andrew's Presbyterian Church; Royden R. Richardson, Secretary and Director, Richardson Greenshields Canada Ltd.; Seth Merski, Senior Vice-President, Corporate Banking, Bank of Nova Scotia.
Introduction by Dr. Jackman
Every once in a while there is a simple story that has an amazing outcome. So it is my pleasure to tell you the story, albeit briefly, of Frank Stronach.
Once upon a time a young boy was born far away in Austria, (September 6, 1932) in the small town of Weiz (population now of 10,000), during the worst depression of this century and amidst the changing sociology of pre-war Europe.
Growing up with one older sister, young Frank quit high school at age 14 (that would be 1946) to apprentice as a tool and die maker. After completing the four-year programme later the young graduate worked locally at his craft.
As some young men did in those days, he set out to see the world. He chose a new land on that voyage and at the age of 22 he arrived in Canada (in 1954). He tried Montreal briefly, then Kitchener for two years and finally Toronto, renting a garage (at the corner of Dupont and Dufferin) to set up a small tool and die shop and thus began his success story. Making a little profit, he built a small plant in Richmond Hill to employ 10 people. And then he built another and another and another. And so the story goes.
His company known as Multimatic Investments merged 12 years later, in 1969, with Magna Electronics. Four years later the company was renamed as we know it today, Magna International Inc.
The proverb "a rolling stone gathers no moss" characterizes both Mr. Stronach as well as the sales of his company.
Sales in 1971 amounted to $12 million. Fifteen years later in 1986 they were $1 billion and now (1993) they are over $2 billion ($2.359 billion). Revenue for 1994 is anticipated to be $4 billion.
Magna ranks 45th in sales in the Canadian Business magazine ranking of the top 500 Canadian companies. It is, ladies and gentlemen, conceivable that Magna could become Canada's largest revenue-producing company. If 1994 revenues do exceed $4 billion, Magna will be catapulted into the top 10.
Mr. Stronach believes the success of Magna is due to the implementation of his management philosophy, known as the Fair Enterprise System. He believes that making every employee a part owner is key to successful business. That together with making a better part at a better price are the hallmarks of good business. Believing Canada is in economic and fiscal trouble, Mr. Stronach believes positioning Magna as a Canadian trans-national is only good judgment. Speaking graphically, he says: "Magna will not get caught with its pants down if this country goes broke."
Now, entering the global market, Mr. Stronach has moved his strategic and financial headquarters to Zurich, Switzerland to help Magna capitalize on opportunities in the new 320-million-population Euro marketplace. The move also presents Mr. Stronach with better skiing opportunities. Simultaneously he is developing a presence in Mexico to benefit from NAFTA His North American head office will remain in Canada.
He is a doer; he likes to make thing happen; he wants them to succeed and he relishes his successes, the accomplishments we know most about.
We know less about his other challenges.
Not afraid to try his hand at life's most dubious distinction, he was a Liberal candidate in the 1988 federal election. While some members of this Club will wonder why such a committed capitalist and entrepreneur would run for such a party, they will be comforted in knowing that he voted "Reform" in 1993.
His volunteer activities have been extensive, but he is particularly fond of the Big Brother organization and Junior Achievement.
His hobby is collecting thoroughbred horses. Perhaps horses are no longer a hobby. As the owner of over 100 thoroughbreds, he was awarded the "Sovereign Award" for being the "Owner of the Year" in Canada for having more winnings than any other owner.
He keeps himself in shape with tennis and skiing.
A family man, he is the proud grandparent of a young boy named Frank and a three-month-old girl, Nicole.
Ladies and gentlemen, would you welcome a man on the threshold of becoming Canada's next great international success story, Frank Stronach.
Thank you Eric and good afternoon ladies and gentlemen. Before I begin, I would like to set the record straight about comments recently made in the press that I am leaving Canada and moving to Europe.
I want to say that, although business compels me to spend more time in Europe, I have not given up on Canada. My children and grandchildren were born here and live here, and most of Magna's business activities are conducted here. I still believe Canada is one of the greatest countries in the world.
But Canada faces serious problems, and this afternoon I would like to talk about some of those problems as well as some viable solutions.
Magna Europe--Chairman's New Focus
Magna International is a global company, fiercely engaged in global competition. During the past year we have made a number of strategic acquisitions in Europe, where we see tremendous opportunities for growth.
Prior to expansion, we had already established a small operations base in Europe. Among our original European factories are two we built from scratch in my hometown in southern Austria--the town where I grew up and first apprenticed as a tool and die maker.
I believe Magna's European operations can achieve the same size and level of sales as we presently have here in North America. But I think it is also important to point out that the well-being of our Canadian operation is extremely dependent on our performance in Europe. In effect, success in Europe is crucial to our continued success here in Canada.
The Global Economy--Adding Up The Costs
There is a great trend today towards the formation of a global economy. That means increased competition. It also means that business has fewer restrictions in locating its operations throughout the world. Whether Canada agrees with this or not is immaterial, because Canada is basically a minor player in the global arena. I may also not agree as a business person, but the fact is I must live with the socio-economic and political decisions which are made by governments.
The primary mandate of business is to make a profit. Profit means money, and money has no heart, no soul, no conscience, no homeland. It flows to the path of least resistance. That may sound harsh, but it is a fact. So in the global economy, business will go where it can make the most money, where the costs of doing business are low.
The automotive industry is a primary example of an industry which is today global in size and reach. The major car companies are increasingly planning their strategies on a global basis. There is a much greater cross-fertilization of technologies and more global design and global sourcing.
As a leading supplier of automotive components and systems, we at Magna must be aware of all the global implications. We must do our homework when it comes to figuring out our costs. Most of our production costs are of a tangible nature. We can calculate the cost of electricity in different parts of the world, for example, or the costs of transportation, education, health care and taxes. One of the less tangible, but equally-important factors, is the cost of government overhead, which government must pay. But if costs are too high, then basic economics dictate that business locates production somewhere else. That is the naked reality of global competition.
Global Competition--Canada Is Not Prepared
One of my main concerns is that Canada is not prepared for global competition. The plain truth is, Canada is becoming a less and less attractive place to do business. We are too fat and too slow. We are over-taxed, over-governed and over-regulated.
One of the greatest flaws we have in Canada is a tax system that rewards those who purchase government bonds more than those who run the risk of investing in private enterprise. In essence, we have created an environment where we no longer reward those who take business risks.
Let me give you one example.
If you have some money in Canada, why would you go through the trouble to dig a foundation, build a factory, buy machinery, hire employees and cope with a bureaucratic environment when you can just as easily buy government bonds?
We are choking individual initiative. We are strangling the will to work hard and get ahead. And that is a dangerous sign. It is a sign of economic cancer setting in.
The country has become more and more institutionalized and bureaucratized. But institutions do not create products, and bureaucrats do not create wealth. That is something we seem to have forgotten.
Flaws In Our System--What Can Be Done?
People feel that there are a lot of problems in our system. People can feel in their bones that things are just not working any more. And we have to begin identifying and correcting these problems if we have any hope of regaining our stature as a leading economic nation.
We must take a look at our whole structure: our political system, our tax system and our education system, and we need to modify them in order to improve living standards for all Canadians. If not, our living standards will deteriorate drastically. Over the last several generations, we here in Canada have been too pre-occupied with distributing wealth and in the process we have totally neglected the need to create wealth.
I believe we must also put an end to our government-sponsored policy of multiculturalism. It has fragmented our society and divided us. I came to this country because I heard a lot of great things about Canada. I think it's time that we begin to re-affirm our Canadian values of law and order, hard work and individual initiative. Because of government-fostered multicultural policies, we have strayed from the core values that made this country one of the greatest in the world.
Our Political System
Many of our problems stem from our political system. The government of Canada--what is really the management team of our country--is unfortunately made up of politicians. And I don't mean that in a cynical way. Politics is unavoidable in any democracy.
But the first mandate of a politician is to be elected or re-elected. The dilemma we face is that government must manage the country but its decisions are driven primarily by political reasoning. It is what I call the Achilles' heel of democracy.
I believe the challenge Canada faces is this: What can we do in order to ensure that the management decisions of government are driven by economics? Because the well-being of a nation ultimately depends upon the strength of its economic fabric.
Political Solutions--Depoliticizing Parliament
One solution is to reform our parliamentary system. As long as Parliament is dominated by party politics, then this country will always be driven by a purely political agenda rather than an economic agenda.
We need to abolish the Senate and replace it with a new chamber of democratically-elected citizens. These new citizen members would be people elected by their fellow voters from a list of candidates randomly chosen in the same way we select juries. Citizen representatives would hold the balance of power under this new arrangement, thereby depoliticizing our Parliament. This will allow government to focus more on the fundamental problems of the country rather than on short-term political solutions.
If we do not address this problem--if the country's agenda continues to be driven by political concerns--then the country will continue to falter.
The Education System
Our education system is another area that needs reform. We are not training and educating our students for the realities of today's workplace. What's more, our schools instill in students a distrust of business. The result is that many Canadians grow up with the attitude
that if you do well in business you must be taking advantage of someone.
We must revamp our educational system. We especially need to begin teaching our children how important business is to this country and to the maintenance of our high standard of living. We need to realize that preserving a healthy business climate is as important as preserving the environment or social programmes. Because, in the final analysis, it is business which pays the bills for all of the social programmes and amenities we enjoy.
Students must also realize that it is business which will create the majority of the jobs, and these jobs can only be preserved by remaining competitive. History has shown us over and over again that no government and no union can guarantee jobs. The best guarantee for a job is management and employees working together to produce a better product for a better price. The real key to prosperity and job security today lies in being globally competitive.
Government Overhead And Spending
Now let's take a look at our government. We must make government more efficient, because the costs of running this country are simply too high. Government spending has gone way out of line. To put it plainly, we are too fat and we must slim down.
We need to begin by reducing government overhead. And that can be done in a civilized way, without taking a chain-saw to the bureaucracy, without turning any group into a scapegoat. It could be done by eliminating waste and by gradually phasing out unnecessary services.
There are a number of areas where we can cut costs. For example, in most foreign countries Canada is represented by federal and provincial agencies in elaborate embassies. But today's communication technology makes it possible that we could significantly reduce the number of overseas embassies.
By simply closing or consolidating many of these embassies we could save hundreds of millions of dollars. And there are many other examples where we could cut billions in government expenditures. In essence, we have to rethink and restructure the way in which government works.
Our Tax System
Our tax system is not geared toward the creation of wealth. More and more capital is being sucked out of the financial markets and into the hands of governments.
The tax system needs to be completely overhauled. We have to make it much simpler and easier to understand. And we need to make it more efficient. A flat tax, or a sales and consumption tax, would be much fairer and simpler, and would require only a fraction of the present government bureaucracy to administer. But most importantly, we need to make our tax system more conducive to creating wealth.
If you look at the countries today which have high standards of living, such as Germany or Japan, they are countries which concentrate on manufacturing products for export throughout the world. Canada must focus more intensely on how to go about making things and then selling them abroad, and we should use our tax system as a lever for stimulating greater productivity here in Canada. There is no reason why Canada cannot manufacture and export world-class, technologically-advanced products. Magna is a prime example that it can be done, but even for us it is becoming ever more difficult to operate under the present environment in this country.
The Road To State Enterprise
That, in a nutshell, is the situation Canada finds itself in today.
We have travelled quite a way down the road of state enterprise. I often wish that we could send all our students and teachers to the East European countries to see the damage that state enterprise has done to society. I have seen it first-hand and it is indescribable. It is a pathetic sight to travel through Russia and some of the East European countries--everywhere there is decay and poverty and people that have been institutionalized from the cradle to the coffin. It's a glimpse of what lies in store for us here in Canada unless we are able to change our present course.
We need to begin reversing the dangerous trend in this country of increased government bureaucracy. Just as an example, when Magna builds a factory in the United States, the approval process can take as little as four weeks. Here in Canada, it often takes two years. In the United States, governments are more responsive to eliminating red tape, thereby reducing the cost of doing business. But in Canada, governments can stifle business with regulations and studies and delays. I often say that in the United States, when a new business comes to town they roll out the red carpet; in Canada, they roll out the red tape.
It is utterly inconceivable, in a country which has double-digit unemployment, in a country where businesses are closing down and leaving, that our various levels of government are not doing more to remove obstructions which prevent the private sector from creating jobs. Of course care and consideration must be given to matters such as the environment. But our governments need to realize how vitally important private enterprise is to the functioning of society.
Minimum Social Standards
I believe it is the duty of every democracy to reaffirm the minimum standards of a civilized society. In a civilized society, every citizen should have access to health care, food and shelter. There is a major difference between a country which provides social programmes for those in need and a country where the state controls the economy and regulates the lives of its citizens.
But we in Canada must re-examine our social programmes in order to make them more efficient. If you have the means to pay for services such as education and health, then you should pay your fair share. In other words, universality as we know it in Canada no longer works.
Where Does Canada Go From Here?
Now that I have outlined some of this country's major structural problems, the question naturally arises: Where do we go from here?
In my opinion Canada has a window of five or maybe seven years to correct these major problems, because if we do not fix the problems, this country will inevitably go bankrupt. These are the laws of economics, and they are stronger than any politician or Parliament.
Unless we begin to address the fundamental structural flaws I have highlighted, then it is inevitable that we will experience increased social problems. Crime will rise dramatically and poverty will spread. That is why I am so deeply concerned about the state of our country today. I do not want to paint an overly-pessimistic picture. If anything, I perhaps have not stressed enough what I believe is the real gravity and urgency of the situation.
Conclusion--Ensuring Canada's Prosperity
But if Canada enacted changes of the sort I have mentioned; if we revamp our education system and depoliticize our Parliament; if we cut the fat out of government and establish a fair and clear-cut tax system; then we could transform from a country burdened by excessive government and bureaucracy into one of the most progressive and prosperous countries in the world. Money and capital would begin flowing back into this country instead of flowing out. By tackling some of the problems I have outlined, the country could become more efficient and productive, and the national debt could be eliminated in a relatively short period of time. We would develop a sound economic environment that would allow us to take care of all those who, for one reason or another, cannot take care of themselves.
In short, we need to move away from the priorities of politics and toward the reality of global economics. Therein lies the promise of prosperity.
Appeal To The People Of Canada
I urge everyone--all Canadian citizens--to work at reinforcing the economic fabric of our country. Because that fabric is unravelling at a pace much quicker than many people realize. And it would be a shame to watch this great country slide into poverty without fighting to save it.
I still have hope. There is still time to change our course of action. I often get criticized for being outspoken. But I love this country, and I would be remiss if I did not stand up and speak out for what I think needs to be done. Thank you very much.
The appreciation of the meeting was expressed by Tom Wells, President, T. L. W. Consulting and a Director, The Empire Club of Canada.