FEBRUARY 5, 1976
Alternatives for a Free Society
AN ADDRESS BY Donald K. McIvor,
EXECUTIVE VICE-PRESIDENT AND DIRECTOR, IMPERIAL OIL LIMITED
CHAIRMAN The President,
H. Allan Leal, Q.C.
Ladies and gentlemen: We bid you a cordial welcome to this luncheon meeting of The Empire Club of Canada. Our head table guests today are recruited from the index of Peter Newman's book on the corporate establishment, either the first one or the next one.
If one can judge from the nature and number of recent public statements by the prominent leaders of our business community, one would have to say that the gauntlet has been taken up and the issues joined in a quite remarkable way. I am already on record with this club in stating my view that we in this country, though obviously beset and influenced by world problems beyond our immediate and direct control, are not shackled by any economic determinism or social imperative nor held in thrall by any alien political idealogy. If this is not scientifically true, it ought to be.
But, because we are still free in relative terms, there are important choices to be made. I am sure that we are all encouraged by the fact that these serious matters are now the subject of serious debate, a debate refreshingly devoid of our accustomed cliches, ipse dixits, and shorn of the preoccupation with the naked fact of growth and without sufficient attention being devoted to the quality of that growth.
Our distinguished visitor and speaker today is here to enlarge on this theme, the "Alternatives for a Free Society", and we feel privileged to provide a forum for this continuing debate.
Donald McIvor was born and educated as a geologist in Manitoba, but in age and experience in the Canadian national scene he is typical of the present generation of decision makers. He joined Imperial Oil Limited immediately on graduation, as a geophysical trainee on a seismic crew in northern Alberta, and since then he has served that company in its exploration role in the field and in an executive capacity in Alberta, Saskatchewan, Angola, France and with the Jersey Production Research Company at Tulsa, Oklahoma.
Between 1968 and 1970 he was assistant manager and then manager of the Co-ordination and Economics Department at Imperial Oil headquarters in Toronto. He became exploration manager in 1970, senior vice-president and director in 1973, and was appointed executive vicepresident and director in 1975, the position he now holds.
We welcome Mr. McIvor here today and I now invite him to address you.
Mr. President, ladies and gentlemen: I've had my attention strongly captured by listening to and reading our Prime Minister's two recent addresses to the nation. He opened up a vastly important subject: the economic future of our nation. It is important to me, my family, my company's employees and their families, and to all Canadians.
Several people have condemned Pierre Trudeau's statements out of hand. I don't think this is warranted. Whether he meant to or not, he has initiated widespread discussion on a topic we should be discussing anyway: what sort of nation do we want to become and what do we do to become such a nation?
This is the topic I'd like to pursue today in a genuine spirit of enquiry. Just what choices do we have, in Trudeau's words, ". . . as a free people responsible for our own destiny and capable of shaping our own future"?
Richard Brinsley Sheridan was a parliamentarian as well as a playwright, and he said of an opponent's speech that it contained ". . . much that is new and much that is true. Unfortunately, that which is true is not new. And that which is new is not true." There's some flavour of this in the Prime Minister's addresses.
For instance, it is certainly true that we do not have a completely free market system in Canada, but that's hardly news to me. On the other hand, the implication that our mixed economy isn't working is news to me, but I don't believe it.
It has been said many times already that the two addresses are not crystal clear in their meaning and therefore subject to considerable interpretation. I concur and can base my comments only upon my own interpretation. But the subject is so critical to our future that there should be a minimum of ambiguities and misunderstanding. Therefore let me add my voice to those of others and ask that our first minister continue to attempt to clarify for us his thoughts in regard to our economic future. This is a reasonable request, particularly if our Prime Minister's intent is to alter significantly our economic system, as he implied it might be.
Now a word about terms and definitions.
Much of the current controversy is due, in my mind, to the fact that many of the participants haven't defined their terms with enough precision to be understood. Voltaire said, "If you will converse with me, define your terms." I hope I can do so without sounding too much like an economic textbook.
When I use the phrase "free market system", I'm talking about a hypothetical economic system where all activity and decision making in the marketplace is left entirely to free enterprise. Many sellers and many buyers interact, for example, on the basis of price, quality, and service. The collective sum of individual decisions shapes the market. Adam Smith's "invisible hand" (i.e. competition) is the sole controlling factor.
Our Prime Minister is correct when he says we've never had such a system in Canada. I would go further and say that no such system has ever existed, arid I have no desire to see such a system in Canada. Any country has a clear need for regulatory frameworks to protect the interests of all citizens.
At the other end of the spectrum, there is total state control of all commercial activity, with no private sector and no private enterprise. The U.S.S.R. provides the most obvious example. It goes by a number of labels, and you can choose your own. There are differences among nations with complete state control, but these differences pale beside their great similarity, which is disregard for an individual's freedom, particularly in an economic sense.
What I call the mixed economy lies somewhere within the spectrum bounded by those extremes. This is what we have in Canada and in many other countries--a blend of private enterprise and state participation and regulation. In Canada, co-operation between private enterprise and the state was born of necessity. It was the most practical way that our young nation could work toward its aspirations of developing its resources for the benefit of its citizens, while at the same time ensuring the freedoms we have come to take for granted.
Within a century, this has brought us, against severe odds, one of the world's highest standards of living.
Discussions of this type have centred around the question of what proportion of private and public sector involvement will optimize the achievement of our national goals? You've heard the arguments. Spokesmen for the private sector, and others, have taken the view that the pendulum has swung too far toward state involvement, and that this has damaged our economic performance and thus the well-being of our citizens. Critics of private enterprise have felt that more state involvement is required. But collectively, we've continued to opt for a mixed economy in which the private sector has a very strong role.
All right. I've defined my terms. Now let us turn to what the Prime Minister has said. I am going to concentrate mainly on his speech of January 19, 1976, since I understand this to be the attempt at clarification of what he said in an interview of December 28, 1975.
I agree with him when he says: "The most pressing reality is inflation." Let me develop my views on this. Excessive inflation is extremely serious. One has only to read William Rees-Mogg's The Reigning Error to understand the social chaos that attends unchecked currency inflation. However, I do not think its existence in Canada signals the failure of our economic system. Let us ask ourselves why we have a serious inflation problem. I think there are two reasons.
First, there have been unavoidable external stresses placed on our system. The skyrocketing OPEC oil price is a good example, but not the only one. Second, we have ourselves placed very strong internal pressures on our system, mainly in the form of an overheated public sector. A great deal has been said by others about excessive government spending and excessive increases to the money supply, to the point that comment from me is not required. Economists of all persuasions seem to agree on this. But I must take note of the strong inflationary pressures triggered by recordbreaking and trend-setting wage settlements in the public sector. This area of government spending, public-sector wage settlements, is one where I would hope that governments at all levels will reveal their plans much more completely than they have to date. A strong resolve on the part of government here would do wonders for public confidence. One might note that Ontario seems to be developing this resolve.
To summarize, we can't do much to combat external causes of inflation. But we can be very strong and very positive in the areas where we're bringing inflation upon ourselves, and I for one would welcome a more demonstrated resolve on the part of governments to restrain themselves.
I turn now to my major point of departure from the Prime Minister's thinking. In his January 19 speech, he said, ". . . we haven't been able to make even a modified free market system work in Canada ..." And in his December 28 interview, he said, speaking about price and income controls, that ". . . it's a massive intervention into the decision-making power of the economic groups, and it's telling Canadians we haven't been able to make it work, the free enterprise system." And further he says that our mixed economy "... has served us very well in the past ..." but is no longer serving us adequately. He says the issue is whether or not we are prepared to adjust the system through changes in legislation, institutions and attitudes. He offers us a choice as follows, and this is a direct quote from his speech to the Ottawa Canadian Club on January 19, 1976: "The choice is there. The people do it by changing their values . . . their behaviour, or the government comes in with new regulations. No mystery. It has to be done."
Now this is an idea to which I take extremely strong exception, and I am not surprised that other Canadians do also. To me, this is the very nub of the current controversy. I resent strongly being told that I must change my values, or else. I had thought, mistakenly perhaps, that in our free society we had the opportunity to examine alternatives and then to choose among them. I was not aware that I must change my values to fit some prescribed pattern, or else.
I find these views in sharp contrast to those presented in Winnipeg last week by the chairman of the Economic Council of Canada, Andre Raynauld. Mr. Raynauld said we could choose between two alternatives: opting for rapid growth, with the concomitant necessity of working harder and more efficiently; or slower growth, with the concomitant acceptance of consuming less, spending less, and practising moderation, restraint, and frugality. That choice I can accept, but I can't accept being told to change my values or else. It erodes my freedom to a degree well beyond what I expect and respect in this country.
I'd like to say that, even though I take particularly strong exception to that statement by the Prime Minister, I do find much in his addresses that I agree to. I hope I'm not taking the following examples out of context:
"The preservation and strengthening of the free-market sector of our economy is absolutely central to the liberal view of the Canada of the future."
"We have a mixed economy that, in the way that it has evolved, has served us very well in the past, and is uniquely suited to Canadian beliefs and values."
"The size of governments at all levels, and the impact of their size upon national productivity, cannot escape the spotlight of re-examination . . . I see no intrinsic reason why governments should stay forever in the business of providing some services which could be provided by the private sector."
"The issue before us is to what extent we will be controlled by government regulation and to what extent we will be controlled by our own sense of responsibility. I think we favour as little of the former and as much of the latter as is humanly possible."
"We have the opportunity to enjoy the most valuable gift of a free society, the right to make our own choices about our own future."
Very good, but considerably in conflict with his statement that we must change our values or else 4i-ey'll be changed for us.
So, I find in the Prime Minister's addresses an idea to which I am strongly opposed, and some ideas I can readily identify with. And I find some of his ideas in contradiction with one another. This is really my basic problem: which of the contradictory statements should I believe?
He has asked us to come forward with our ideas as to how we can optimize our social and economic future, and I'd like to give you mine.
The most basic contribution I can offer is that, while wealth does not guarantee freedom, it certainly provides the opportunity for it, both in a national and individual sense. Said another way, wealth responsibly managed is the basis of our national and individual freedom. The wealthy and socially responsible country enjoys a degree of freedom proportionate to its wealth. It can afford to confer a wide variety of benefits upon its citizens. If its wealth is diminished, so is its freedom of choice. A country cannot redistribute wealth it does not have. It can, of course, resort to printing some money, but we in Canada have had about as much of this as we can stand.
When the services provided by government proliferate beyond its ability to pay for them, then someone must decide which will have priority. Thus our current debate should focus on two subjects: how much wealth can we generate, and what are our priorities for using it?
It is a very unfortunate fact that we have seen fit to erode our capacity to generate new wealth. From 1965 to 1975, our GNP grew at an average rate of 10.9%. Corporate profits, or new wealth generated, grew at the same rate. Labour income grew at 11.9°/0, a full percentage point ahead of GNP. And total government spending grew at an average annual rate of 14.9%, a full four percentage points ahead of GNP or profits.
If this trend continues, the result is inevitable. We have already reached the point where we can't pay for all our wants. If we continue to widen the gap between our spending and our ability to generate new wealth, then we will have economic collapse. Profits are the primary source, the basic seed-corn if you like, of future wealth. If they continue to lag behind other sectors, then there must be less capital investment, less economic output, less employment, and a decreased ability to fund social programs. I cannot persuade myself that these trends represent the society we want. Surely we want to generate enough new wealth to give us the individual and national freedom of choice this confers upon us.
We cannot have this freedom if we adopt a program of economic retrenchment. There is no question that our population is going to increase. Thus, if we want to stay as individually wealthy as we are now, we must increase our real economic output. A good example of the conflict between the economic retrenchment and economic growth philosophies can be found in the Prime Minister's comments on our energy outlook. He stressed that we should avoid wastage and reduce consumption. I agree that conservation and careful stewardship of our energy resources should be prominent characteristics of our society. Coming from a Scottish-Presbyterian background, I have always considered the conservation ethic to be an important and respectable concept.
But to be at all realistic we must realize that even the most stringent conservation measures have their limitations. Let me give you an example. Since 1960, Ontario's energy demand has grown at just over five percent a year. It has been estimated that during the next fifteen years the province can, with some conservation, maintain economic growth at close to historic rates with an annual increase in energy demand of 4%2%. Stringent conservation measures and government demand-reducing programs could reduce the annual growth rate to 3% but this lower level would result in lower than historic rates of economic growth. Economize and conserve how we will, we are still going to be needing more energy.
A positive attitude to our energy problems would be to adopt the conservation ethic but, in addition, to make a determined effort to develop new domestic sources of supply. We in the energy industry have emphasized time and time again the national benefits of such a development program: reduced balance-of-payments deficits, the multiplier effect on the Canadian economy with its wealth-generating potential, and security of supply.
We are going to have to work very hard to maintain our living standards. The energy situation dramatizes the fact that we can't have everything, and in particular that we can't have everything now. We are likely to find ourselves in a "trade-off" economy rather than an "everything goes" economy such as we've had.
Should we radically change our economic system to carry us through this period? Are we looking at the demise of our economic system as we know it?
My own opinion is that we will have to change significantly. We will not be able to confer all benefits on all people as we've been trying to do. We will have to place more emphasis on investing for tomorrow rather than consuming today. In a "trade-off economy", I expect we will find that more market system discipline allows the greatest individual freedom. If steak is $5.00 a pound and gasoline is $1.00 a gallon, you may want to fill your tank and I may want a steak dinner. But free choice may be much more acceptable than arbitrary requirement to take one but not the other.
The issue that has been put before us is what sort of nation do we want to be and what must we do to become such a nation?
My own choice would be to opt to generate enough wealth to have at least as much national and individual freedom as we have today. To opt for less would entail a conscious decision to accept less economic freedom. I, for one, am not ready to accept this.
I've already revealed my thoughts, but to repeat them: we must strengthen our wealth-generating capabilities and cease to erode them as we have been doing; we must relearn the philosophy of investment for tomorrow rather than consumption for today; we must reacquaint ourselves with the idea of trade-offs (i.e. that we can't afford everything, so we must choose among the things we want).
I doubt that we will radically change our economic system to accomplish this. Canadians are unlikely to accept a large shift toward state economic control, because of the loss of individual freedom entailed and because they will understand that such a shift would not provide the desired degree of wealth-generation. I do think that the investment-for-tomorrow theme and the idea of trade-offs are well within the bounds of Canadian attitudes.
The economic system that has brought us to our current high standard of living is imperfect like all human institutions. Perhaps we should view it as Winston Churchill viewed democracy: that is, as the worst of all systems excepting all the others that have been tried.
Our distinguished visitor and speaker was thanked by Mr. Peter Hermant, Second Vice-President of The Empire Club of Canada.