LEVIATHAN OR POST-WAR TRENDS IN GOVERNMENT AND BUSINESS
AN ADDRESS BY W. F. LOUGHEED, B.A., M.A., ECONOMIST
Chairman: The President, Mr. Tracy E. Lloyd
Thursday, October 23, 1947
From week to week the Empire Club welcomes to its meetings many eminent speakers from other lands and other distant parts of our Dominion, but today it is my privilege and pleasure to introduce to you as our Guest of Honour and Speaker, one born in Toronto, who received his education at the well-known University of Toronto Schools, McMaster University and the University of Chicago.
Our speaker was instructor in Economics at Wayne University, Detroit, and later at Dalhousie University and the University of Manitoba, as professor of Commerce and head of the Faculty of Commerce at that university.
During the period 1940-1944 he was with the Economics Division of the Wartime Prices and Trade Board and also advisor on industrial relations to the Provincial Government of Manitoba.
Our speaker joined the Canadian Bank of Commerce a few years ago as economist and has become widely known in this field, having written several books on Labour-Government Management Relations and Provincial Finance.
It gives me a great deal of pleasure to introduce to you Mr. W. F. Lougheed, M.A., who will address us on the subject. PostWar Trends in Government and Business, Mr. Lougheed
Mr. President and Gentlemen
I am honoured indeed by your invitation to address you today. If a confession may be permitted, it is that I accepted your gracious invitation with some mixed feelings. For popular consumption it has been said that economists are people who revel in a dismal and dark field of study, and who periodically come forward with gloomy observations. Also, it often is told, with unseemly relish, that when three people, one of whom is an economist, get together for a discussion, you may expect four opinions the economist being responsible for two of them. At this particular stage of our efforts to shift from a war-time to a peace-time footing, I felt that I might not do very much to dispel these popular conceptions. On the other hand, because of the confused and disturbed state in which we now find ourselves, I felt that I might be of some service to you in presenting what to me appear to be one of two current political-economic conflicts-conflicts which must be resolved before we are to achieve the peace and prosperity so confidently referred to during the latter years of war, and so wistfully considered at the present time.
Welfare, past and present, has produced many unexpected repercussions and ironical results. What now is becoming clearer and clearer, despite popular observation-or perhaps wishful thinking-is that our economy is not like a coin, labelled on the one side WAR, and on the other side PEACE, and freely negotiable regardless of the face uppermost. Warfare, as witnessed in 1914 and again in 1939, has had the effect of altering, distorting, often changing, the direction of political and economic activity of societies--even societies in remote contact with the battlefields. The war of 1939 served to speed up .the inevitable clash of ideals and beliefs which the popular press has tended to label "socialism" and "free enterprise". In the time available to me I plan to consider briefly certain trends in ideas and in governmental activities that have had much to do with the shaping of our existing economic fabric, and undoubtedly will influence the pattern of things to come.
In dealing with the relations of government to business it is possible to set two limits to the social spectrum--from no government to no business. Between the limits I have set out there may be grouped various forms of government, emphasizing the role played. In simplest comparative terms we might have governments designed to protect private property, governments who regulate in the national interest, and governments who control and direct productive property.
Today we are in the midst of controversy dealing, in effect, with the role of government. Instead of considering such obvious questions as, "How effective are the different types of governmental intervention?" or "Why does the government interfere with business?", the controversy usually takes a moralizing form: "Can profitmakers be trusted ?" or "Should government be allowed to ruin private initiative?", and so on. As a consequence, the participants engage in, and the public hears, little debate of the vital issues. In its place there is, on the one side a thoroughgoing denunciation of all governmental activity, and on the other utter condemnation of business enterprise of any kind. The clash of beliefs is summed up in the rival stereotypes of "socialism" and "free enterprise". Attachment to these ideologies has made their adherents increasingly intolerant of discussion, and as unquestioning in their respective faiths as if these were religious creeds. To the exponents of free enterprise everv suggestion of governmental regulation appears as another step in the direction of regimentation, bureaucracy, and the imposition of bondage on free men. To the advocates of socialism everything connected with business activity displays the taint of profits, exploitation of the masses, and a preparation for fascism. On the face of it, of course since the existing order is said to be primarily "capitalist" the defenders of this supposed system are in an exceptionally strong position: every alteration can easily be pictured as destructive of the foundations of society. At the same time, however, the evident economic difficulties and perplexities facing mankind provide the critics of the prevailing system with ample opportunity for presenting their utopian dreams of a new and better order of things.
Complete "free enterprise" as a principle of our society is as much a myth as "socialism" is a dream, and those who seek to tackle practical problems by reference to these stereotypes are repeating slogans which have no real meaning today. Socialism, as advocated by its prophets, is a body of vague and hypothetical beliefs about a "good society" that never existed, and about which we can therefore imagine what we please so long as it is different from the present. Free enterprise is as fictional a principle of modern capitalism as socialism is of its alternatives. Business enterprise has never been "free"; it has always been controlled by innumerable customs, laws, and institutional forms. Today most observers consider that business is less free than ever. Indeed, the very use of the appeal to freedom is misleading, for both sides use it for different purposes. The free enterpriser stresses freedom for business men; the socialist demands freedom from the business man.
Canada and the United States emerged from the war in a relatively unique position. Canada achieved an industrial evolution; the industrial capacity of the United States was greatly expanded. The effective change-over from a peace-time to a war-time economy owes much of its success, in both countries, to governmental direction and supervision. In short, the governments of both countries followed an established, democratic function of government, namely the protection of the state from invasion. But with the termination of hostilities there still is left for decision the question as to the functions and limits of government. It has been said that the United States and Canada now remain the two practising democracies in a disturbed and disillusioned world-150 odd million in a population of two billion, dedicated to the proposition that governments are for the people and not the converse. Amongst the nations and societies surrounding the North American continent there are varying degrees of state control; likewise as between the United States and Canada there are differences in the relations of the government vis a vis the people. Two questions of importance face people at the present time.
As I have said, business today is not free in the strict sense of the term. Assuming that certain areas of control are necessary, is there any logical method for demarcating the areas within which government and business can expect to function for some time to come? Secondly, is it possible to limit controls or are controls self-propagating, embracing more and more activity, like the ever-widening ripples when a stone is thrown into a pond? These two questions serve to crystallize much of the current discussion.
Now I should like to turn back the pages of history for a few moments in order to recall certain trends that appear important to an understanding of the role of government. Five periods may be selected for examination
(1) the mercantilist period in England;
(2) the rise of laissez-faire;
(3) the humanitarian development;
(4) the world war and its aftermath;
(5) the age of total war.
A good starting place is the mercantilist period, at its peak during the 18th century. Mercantilism ushered in what might be referred to as the prelude to modern planning. It must be remembered that England was moving out of the localized type of town economy into a national economy. So also in Europe, sovereign ambition centred on political unification in the hope of power and splendour. The aim of planning was national aggrandizement. Time does not permit of the survey of the rules and regulations passed during this period, from wage and price control to import and export restrictions. If a careful cataloguing were possible it would be safe to say that consolidations of our rules and regulations imposed during the last war would be small in number relative to this period.
Just as rules and regulations of today invite black-marketing and other infractions, so historically, as the regulations became onerous they were circumvented. One historian summed up the situation to the effect that "private disregard of merchant list regulations became a mass phenomena." In effect, laissez-faire was practised to a wide degree before it was preached as a formal doctrine. Adam Smith, by formulating in the "Wealth of Nations" the argument of individualism with the authority of a moral philosopher, offered justification for acts that were being performed in bad conscience.
For a number of years after Adam Smith--on into the 19th century in fact--the limited role of government may be noted. While the limits were not as rigorous as Adam Smith suggested, namely protection from invasion, policing powers for the protection of persons and property, and the construction of certain useful public works, certainly tariff and navigation policies were of the most liberal sort.
Towards the latter part of the 19th century certain conflicts emerged, namely, individualism with its expediency on the one hand, and humanitarianism with its control on the other. The changes which occurred through industrialization and the factory system created many social disturbances. In the field of labour, two movements initiated what grew to be a wide body of rules and regulations, namely, factory regulation and the administration of the poor law. These regulations were followed by others in many fields of activity, including communications and transportation.
Now I turn to the new world--North America. Before considering certain noteworthy trends in this area I should like to make one or two parenthetic remarks about the rise of individualism-of laissez-faire. Too little attention in the past has been paid to what might be called non-economic sources of freedom of enterprise. It will be recalled that in the latter part of the 18th, and during the 19th centuries, there developed a strong nonconformist movement, which movement "spilled over" to the new world. Insistence by the entrepreneurial group on removal of restraints to trade is analagous to insistence by Protestant groups on removal of all restraints by the church. A moment's reflection will suggest the inherent individualism in doctrine, outlook, and influence in our Protestant religious organizations. The longer-run influence of the church on business forms and institutions should not be overlooked, nor should the impact of economic change on established forms of religion.
It is reasonable to expect that people moving from an area of established institutions to one where economic and social patterns must of necessity be created, would bring with them many of the ideas and patterns of the society that they gave up. Because our ancestors were motivated by the spirit of freedom-perhaps the Atlantic Charter could be called a rededication of their aims and objectives--it appears in retrospect only natural that the kernel of our society would be individualistic.
The war of 1914-1918 for Canada brought to light a function of government that was little practiced--the direction of war activities. Following the war there was a tendency to return to pre-1914 patterns of behaviour. But the depression of the thirties brought with it more governmental activity, and the second world war saw the emergence of wider domination by government of the ordinary affairs of individual citizens than was heretofore conceived of by people brought up in the tradition and climate of freedom.
Our concepts of relations of the individual to the state are undergoing profound change. Here I should like to mention briefly two considerations-paradoxical in essence -that are influencing the pattern of thought.
It may be said that we operate under a constitutional system of government. Civil liberties result from a constitutional framework, in part at least designed to protect individual rights. Preservation of freedom within definable and understandable limits distinguishes our form of government from other arbitrary forms regardless of their designation. Here the question of emergency powers enters the picture. The very fact that these powers are related to what are termed "emergencies" implies that they do not come within the provisions of a constitutional system. In the climate of world affairs in which we now find ourselves some of our liberties may be at stake. Unfortunately the pages of history abound with cases where temporary expedients have become patterns of activity.
The fact that we are thrust into an international area to afar greater extent than ever before calls attention to the observations of de Tocqueville in his study "Democracy in America". Here he points out that "it is especially in the conduct of their foreign relations that democracies appear to me decidedly inferior to other governments . . . Foreign politics demand scarcely any of these qualities which are peculiar to a democracy; they require, on the contrary, the perfect use of almost all those in which it is deficient."
This brings me to what I believe to be a significant point in my dissertation. Recognizing the complexity of forces and factors that make up a modern industrial economy, particularly one engaged in world trade, are we sufficiently informed as to the scope and limits of state planning and the variety of agencies and techniques from which to choose? Nor is this the limit of the problem, f or we must be sure that we are all agreed as to the relation of government to the individual.
Almost three centuries ago a book entitled "Leviathan" was written by Hobbes. From his works, together with the writings of Locke and Rousseau, a great influence was generated from which our modern form of government was developed. I believe I summarize the position of
Hobbes when I say that he supported absolute government. To paraphrase Hobbes, the people must create a sovereign power: Leviathan, which once created acquires all power. In other terms, once this type of sovereign power is achieved those who made it lose all power. On the assumption of surrender of tills to the will of Leviathan, two or three theorems may be developed
1. The sovereign is supreme legislator and may make or alter laws.
2. The sovereign cannot be said to injure his subjects, for each of them is the author of all the actions of the sovereign.
3. The sovereign is the agent for the purpose of directing the united strength for the common benefit; but the sovereign is an agent of unlimited discretion, and with authority that cannot be revoked.
4. Any subject who dissents from the institution of sovereignty thereby ceases to be a member of the community and can be disposed of summarily.
The question I pose, and leave with you, is whether we, as individuals, are surrendering bit by bit our powers as such, to the end that some time in the future we shall have created a 20th century Leviathan based on a 17th century model.
The position of Canada today, faced on the one hand with programs designed to maintain a buoyant domestic economy, and on the other with the need to trade in order to stabilize a high standard of living, invites a great deal more thought than is presently indicated. So far there are evidences which tend to encourage optimism centering on the fact that group interests have not become solidified.
There is still a division on the key issues that affect the free market, such as price controls, rationing, industry-wide collective bargaining, and the like. Here I should like to suggest a caveat. To fail to note a fundamental inconsistency in the application :of restrictive measures to a free market, in the name of preservation of that free market, is to invite the ultimate emergence of an economic "iron lung" type of economy fed by governmental oxygen.
It is a matter of considerable concern to witness such a clash of interests as we do today. Objectively speaking, our economic accomplishments have been prodigious in terms of our population and resources. Many nations of the world now are depending upon Canada and the United States for practical aid. Who would imagine that in the light of our war effort and our assistance to Europe we could be impelled to abandon the basic conditions which made these contributions possible, and to copy the pathetic example of countries whose programs and five year plans are a pale and drab counterpart of North American efforts?
Possibly international chaos requires temporary control of our economy. If this seems reasonable, then let us underline the word temporary. This means that, as a long-run objective, we can -raise our sights and work for a liberal form of political economy.
As a confession of faith then, I suggest that orderly progress is not likely to emerge through novel schemes, nor from political opportunism. We have developed principles of policy and a constitutional framework that have long been subject to reflection and disinterested study. In fact our background of knowledge contains much useful wisdom and many errors have been recorded. I find it difficult to support the ad hoc approach, for shortcomings in programs and schemes have not been revealed.
In the final analysis there are really only two types of organization, economically speaking: the totalitarian and the liberal. One suggests control of markets, consumption, production, and capital; the other suggests relatively free trade, free movement of private capital, and individual liberty. In supporting the liberal position one may be accused of being a visionary. But so is a durable and lasting peace visionary. In short, I believe that peace will be maintained or will disintegrate on the issue of freedom of trade and all that it stands for. The good future of the world is the good future of small nations.