Europe Still Holds The Key

HONOURED GUESTS AND GENTLEMEN

Feeling quite certain that the address we are about to hear today would be of intense interest to all Toronto businessmen, we extended an invitation to members of The Canadian Manufacturers Association and The Toronto Board of Trade to join us on this occasion. We are delighted to welcome so many guests who have availed themselves of this opportunity.

Our guest of honour today, Mr. James S. Duncan, President of The Massey-Harris Co., Ltd., has just returned from a seven weeks' trip to Europe. This is only one of several trips to Europe which Mr. Duncan has made since the last war, he therefore speaks from personal knowledge and experience because when he wants to know conditions he believes in going and finding out for himself.

While in Europe recently, he visited eight of the leading countries, and when he was in Rome had the honour of being received in private audience by His Holiness, the Pope.

Mr. Duncan's career with the Massey-Harris Co. is the kind that always makes the headlines. He started in Berlin as office boy in 1910, and was appointed President in 1941. In the intervening years he served in many executive positions, both at home and abroad.

There was one break in his service with Massey-Harris, when in 1914 he enlisted in The Royal Field Artillery, earned promotion to Captain and was mentioned in despatches, returning to the Company in 1919. During the past war, Mr. Duncan organized the work of the British Commonwealth Air Training Plan and was made Deputy Minister of National Defence for Air, in recognition for which he was made a Companion of the Order of St. Michael and St. George by His Majesty The King.

In spite of the exacting nature of his many responsibilities, Mr. Duncan still finds time to give generously of his talents to community and national welfare organizations.

Today he has chosen as the title of his address "Europe Still Holds the Key". He sees Europe as still the determining factor in world economy and believes that what is happening in Europe is of greater importance to Canadians than what is happening here at home.

It now affords me very great pleasure to introduce a member of The Empire Club of whom we may be justly proud, Mr. James S. Duncan, C.M.G.

I am greatly honoured to have been asked to address so many of my fellow citizens under the auspices of The Empire Club of Canada, which was founded in the years gone by to perpetuate and strengthen the ties of Empire, which, in the process of evolution, has now come to be known as the British Commonwealth of Nations, and in which I am personally such a staunch believer and which still embodies the most successful experiment of living together and working together in peace, in harmony and in goodwill which the world has yet devised.

I am glad to see here so many representatives of the Canadian Manufacturers' Association and the Board of Trade, with whom I have had close ties for many years, and from which associations I have derived so much pleasure and satisfaction.

Your Chairman has asked me, Gentlemen, to tell you something of my recent experiences during a 7 weeks' tour of Europe, from which I returned less than two weeks ago. I am doing so all the more readily, because, to my mind, the events which are unfolding themselves over there intimately affect the lives of every Canadian. I will go even further and say that the happenings in Europe today have a greater bearing upon our future as Canadians and our standard of living in this country than our own comings and goings right here in Canada.

I say this because we Canadians, by the very nature o f our economy, are peculiarly dependent upon the prosperity and, therefore, the purchasing power of the world as a whole. We cannot prosper in an impoverished world. To be more specific, we cannot prosper if the countries of Western Europe are to be torn by internal strife and if the imminent danger of war is to be an ever-present factor- at every conference table.

We are, therefore, vitally interested in the stirring events which are unfolding themselves on the other side of the Atlantic, for it is over there in Western Europe that decisions are being made and action being taken which will decide whether we and our children can live out our lives in peace or whether this distracted world in which we are living is to be plunged once again into the maelstrom of war.

During my recent visit to Europe, I travelled in 8 different countries, the majority of which are recipients of Marshall Aid, and each one of which is struggling with varied success to rebuild its shattered economy. Let me hasten to say that I have been encouraged by what I have seen on this recent trip. I have visited Europe every year since 1944 and have been, therefore, well placed to watch the process of rehabilitation and the year-to-year progress which is being made.

When one considers the degree of physical devastation and economic dislocation which followed upon the war, the feature which surprises one is not so much the difficulties of the present situation, but the rapidity with which many European countries have picked up the threads of their pre-war pattern of life. Had we emerged from this war in a world at peace with its neighbours, as we had fondly hoped; had the fear of aggression been banished from this earth, as we had dreamed it would be; had the world been able to settle down to the rebuilding of its shattered economy with confidence in the future, we would all have been astonished at the resiliency of its economy and the rapidity with which it would have returned to normal.

Now, let me give you a thumbnail sketch of conditions as I saw them in the countries which I visited. Let me hasten to say that, being no economist and no qualified student of world affairs, these impressions may be of little value. They are, however, my own reactions--the reactions of a Canadian businessman to what I have seen over there, and I give them to you for what they are worth.

On the surface, conditions in France appear to be close to normal. The stores are full of merchandise; luxury goods are on sale everywhere; foods and wines are up to pre-war standards and are just as available for those who have money to spend and, from what one could see around, especially in the large centres, there are many people in this category. This is the more so in that Frenchmen, as a whole, have no confidence in the value of their franc and, therefore, the incentive to save, which was one of the pillars of French economy in years gone by, is no longer present.

Below the surface, conditions are less favourable than they appear to be. The civil servants, the teaching classes, and the white-collared workers generally are underpaid in relation to the ever-soaring cost of living, and the net earnings of industrial workers as a whole--and this notwithstanding the recurrent wage increases--are substantially less than in pre-war days. According to official statistics, retail prices are approximately 18 times what they were in 1939, but this is not the whole situation, because all classes of people must resort to the black market to purchase the things which they require, and black market prices are far in excess of official indices. There is no doubt that the most important contributing factor to political unrest in France springs from this unbalance between individual income and cost-of-living.

Farmers and farm labour, on the other Band, are better off than in 1939, and this is an important factor in France's recovery, when one considers that agriculture has always been at the very base of French economy.

Perhaps the most surprising element in the French situation is that a country which is so plagued with political instability, where it seems almost impossible to set up a stable fiscal policy, where so many of the people have little faith in their Government or the ultimate value of their currency, and where discipline, in relation to the payment of taxation, is not all that might be desired, that such a country can yet enjoy such a comparatively high standard of living and continue, if sometimes rather haltingly, its process of recovery from the low point of 1945.

That such a condition is possible is an indication of the basic wealth and economic stability of this country, whose prosperous and self-sufficient agriculture, resourceful people and well-balanced economy have enabled it to maintain a high standard of living throughout generations of political adventures and the bitterness, devastation and sacrifice of two world wars, during which they were occupied twice-once partially and once fully-by their traditional German enemy. And yet France is recovering. Industrially, her production is ahead of 1938, and if the total of her wheat and coarse grain harvested is still 150 below pre-war standards, her agriculture is making rapid progress towards normalcy.

Communism is definitely losing ground in France, and if steps could only be taken, through national self-discipline, to improve the earning power of the masses of the city-dwellers in relation to the cost-of-living, the Communist movement would be even less to be feared than it is at present. Basically, France is not Communistic; the people, as a whole, are too individualistic to rally to this political faith, and many of them who are voting the Communist ticket are but expressing their discontent with existing conditions and their disapproval of the ineffectiveness of the governing body.

Although the De Gaulle Party is making progress, and many who fear Communism are rallying to his support, the general impression which I obtained in France is that he will not be called upon to form a Government. Many think that a solution to the present political impasse is to be looked for in an amendment of the constitution and a reform of the electoral system or proportional vote.

Meanwhile, France is still occupying a key position on the Continent, and her present political weakness is one of the most discouraging factors in the plans which are being drawn up for Western European co-operation and defence. Notwithstanding the confusion of the present situation, I belong to the many friends of France, both within and without her borders, who believe in the ultimate recovery of this great country and the important leadership which it can give once again to the recovery and defence of Western Europe.

I will say but a few words concerning Belgium. We are all acquainted with the remarkable recovery of that stout little nation. The stores are full of merchandise, food is abundant and largely unrationed and agriculture is prosperous. There is, however, a cloud on the horizon, namely that Belgium, which before the war was a country of low costs and where living was very cheap, has now become one of the highest cost countries in Europe. She is losing her tourist trade which was important, and doubts are expressed as to her ability to compete in the world markets, which were the life-blood of her economy, when the period of abnormal demand for goods is no longer with us.

The Communist movement in Belgium is not important and, relatively speaking, her Government is stable. Holland is another of the small European countries whose territory can be traversed by car with ease in a day's journey, but whose population is but 2,000,000 less than ours here in Canada, a country which suffered immensely from German devastation and occupation. Their war dead amounted to over 250,000, nearly all of them civilians, and out of which 100,000 were Jews. The Dutch are sound, hard working people; they are actively effacing the scars of war; their standard of living is surprisingly high and always has been. They are handicapped economically through the loss of their normal market to Germany, to whom they shipped many of their foodstuffs, and also they are seriously handicapped by the loss of re-sale of the production of their Colonial Empire.

The Dutch are very anti-German. There is a great feeling of bitterness over German occupation-the ruthless handling of the population, the pointless destruction of property, the cruelty to civilian prisoners. They have a reasonably stable middle-of-the-road Government. Communism is no problem. They are against nationalization and are all for free enterprise. They think their Government is spending too much money and many of them are prepared to tighten their belts. As one of my friends said in his inimitable Dutch accent, enlarging upon the fact that before the war he had four servants and now has only one, "We Hollanders must learn to hellup ourselves."

I had not visited Western Germany for two years, and I was greatly impressed by the improvement which has taken place. The railroads are functioning again, roads are repaired, motor vehicles are in evidence everywhere, industrial activity is greatly increased, living conditions have immeasurably improved and the people are looking healthier and are in better spirits.

But it was in devastated cities, such as Cologne and Dusseldorf, that the change was most noticeable. The streets have been cleared of wreckage, houses are being rebuilt here and there among the ruins, stores are re-opening and are reasonably well supplied with goods, a few hotels have been sufficiently repaired for habitation, and restaurants, where tolerably good food and wines and beer are being served, are open for business and are well patronized. In a word, life is gradually returning to these devastated cities and a pattern of rebuilding and reconstruction is emerging. Official statistics confirm this progress.

By the end of August, 1948, the industrial level in Western Germany was back to 67%, of the 1936 level. Currency reforms, which took place last June, have had a very beneficial effect on the economy of the country. Goods which were being hoarded, immediately became available; productivity increased because workers once again had the incentive to earn wages. On the other hand, 94.6% of all bank deposits were lost, and those who had cash savings, or who were unable to invest their monies in goods, saw all but 3.4% of their money wiped out.

Conditions, however, are not as favourable as they were a few months ago, because living costs have been increasing rapidly and people are losing confidence again in the value of their new currency, Wages, which were stabilized throughout the war on 1939 levels, have now been freed, as likewise have been the great majority of price controls, As a result, prices are increasing rapidly and are probably between 50% and 75% higher than 1939, whereas wages have only increased between 13% and 15%. These wage figures for Western Germany are based on personal observation in a small number of industries visited, but are considered to approximate the general level of industrial wages, at least in the British and U.S. Zones of Occupation. There is considerable unemployment in Germany, and everyone who has a job is working hard to hold it, and both the men and trade union leaders are willing to increase the 44-hour week, just as soon as the availability of foreign material makes this possible.

The East-West struggle to secure the allegiance of the German people has, in my opinion, been won largely by the West. The expulsion of Germans from the Eastern Zone to make room for the Poles; the close-up view which Germany has had of Russia under Communism, both as an invader and as an invaded country; the systematic looting of the Eastern Zone; the imposition of a foreign creed; the loss of individual liberty; the nationalization of industry, large and small; the confiscation of land-all this in the Russian Zone of Occupation, have made nonsense of the Russian claim that they are friendly liberators,

There is great bitterness in Germany against Russia, and the fact that the Russians are still holding German prisoners of war and are only releasing those who are ill, and the physical condition of those who return, all add fuel to the fire. Communism is rapidly losing ground in Western Germany, not only in political centres, but in the trade union groups. The 64% vote in favour of Mayor Reuther in the Western Zone of Berlin indicates the trend.

The people in Berlin themselves, in the Western Zone, strongly favour resistance; their morale is high, and the airlift has had a great psychological effect, not only on Germany but beyond its frontiers in all the adjacent and occupied lands. It has been interpreted as a symbol of resistance to aggression. Western Germany applauded the airlift, but like most other peoples, it cannot see how this is a permanent solution to the supplying of Berlin. Some feel that Russia is losing heavily in prestige, and that growing opposition to her policy in the occupied countries may cause her to seek a compromise over the Berlin situation. But this may be but wishful thinking,

Germany looks to the future with more optimism, She finds herself in the desirable position of being courted by both sides. She feels that she is holding a key position and that she has a role to play. One recalls Winston Churchill's comment, "Germans are ever at your throat or at your feet." My experience on this trip has been that they are in a contrite frame of mind. Hitler's war has been a tremendous lesson to them, The cataclysmic evidence of the ruin and devastation which it carried in its wake is all around them and will remain there for a generation or more. I believe that they are genuinely tired of war and want peace and a chance to rebuild and live a normal life. Many of them would welcome an opportunity of entering the Western European Pact; many see in the United States of Europe Germany's only hope for the future.

One of the great problems which is facing the Western Allies is that, having decided to rebuild the economy of Western Germany, it stands to reason that it must be defended or capable of self-defence. One thing is certain, namely, that whatever steps are taken in this direction must be taken under the strictest Western Allies' control. The experience after the last war and the cruel experience of Germany's aggressive policies are such that they will have to prove by their actions that they have had a change of heart and that they can eventually become a sound and reliable partner in Western European co-operation and defense,

I motored over 2,000 kilometres in Italy, starting from Nice on the French Riviera, and proceeding to Rome via Genoa, Pisa and Florence. The Northern Italians are resourceful, intelligent and self-reliant, and the manner in which the roads, the railways and the towns have been reconstructed is quite remarkable.

In cities, such as Rome and Florence, life is back to normal with every appearance of luxury and abundance. Hotels, restaurants, stores, are all well supplied with business. The abundance of butter, white bread, fancy pastry of all kinds, of foods and wines, is really surprising for a country which has lost the war and gone through a revolution.

On the other side of the picture, there are 3,000,000 unemployed who are living in the greatest misery. Many are refugees from the South who have crowded into the big cities and are living in want, degradation and ill health. South of Rome, through Naples and Sicily, the suffering and poverty are extreme. Tuberculosis is pre-valent, and there are insufficient hospitals to care for the people who are lying ill in unheated rooms, 6 and 8 persons crowded in together with insufficient food and insufficient clothing. I saw many instances, during a visit which I made to the poorer districts, of families of 6 and 8, sleeping 4 in a bed in the same room, in squalor, disease and in abject poverty.

There has always existed in Italy a great difference between the 'haves' and 'have-nots'. Today that difference is accentuated, and this problem, together with Italy's chronic over-population, lies at the base of her political troubles. De Gasperi's Government is showing strength, and the people have confidence that they can handle the situation.

The Communist organization is still strong. Its headquarters are in the Palazzo Dongo in Rome, named after the village where Mussolini was executed, and rumour has it that the Palazzo was renovated with the jewels which were found on Mussolini when he was shot, Royalist feeling is still in existence in Italy, but it has no present political influence. The Royalists take the view that the Communist problem must be settled first before they devote their attention to any possibility of a return of Royalty. Communism has lost a lot of public support, and people of all parties have shown their understanding of the basic problem by rallying to the support of the present Government as the best means of defeating Communism.

Italian people, as a whole, are not Communistically inclined, and although one cannot over-estimate the strength of the Communist organization in Italy, their largest support comes from those who are dissatisfied with present economic conditions, and there are many, unfortunately, who have a right to feel as they do.

Italian sympathy, generally speaking, is towards Western Europe and the United States. Their army and police together is represented by approximately 300,000 men.

They are concerned over their immediate future, because they know that they are not in a position to defend themselves against invasion from Yugoslavia, or from any other source.

Life in the United Kingdom is dull, drab and austere, and the traveller cannot help but contrast conditions in this victorious country with the more abundant life to be found in the majority of the countries on the Continent. Food and many articles of clothing are still rationed; life is strictly regulated; taxation on high incomes is so heavy that in many cases it amounts almost to confiscation. Life is but little easier from the point of view of everyday living than it was during the war, and many people are discouraged and feel that the incentive to work no longer exists.

On the other side of the picture, there is no real poverty in England, and many classes of society are living better, today than they did before the war. In contrast to the Continent, there is a tremendous measure of equality of sacrifice, and the rationing system is the envy of Europe, No other system anywhere has insured, as the British system has, regular and equitable distribution of basic foods to all people of all classes at prices within everyone's reach.

As a whole, and notwithstanding what I have said, there is a substantial measure of improvement in the economic conditions of the United Kingdom. Industrial production is approximately 18% above the 1938-1939 level, and agricultural production has increased by over 25% during the same period,

In saying what I am about to say, I recognize that I may be laying myself open to the charge of being prejudiced, because I am a strong believer in free enterprise, the system which has made the greatness and prosperity of this land of ours and of the great country which lies to the south of us; the system upon which the might and the influence of the British Empire were founded. But I endeavour to look upon these matters dispassionately when travelling abroad and, in my opinion at least, I feel that nationalization has not proven its value in the Old Country. To a certain extent, however, the people have accepted the nationalization of railways, of the coal mines, public services and of the Bank of England as "faits accomplis".

They take a very dark view, however, of the nationalization of the steel industry, which is in an entirely different category and which will cut deeply across the whole economic structure of the United Kingdom. It is looked upon as a blow to public confidence. As Churchill put it, "It is a feature in party tactics intended to keep the Socialist left wing as far as possible in order and to keep the Government as long as possible in office",

The Bill contemplates the acquisition of the shares of 107 firms and 250 subsidiaries. It will leave the industry partly nationalized and partly free enterprise, and those which are free, will have to compete against the Government corporation, which will acquire the assets of the nationalized companies below their actual value and will be able to raise funds with Treasury backing on a basis more favourable than those which are not nationalized,

The Government, as I see it, has failed to make a case that nationalized steel will either produce steel in the future in large quantities or at lower cost. There is an overwhelming probability that when it comes to running the steel industry, the State will not be an improvement over private owners. At least, I will say that so far, a satisfactory case has not been made that they could. On the contrary, the arguments have been a matter of political dogma and of assertions which only convinced Socialists would accept,

It is difficult to say what the future holds in store politically for Great Britain. There is unanimity of opinion that the Labour Government is losing in popularity. Whether this means that they would be returned to power with a lesser majority, or whether the Conservative Government would be returned to power with a small majority is anybody's guess. My own opinion is that whichever of these two alternatives proves to be the right one, the problems which the United Kingdom will be facing during the next few years are of such a nature that nothing short of a Coalition Government would have sufficient authority to find a solution to them, but, to my mind, a Coalition Government will only take place after the electors have had an opportunity of expressing their viewpoint.

The United Kingdom's problems, as a whole, are the result of her immense sacrifices during the war and her dependence upon imports for the sustenance of her economy. Some people feel that one of the solutions to her present difficulties is a substantial diminution of her population. I do not know whether this is so, or how it could be accomplished if it were so, but I do feel, however, that notwithstanding the vexatious problems with which the United Kingdom is confronted, she is in many respects the soundest country in Europe today, and my faith in her ultimate recovery is still intact. It is based not on material things, but on things of the spirit, in the character, in the skill and in the self-discipline of her people. Many of the old values are being lost throughout the world, and new and uncertain ones are taking their place, but character, to my mind, is still the greatest asset of any nation and Britain is pre-eminent in this respect.

Now, to come back to the factors which gave rise to the optimism to which I have referred in the earlier part of this address, I would review these briefly as follows

By their own efforts, which vary greatly in each country, and stimulated by an abundant harvest, and particularly by Marshall Plan Aid, very substantial progress has been made economically all over Western Europe. The living conditions of the people as a whole have improved; industry is making a surprising comeback, which can best be illustrated by the fact that Denmark, France, the Netherlands, Norway, Sweden and the United Kingdom have all exceeded this year the 1937 level of industrial activity, communications by rail, by boat and by air are returning to normal.

Communism is losing some of its public appeal in every country visited. There is no room for complacency here, however, because the Communist organization is still intact in all these countries, and because in many of them, inflation and the hardships which it carries with it are fertile ground for the revival of Communist support,

I noticed everywhere, even in the countries lying closest to Russia, a growing feeling of confidence that the threat of aggression is not an immediate one, This optimism, as I analyze it, is based upon the realization that Western Europe and the United States have emerged from their period of wishful thinking in connection with world peace and are prepared to take suitable measures in order to preserve them, and also that if Russia had intended to start a shooting war, she would have done so this mid-summer during the early stages of the airlift difficulties.

Now in closing, let me sum up the situation as I see it in Europe today. Do not let me give you the impression that I am under-estimating the magnitude of the problems which Europe, yes and the whole world, are facing or that I believe that the battle is already won, I do believe, however, that 1948 has been a substantial year of progress, and that, at long last, both Europe and North America have seen clearly that cessation of hostilities was but the end of a phase of conflict, that our dreams of a complete and untroubled peace were merely wishful thinking and that the battle against a foreign ideology must still be carried on.

I believe that the issues are now clearly understood. We in North America have been slow in discerning them, because we are a peace-loving people, because democracies are slow to be roused, and because we are over-confident and are inclined to feel that other people think as we think. The dangerous period for our cause was the period of optimism and wishful thinking which followed our victory, the period during which, from 1944 to 1948, the United Kingdom reduced her armed forces from 5,000,000 to approximately 846,000, and worse still, the United States from 8,300,000 to 550,000,

Wishful thinking is the real danger, not realism, and if I read the signs correctly, we in North America and in Western Europe have now awakened to the realities of the situation, somewhat late perhaps, but better late than never; and, to my mind, this does not mean a world at war, On the contrary, it means vigilance, resolution, sacrifice, armed preparedness and peace. Peace through armed preparedness, through a balance of military power, is not new in the world; it is almost as old as man, and perhaps we have been foolish to believe that any other solution was possible.

Let us be under no false illusions. The carrying-out of such a policy will mean sacrifice, it may mean even a lowering of our standards of life; it will mean a continuation of our policies of building up the economies of Western Europe, in which we Canadians will have to play our part. It means rearmament and supplying the Western European democracies with the means of defending themselves. It means the continuation of our efforts towards the formation of an United States of Europe, for which the ground-work has been laid, but which can only come into full fruition when it is abundantly evident that this confederation of peoples has not only the will, but the strength to defend itself successfully,

The danger of aggression is still with us. What we have, as I see it, is a period of respite, and the great question which we, the citizens of North America and our Governments, have to ask ourselves is whether we have the moral strength to take full advantage of the days which lie ahead, Weakness and wishful thinking have never prevented any war, and we, the democracies of North America and Western Europe, who believe in peace and yearn for it, should make sure that we are strong enough to defend it.

May my last words be these--that while building up a military strength which will be unassailable, let us hold out once again the hand of friendship to Russia, The people of Russia do not want a war any more than our people do, but dictatorships are prone to adventurous action. Let us remove temptation from their path through the knowledge of our strength and through our determination to defend our way of life and the freedom of our people against aggression,