Canada in a Fragile World

MR. STALDER:

Distinguished members and guests, ladies and gentlemen: Welcome to this meeting of The Empire Club of Canada. It would be too difficult to do justice to all aspects of a life as full as that of our guest of honour, so permit me to tailor my introduction as a good fashion designer would a dress--long enough to cover the subject, but short enough to be interesting.

Forty-three years ago, Thomas Bata came to Canada from Czechoslovakia, bringing with him 150 families who had chosen Canada as their new homeland. Today, the Bata shoe organization, of which he is Chief Executive Officer, operates in ninety-two countries and employs directly eighty-five thousand people who produce and sell 300 million pairs of shoes per year.

Thomas J. Bata was born into a shoemaker's family in the community of Zlin, close to Prague. His life has been a success story which could top many a tale of a hotshot charismatic young capitalist; he got nothing the easy way and it is only hard work which allows him to hold onto the reins.

With the best of intentions, I simply don't have time to list all the positions held by Thomas Bata or the honours which have been bestowed on him. You will find it all outlined on pages 55 and 56 of Who's Who in Canada. Let me just say that he is a Companion of the Order of Canada and that on June 22 of this year he received the annual award of the Canada Council, International Chamber of Commerce.

Thomas Bata is a perfectionist who believes in responsibility towards the communities he does business in. He also believes that countries should develop the confidence to solve their own problems. He emphasizes that it is easier to breed economic nationalism in a successful and prosperous economy.

Ladies and gentlemen, please welcome our guest of honour, Thomas J. Bata, c.c.

MR. BATA:

Mr. Chairman, ladies and gentlemen: Since I am a Canadian internationalist I thought you would be interested in having me address myself to the subject of how Canada and Canadian business might benefit from greater participation in the opportunities which this constantly more and more interdependent world presents.

It may well be thought that in our current economic climate we ought to be concentrating on the short-term problems--some of us, indeed, on the very survival of our organizations. However, I think we ought to remind ourselves that even during the later stages of the Second World War, when the Allied forces were still engaged with the Axis in a battle for survival, there were already a large number of people devoting themselves to planning and taking actions which would speed up reconstruction and reconversion of the economies of the world. There were quite a number of us at that time crisscrossing the world in circumstances much less comfortable than travelling is today, working on these projects. Mike Pearson and C.D. Howe inspired much of this forward thinking and the fruits of their work contributed significantly to a speedy rehabilitation of the world, the creation of unprecedented prosperity, and an enhanced importance of Canada on the world scene.

This afternon I would like to lift our sights from the immediate problems that face us, and discuss some major challenges of the future. I want to stress two themes: world-wide interdependence and the opportunities this creates, and the need to adapt to a rapidly changing environment.

These are important themes for Canada for two reasons. First, although we are one of the world's major trading nations, we have an unfortunate tendency to retreat into our collective shell during tough times and to become excessively preoccupied with our own immediate problems.

Second, success in the future, both in this country and elsewhere, will come most easily to those organizations and nations that recognize and successfully adapt to the dynamic nature of the world environment around them.

As I travel into even the most remote areas of the world, I run into Canadian industrialists, traders, bankers, consultants, engineers, and others, often pioneering and creating new opportunities and a Canadian presence. It is my hope that more Canadians will participate in this activity. They have readily available support from our more and more business-oriented diplomatic representatives, who if anything, would like to have their services used more often.

This century, particularly in the years since World War Two, has witnessed greater changes and greater advances than any other time in human history. The unprecedented growth in international trade; the rapidity of technological change; the rise of mass communications and expectations; and the growth of mass markets--all these have collectively contributed to an increase in material well-being that is without parallel. The current recession is severe throughout the industrial world, and the developing countries are facing many difficult problems, often as a result of the recession, low prices of commodities, high prices of energy, and government mismanagement. However, these will in the end, I am convinced, turn out to be no more than a pause in the pace of world economic progress.

The rapid pace of technological and economic development has brought us an increasing global interdependence. The driving force of economic progress over the past several decades has been the emergence of polycentrism. Whilst I propose to deal primarily with economic polycentrism, this phenomenon is affecting all aspects of international relationships, including the seats of political power.

The rate of change has been so rapid that it is easy to forget how different the world was not long ago. Before World War Two technological and commercial leadership within the world economy still largely rested with established European powers--the United Kingdom, France, and Germany. By 1945 the United States had become the established world technology leader, while some of the other countries of Europe were rapidly developing a capability for innovation.

Since the war, Japan has gone from developing country to industrial country status. Furthermore, in the last few years, Japan has gone from being an adaptor of technology to being at the leading edge of innovation. The newly industrialized countries--and even some other developing countries--are showing an increasing propensity to innovate. In the near future, no doubt, we shall see still newer centres of creativity and innovation spring up in places that cannot even be predicted at the present time.

In international trade the same patterns are apparent. Until very recently, it has grown at an unprecedented pace throughout the period since World War Two. While trade continues to be dominated by the industrial countries, the more progressive of the developing nations have expanded their role in the overall trade picture.

Again, in the field of international investment the same picture emerges. In the nineteenth and early twentieth centuries, the United Kingdom and Switzerland were the dominant exporters of capital, together with technology and management skills. Following World War Two the United States emerged as the major source of foreign investment. Since then, more and more countries, such as Japan and, more recently, India, have become foreign investors, and foreign direct investment has been increasingly a two-way street. Some relative newcomers to the field, such as Canada, have developed investments abroad, even though they remain, on balance, importers of capital.

Despite our continued need for foreign investment, particularly that which brings new expertise, I cannot stress sufficiently the importance of permanent Canadian entrepreneurial investment overseas, which would assure a Canadian presence in the long run. Last August, our Malaysian company was inaugurating a beautiful new second factory in Seremban. His Royal Highness, the Sultan of Negri Sembilan, and the Chief Minister came to officiate. The next day, Alcan inaugurated a major new expansion based on a new casting process. Both organizations have been active in Malaysia for many years and have a substantial local shareholding in their companies. There is no doubt that this presence gives our business-oriented High Commission additional credibility in explaining Canadian technological prowess in their endeavours to, for example, persuade the city of Kuala Lumpur to buy a Canadian-made urban transit system for their proposed urban transport project.

And down the umbilical cord of Bata or Alcan there continues to flow a supply of Canadian machines, materials, parts, and services, which is a pretty secure channel from a longrange point of view. In countries where we have had only licensees and no equity, the flow of relationship has tended to dry up relatively quickly. The value of a reverse flow of expertise and technology must also not be underestimated.

For this to succeed, some government action to make Canada an even more desirable base for international operations will be necessary. The competition is great and there is no time to lose, for in the future we can also expect more of the newly industrialized countries to emerge as world-wide entrepreneurs.

One could speak of other important influences as well, including the emergence of Africa and Asia from colonialism; the development of mass travel; of mass communications; and

of consumerism. All of these, however, are part of a larger trend that leads one to the inevitable conclusion that the world is becoming smaller, more integrated, and much more interdependent than at any previous time in human history.

There have been great benefits from these developments. Technological innovation, the cross-fertilization of ideas, increased trade, and increased international competition have all contributed to an enormous growth in the quality and choice of products available to the typical consumer in the industrial countries. Of course, all these have brought about a dramatic increase in consumers' standard of living. Even in the developing world, significant progress has been made. This fact is easy to forget if one looks only at the statistics that show appallingly low incomes per capita. In truth, there has been great material progress made in many Third-World countries. In many of them, substantial segments of the population live very well within a sophisticated economy, as we would know it ourselves here. In a country like Brazil, this would apply to several million people, and in India to even more.

In our organization we can see this evolution taking place from the type of footwear which people buy. More people are buying leather shoes rather than simple sandals, and more and more are buying performance athletic footwear instead of ordinary canvas sneakers.

I submit that every day the opportunities for Canadian exporters and entrepreneurs are therefore becoming greater. Without the growth in trade, in investment, and in technological innovation and diffusion that has occurred in the last forty years, the lot of literally millions of people around the world would be much, much worse.

It is my view that the next wave of prosperity in the industrialized countries will come when we find a way to help the populous developing countries to dramatically increase their living standards, thus becoming able to buy our sophisticated industrial products.

However, there is another side to the story. An inevitable outcome of the rapid pace of change is the need to adapt, which is the second theme I wish to address this afternoon.

The rapidly changing face of the international economy has resulted in difficulties and dislocation in the economies of the older established industrial countries. There have already been dramatic reductions in the size of the textile, apparel, footwear, and other traditional industries in certain parts of Europe and North America. These changes were a result of the emergence of low-cost, high-quality sources for these products from the newly industrialized countries. Now the automobile industry in North America, and, to a lesser extent, Europe, has been successfully challenged by Japan. Tomorrow it may be automobiles from Korea, computers from Japan, and airplanes from Brazil. Many of the largest exporters from the Third World have become successful through a combination of lowcost labour, a strong work ethic, and, unfortunately, in some cases substantial subsidies, hidden or overt, for exporters. However, the process of development inevitably leads to an increase in wages as the successful countries absorb more and more hitherto under-utilized labour.

We have seen Japan move from a low-wage exporter of relatively simple merchandise to a high-wage exporter of technologically sophisticated products. Singapore has followed a similar strategy and other countries in Southeast Asia and elsewhere are likely to do so too. These developments quite naturally have led to pressures for protection, for political solutions that attempt to turn back the clock and delay the inevitable necessary and desirable process of adjustment.

There are ominous signs that in the tough environment of the 1980s protectionism will come to be regarded as a solution to our economic ills. Fortunately, however, there are also trends that suggest we are learning to face the problem of adjustment fairly and squarely. Some industries, such as the automobile industry, are taking great risks and investing huge sums to enhance product quality and to cut costs in order to meet the challenges from abroad.

Even in Canada, a country where we have tended to try to avoid difficult periods of change, I hear more serious discussions about streamlining our industries, reverting to the work ethic, improving productivity, and moving industrial relations towards co-operation instead of confrontation to increase our international competitiveness.

The less-developed countries are starting to appreciate the real potential for multilateral trade links. They are beginning to open up their borders to other countries' merchandise. To date, very little of world trade has been conducted among the developing countries themselves. More trade among developing countries provides a potentially great channel for increasing industrialization, competition, and innovation within the world economy. This would also avoid putting further pressure on the already saturated markets of the currently industrialized lands.

A rapidly changing world gives rise to a constant need to adapt to new conditions. Despite the enormous benefits, both realized and potential, from the trend to polycentrism, the problem of adjustment cannot be taken lightly. However, I think one can be optimistic. Despite the dislocations for the mature economies and the calls for protectionism that one hears, the process of adjustment is under way. And this adjustment will continue.

What does this mean for Canada? I think we must realize that no nation-state can thrive in isolation in our interdependent world. Too often this country has resisted interdependence with the rest of the world in the mistaken belief that economic nationalism will preserve our national identity. Fortunately, I now sense a feeling in many quarters in Canada that we have gone too far down the road of economic nationalism. I am convinced that our own economic interests would best be served by pursuing more open-door international policies.

As it is not possible for Canada to develop its own leadership in all of the many new fields, it is essential that there be a constant inflow of the ever-changing technology and expertise from wherever it may develop.

We can, however, be justifiably proud of the innovations we have already made in Canada, despite the small size of our market. Canada has developed leading-edge technology in such areas as telecommunications, electric power generation and transmission, resource development and transportation, and in some areas of textile and footwear technology. This is a good base, built on our experience, that will serve us well as we develop our niche in a dynamic world. And fortunately, there are signs, both in private industry and in government, of a surge of interest in rapid technological development.

Canadian organizations, I believe, must also understand the nature of global interdependence. An enterprise is unlikely to be truly successful if it serves only the needs of twenty-four million Canadians. In the future, the most successful Canadian businesses will be those that recognize that the world, not just Canada, is the potential market.

The world is changing--economically, technologically, and politically. This is a marvellous opportunity for a determined and resourceful Canada.

The appreciation of the audience was expressed by Sir Arthur Chetwynd, BT, a Past President of The Empire Club of Canada.