Inside the Common Market
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The Empire Club of Canada Addresses (Toronto, Canada), 16 Nov 1961, p. 56-68
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MacDonald, Dean H.I., Speaker
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Text
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Speeches
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What is going on inside the Common Market itself. European attitudes to the world economy, the underlying philosophy of the Common Market's institutions and the Common market's hopes and aspirations. Bringing something of the European message to Canadian ears. Two goals of the speaker: to describe some of the highlights; to outline his conclusions on appropriate policy for Canada. An examination and discussion of the Common Market follows. Some topics addressed include measurement of economic growth; membership in the Common Market; the spirit of economic planning and co-operation that has contributed as much to the success of France and Germany as its absence has retarded Belgium; how Canada could profit from an examination of the philosophy applying both to labour and to business in the European Common Market; the business policy of maximum competition and freedom for business initiative and enterprise. A suggestion of the policy that Canada should assume. The possibility of Britain joining the Common Market. Our "strategy of opposition." The issue of Commonwealth Preferences. Three matters on which to reflect with regard to Britain in the Common Market. Canada's major error so far. A positive policy of attempting to secure a place at the bargaining table in the negotiations that will determine the future of the Commonwealth and the Common market. Canada as a leader in bringing the Commonwealth into an association with the Common Market. Seeking guidance and leadership from business and government.
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16 Nov 1961
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English
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The speeches are free of charge but please note that the Empire Club of Canada retains copyright. Neither the speeches themselves nor any part of their content may be used for any purpose other than personal interest or research without the explicit permission of the Empire Club of Canada.
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Full Text
INSIDE THE COMMON MARKET
An Address by DEAN H. I. MacDONALD University College
Thursday, November 16, 1961
CHAIRMAN: The President, Dr. Z. S. Phimister.

DR. PHIMISTER: It is not often that we welcome to the speaker's rostrum of The Empire Club a man so mature and experienced and yet so young in years as our speaker today.

Dean MacDonald joined the Department of Political Economy of the University of Toronto in September, 1955, to lecture in Economics and, in July, 1956, was appointed Dean of Men at University College, in succession to Dr. C. T. Bissell. At twenty-six, Dean MacDonald became the youngest Dean in the history of University College. Dean MacDonald's scholastic career indicates that he would be classified, in present day schools, as a gifted student. He entered University College with two scholarships, headed his course every year with First Class Honours and won ten additional awards. He was awarded the Governor-General's Medal for the best degree in the Faculty of Arts and the Cody Trophy for the man contributing most to the athletic life of University College.

In 1952, Dean MacDonald went to Oxford as a Rhodes Scholar. At Oxford he obatined his Bachelor of Philosophy in Economics and as well he was Captain of the Oxford Ice Hockey Team.

Dean MacDonald is currently writing a study of Foreign Investment in Canada Since 1926, and his writings have appeared in a number of national and international journals. During this past summer, Dean MacDonald visited several of the countries in the European Common Market to survey the developments in that area for the Argus Corporation. At this time, when the Common Market is a matter of concern to the Commonwealth and apparently a source of irritation between the United Kingdom and Canada, we are very pleased to have Dean MacDonald come to talk to us on the subject, "Inside the Common Market".

DEAN MacDONALD: I have entitled my remarks today, "Inside the Common Market", not to parody Mr. Gunther, nor I might add to speak at equal length, but rather because I have seen little evidence in Canada to suggest that we have devoted much attention to what is going on inside the Common Market itself. I am thinking in terms of European attitudes to the world economy, the underlying philosophy of the Common Market's institutions and the Common Market's hopes and aspirations. It is not sufficient to regard these striking developments through Canadian eyes, focussed merely on our immediate self-interest. I would hope, at least, that I might bring something of the European message to Canadian ears.

In this brief address, I cannot provide a thorough commentary on subjects as diverse as the rate of economic growth in France and Germany, and the contentious matter of Britain's application to join the European Common Market. I merely have two goals: first, to describe some of the highlights; second, to outline my conclusions on appropriate policy for Canada. In this, I am relying not only on my own considerable studies of these questions, but also on the authority of what I have heard from a number of Europeans in high places of policy-making and administration.

Throughout the countries of the Common Market, with the exception of Belgium, there is an unmistakable sense of buoyancy. This, of course, can be readily measured by the rate of economic growth which has been averaging 5-7% in recent years. What is more significant, however, is the existence of an attitude and state of mind that is vitally concerned with economic progress. There can be no doubt that it is this flavour of life that Britain hopes to import by a new association with Europe. The knife of European competition has a keen cutting edge and should be a welcome surgical instrument when applied to the ailing British economy. This attitude is displayed in a most exciting fashion by what has happened to the economy of France. After years of slow movement and sluggish indifference, France suddenly caught fire under the heat of economic competition with the realization that it could be an economic force commanding respect. This, to my mind, is an event rivalling the success of the Common Market itself for top place among the postwar achievements of Western Europe.

The facts of economic growth are clear by any terms of measurement. Industrial production increased by 12% in 1960, while trade within the Six increased by 25% in 1960 over 1959. Now the interesting speculation is whether this remarkable prosperity can be regarded as a result of the Common Market, or whether the Common Market has proved successful simply because it was adopted to healthy economic conditions. Whereas it is apparent that the relationship between economic growth and the Common Market is now a reciprocal process, on balance I believe that the initial success of the Common Market can be attributed largely to the economic conditions which it inherited. Certainly, France would have been reluctant to accept the tariff cuts without the assurance of a booming economy; in fact, France has actually taken the initiative in recommending a speed-up of tariff reductions.

That membership in the Common Market is no necessary guarantee of prosperity is clearly illustrated by the case of Belgium. Since the beginning of the Common Market in 1957, Belgian conditions have been relatively depressed. The reasons are purely internal: the Belgian coal mines, which are central to economic activity, badly need modernization; there have been serious labour problems and unstable government until very recently; exports have grown at a markedly slow pace. The Common Market, then, is not a cure for all economic ills, nor are its blessings evenly distributed throughout the member countries. Actually, the great test is yet to be faced-whether the institutions of the Common Market can bolster the lagging nations while, at the same time, prevent any one nation, Germany in particular, from becoming too powerful.

A more immediate question is whether the overall rate of growth in the Six will continue. In both Germany and France, I discovered some pessimism, last August, that the boom would level off, while inflationary pressures would mount. On the other hand, there was equal optimism that any setback would be temporary, since there was still such great potential for economic growth. Now the timing of this process is crucial for the present negotiations which are underway with Britain. If there should be a slowing down and levelling off in economic prosperity at this time of complicated negotiations, it might deter the Common Market from offering arrangements such as tariff-free quotas on imports to accommodate Britain and the Commonwealth. However, I am persuaded by the bright side of the problem, which is simply this: any setback in economic growth will be short-lived, while the negotiations will be long and complex. Therefore I am confident that arrangements can and will be made that will, in effect, preserve the bonds of the Commonwealth.

There is another feature of economic life in most of the Common Market countries which has greatly facilitated the application of its institutions, and which, I believe, should be of special interest to Canadians. I refer to the spirit of economic planning and co-operation that has contributed as much to the success of France and Germany as its absence has retarded Belgium. In fact, these economic successes did not just happen; rather, they were the result of a conscious act of will based on a desire and necessity to succeed. Co-operation in the national interest is particularly apparent in the case of organized labour, a remarkable event to the Canadian viewer. In both Germany and France, labour has willingly submitted to restrictions upon itself in the belief that the proper goal was to achieve. higher productivity as a contribution to the economic betterment of the whole community.

This spirit of planning hovers over the whole of Western Europe; the Europeans merely take it for granted. Nor does it imply some fundamental antithesis between socialism and free enterprise. Rather, it means the creation of a climate wherein there is "a planned system of free competition" in the words of Robert Marjolin, so that cooperation is directed to the greater success of the private sector of the economy. Useful planning does not mean government direction: it simply means that the steel industry can profit greatly from knowing the intentions of the automobile industry and other sectors of the economy. The key to such planning is to have machinery for consultation between business, labour and government. In Canada, one has the impression of each group striking off in its own direction, without necessarily consulting the national interest. In Europe there is continuing consultation and awareness that each group depends upon the cooperation of the other for ultimate strength. Of course, there are disputes and strong feelings, but there is also agreement that co-operation is to be preferred to conflict in the long run. In Canada, I suspect that we suffer from our proximity to the United States in this matter, particularly where labour organization is concerned. In addition, I fear we still possess a state of mind in which business is traditionally suspicious of government.

However, it is equally clear that there is no one form of of planning or co-operation; in fact, the system must be designed to suit conditions in the particular country. In Germany there is no national plan, but there is a statement written into the very government working papers to the effect: "The Government must consult the different economic groups in the country before considering any important economic policy." Thus, business plays a considerable role in the policy of government. France, on the other hand, has always had a planning tradition and a much more controlled economy. The significant difference now is that the so-called plan is designed to co-ordinate the different sectors of private industry, while giving maximum scope to private decisions. Comparing these procedures with the situation in Canada, where separate briefs are presented by the different sectors of the economy with little co-ordinated impact, it is a simple matter to see why national planning is characteristic in Europe, whereas national chaos is a lurking threat to Canadian economic life. Finally, I would suggest that we, in Canada, could profit from an examination of the philosophy applying both to labour and to business in the European Common Market. In particular, notwithstanding the proximity of countries in the Common Market, there appears to be no thought of "international unions" within Europe. The unions are essentially preoccupied with internal and national problems. As a by-product of this difference, there is none of the pressure which we experience for equalization of wages between the different countries. However, labour mobility has been encouraged and facilitated in the new Common Market with the result that labour is free to move from a low wage area to a higher wage area, provided that there is a job already arranged for in the other country. There is also provision through the European Social Fund for the retraining of workers who are technologically displaced and for their transfer to new places of employment. In North America, we might study clearly its terms and provisions, for it is designed to combine economic progress with the optimum use of the labour force.

In business policy, there can be no doubt that the goal is maximum competition and freedom for business initiative and enterprise. Thus, the creation of the Common Market has encouraged the combination of smaller firms into larger, more economical units. This, in turn, has stimulated production and resulted in more economical exports. This is a point which I expect would be of interest to Canadian business, since we appear to suffer in many instances from a number of small firms, where we should be encouraging larger operations, with longer production runs and full economies of scale. On the other hand, there is strong opposition to cartels per se, and this will be strengthened with the application of article 85 of the Rome Treaty, whereby judgment is issued in advance of cartelization. Here, again, the only yardstick is efficient production and maximum output under healthy, competitive conditions. This would seem to be a worthy lesson.

From this brief and inadequate sketch of conditions within the European Common Market, let me turn to the position which I believe Canada should assume. I wish to say that I have no political axe to grind, nor any political affiliation; furthermore, that I have no political aspirations should be abundantly clear from my willingness to hurdle the picket fence and appear here today. Equally, however, having hurdled the fence, I have no intention of fencesiting in what I am about to say, for I have been deeply disturbed about the apparent official Canadian attitude on questions relating to the Common Market.

First of all, we must not permit the economic consequences to detract from the political and historical significance of those events that are transforming the face of Western Europe, and at last, resurrecting hope from the ashes of World War II. As a political institution, I believe that the evolution of the Common Market may be the most lasting event of this century. In Canada, we cannot afford to treat lightly such an astonishing political achievement, one that is molding together ancient sovereign states, creating an invaluable bulwark in the western alliance, and which may yet achieve the mightiest result of all-wedding of the United Kingdom to the continent of Europe after centuries of separation. Surely such progress demands our whole-hearted support and encouragement, not our antagonism and obstruction. Certainly, this road to political unification or confederation is a long and rocky one. If we wish to flatter ourselves in being leaders of world opinion among the middle powers, we must behave in a fashion that indicates some awareness of the magnitude of European problems. In turn, we can only benefit from the better world that is bound to result.

Yet it is true that the present economic strength and determination of the European Common Market has attracted at once the admiration and anxiety of the world. However, I would insist that this very economic strength represents opportunity for the world as well. In Canada, I have heard it suggested frequently that this is a narrow, inward-looking, protectionist community that is more concerned with its own development than fostering trade with the world. This is a totally false representation of the Common Market. I believe that we are now living in a world where trading blocs may be the best practical device for approaching those goals which the GATT (General Agreement on Tariffs and Trade) has sought.

Europe not only has great demand for goods but the ability to purchase them. Her industries are strong and competitive. She will be the new "affluent society" of the world. As a result, I staunchly believe, as it was represented to me repeatedly this summer, that the Common Market is no isolationist bloc, but a group that is anxious and willing to encourage trade with the rest of the world. That this willingess is being translated into fact is amply demonstrated by the 22% increase in imported goods to the Six in 1960 over 1959, with manufactured goods accounting for a large part of the increase. Under article 237, European states may have full entry: under article 238, any nation may associate and work toward mutual free trade. There is, therefore, an opportunity to harness ourselves to the expansion that is bound to occur in the whole of Western Europe, a potential market of 300 million. I could only wish that Canadian business and government would show sufficient awareness of the dimensions of political and economic change in Western Europe. In fact, I believe that enlightened business interests have been far ahead of government; one might say that business has been dragging a reluctant government along.

That Britain will, in turn, join the Common Market by some terms, I have no doubt. With one exception, everyone whom I met in Europe was enthusiastic about British entry into the Common Market in the belief that Britain stood to gain both politically and economically. Britain has lost ground by her delay, but she is more than anxious to compensate now. The British resolve is based on a pragmatic awareness that the Common Market which was an uncertain institution in 1957 is an unquestioned success today; therefore, Britain feels properly that this is the hour for her participation. Of course, there are great risks, too, and Britain could fall flat just as she can make great gains. It is therefore the more remarkable to see the extent to which British industry is prepared and willing to submit to these risks, in the belief that although some may perish, the country as a whole should be better off. Opinion has been building up among members of British industry that they have hidden for too long behind the protective wall of high tariffs; they must now have the spur of renewed competition. Along with the Commonwealth Preferences, these high tariffs will be a potent bargaining tool; on this basis, Britain can bargain not only on her own behalf but for the Commonwealth as well.

Nor do I believe that we have helped Britain or ourselves by our so-called "strategy of opposition." The Europeans will not be deceived by this. Moreover, such opposition is based on the entirely false premise that the Europeans are not interested in the survival of the Commonwealth. On the contrary, the Europeans, with their own experience and problems of the Overseas Territories, are fully sympathetic, certainly more sympathetic than we would admit, with Britain's commitment to the Commonwealth, and are willing to help her retain it. It is clear to the Europeans that maintenance of a strong Commonwealth is vital for the welfare and security of Western Europe. In fact, then, I believe that the Common Market wishes to see Britain and the Commonwealth strengthened not weakened, and will be prepared to strive to that end. At the same time, to the extent that Britain is stronger, she will be able to contribute more in terms of economic aid and capital to the world, as well as forming a hinge between Commonwealth and Common Market.

The British as well as the Europeans realize that the Commonwealth, the Common Market, or any other institution, cannot remain static and unchanged, and still remain vital. Commonwealth Preferences were established under particular economic circumstances; their application and effectiveness has changed in recent years. The Commonwealth Preference has been of diminishing economic importance, just as Britain's share of trade with the Commonwealth has tended to decline. However, the political significance remains and must be preserved. And so, I believe that Mr. MacMillan feels that the choice between Commonwealth and Common Market is a false one; rather, as he remarked in the House of Commons on July 31, 1961: "I do not think that Britain's contribution to the Commonwealth will be reduced if Europe unites. On the contrary, I think its value will be enhanced." Both will be stronger, and so will the West. Therefore, I believe that it is wrong to think dolefully: what can we salvage from the shattered remnants of the old world? We should be concentrating with energy and boldness on the things that we can create in a new world.

What should that course be? Two things are at once certain. In the first place, we are chronically worried about our basic dependence upon the American market. I suggest that this will continue, although we must forever seek ways of counter-balancing this dependence and preventing our trade from becoming completely bilateral. In the second place, we are concerned about losing our Commonwealth Preference, if Britain enters the Common Market, as well as facing higher European tariffs as a result of the averaging process in the common external tariff. Before adopting a counsel of despair, however, let us reflect on three matters.

(1) Britain will be in a much stronger position to affect Common Market policy and tariffs as a member, while membership should produce a much stronger British market for us.
(2) There are variations in the terms of the Common Market that can be applied to the Commonwealth case, for example, tariff-free quotas, and we should demonstrate some preparedness to negotiate for them.
(3) I have argued that this is not an isolationist bloc; on the contrary, there are influential forces, in Germany in particular, that are anxious to bring down the whole tariff structure to a much lower level. This will be the object of immediate and urgent negotiations within the Common Market and could improve the trading position of all countries. The Common Market has already offered to reduce its external tariff by 20% "across the board" in exchange for concessions by other nations, and has expressed a desire to bargain for an additional 20% cut.

I believe, then, that Canada's major error so far has been to think in terms of the status quo, more anxious to protect and preserve the present position that to find ways of enhancing her future economic advantage. In reference to Britain's entry into the Common Market, Mr. Hees has asserted that such an event would be damaging to Canada than foreign trade: ". . . of total sales last year to Britain of $915,000,000, $691,000,000 or 76% would be affected by British acceptance of the Common Market tariff." This is unreasonable, for, in the long run, exports are likely to increase, stimulated by a healthier British economy that should result. Moreover, we have always been hampered by the size of the Canadian market; therefore, we have further reason to turn to Europe. There are numerous North-American type goods, particularly consumer goods, required in Europe. Although the Europeans are still unsympathetic to mass-buying or marketing, there is no reason why they could not now be persuaded. In addition, I wonder if the facilities of the Canadian Exporters Association might not be greatly enhanced to provide useful information about these markets. Beyond that, we still lag far behind our European counterparts in the matter of export finance and, above all, trained export personnel. Similarly, if we are handicapped by too many firms of inefficient size, we should examine our Combines laws with a view to encouraging large-scale production. For protection against abuse, I offer foreign competition and free trade as the best guarantee of safety for the consumer and the price level.

As our positive policy, I believe that we should be attempting to secure a place at the bargaining table in the negotiations that will determine the future of the Commonwealth and the Common Market. I believe that we would be welcomed, if we came with a constructive attitude. Meanwhile, however, we should not forget that, whether we like it or not, Britain will, in some sense, be regarded as the spokesman for the Commonwealth and hence for us. And there, our policy can be determined by an examination of the old North Atlantic trading triangle. We have been prepared to pay a price for preserving a separate Canada, and I am not convinced that we should part with it so readily. Hence, I am not persuaded by the North Atlantic integrationists who seek to woo us into a customs union or free trade area with the United States, wherein we would certainly be swamped. The answer is to turn more strongly to Europe and the World-not Commonwealth or Common Market, but Commonwealth and Common Market.

What I am suggesting is that Canada should lead the Commonwealth into association with the Common Market, thereby retaining the inspiration of a multi-racial community of nations, binding the new Europe more usefully into the fabric of the free world, without fear of it becoming a white man's club, and giving the developing countries of the world all the advantages they now possess in the Commonwealth, and more. We would greatly enrich our lives, broaden our trade, and assume a positive role in world leadership. Of course, parts of the Canadian economy would face hardships, but we face hardships now. We need the Commonwealth-we need the Common Market -we need a distinctive Canada. I suggest that we can have all three; we should not settle for less. Let us explore association with the European Common Market under article 238, whereby we would gradually move to a freetrade area, without assuming the other political and economic commitments of the Common Market. We must consider this seriously because the multilateral reductions in tariffs in the postwar world seem largely to have run out. On the other hand, there is no limit to the number of bilateral agreements which can be reached between Canada and the Six, Seven, or whatever number it becomes. The Common Market already has sixteen independent countries in association with it: there can certainly be more. At the very least, we must avoid becoming the Outer One.

We cannot assume that the Common Market will welcome us; nor can we presume to speak on behalf of the Commonwealth. I would only urge that if we still believe in multilateralism, this would be a logical first step both to wider trade and toward a North Atlantic free-trade area. And I do not think that we need look to the Americans to take the lead in this matter. In fact, I believe that we could best serve ourselves, the Americans and the world by taking the lead ourselves. Gentlemen, as a Canadian, I was upset to discover that we have given the Europeans the impression that we are not very tidy in our thinking on commercial policy, apparently lacking a positive course. We deserve clear guidance and leadership from business and government. We will require it from both directions if we are to make progress in the new world economy of 1961.

THANKS OF THE MEETING were expressed by Mr. Sydney Hermant.

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Inside the Common Market


What is going on inside the Common Market itself. European attitudes to the world economy, the underlying philosophy of the Common Market's institutions and the Common market's hopes and aspirations. Bringing something of the European message to Canadian ears. Two goals of the speaker: to describe some of the highlights; to outline his conclusions on appropriate policy for Canada. An examination and discussion of the Common Market follows. Some topics addressed include measurement of economic growth; membership in the Common Market; the spirit of economic planning and co-operation that has contributed as much to the success of France and Germany as its absence has retarded Belgium; how Canada could profit from an examination of the philosophy applying both to labour and to business in the European Common Market; the business policy of maximum competition and freedom for business initiative and enterprise. A suggestion of the policy that Canada should assume. The possibility of Britain joining the Common Market. Our "strategy of opposition." The issue of Commonwealth Preferences. Three matters on which to reflect with regard to Britain in the Common Market. Canada's major error so far. A positive policy of attempting to secure a place at the bargaining table in the negotiations that will determine the future of the Commonwealth and the Common market. Canada as a leader in bringing the Commonwealth into an association with the Common Market. Seeking guidance and leadership from business and government.