Economic Strategy: the Myth of Provincial Impotence

BRIG. GEN. LEWIS:

Members and friends of The Empire Club of Canada: First impressions are surely lasting ones for it was at a precocious three years of age that I believe our speaker's interests in politics were aroused. This was when he read about the local Liberal candidates' election success in the pages of the Montreal Star. Thirty-five years later, in September 1975, Dr. Stuart Smith was elected to the Ontario Legislature as the member for Hamilton-West. Four months later he became the Leader of the Ontario Liberal Party.

Like many of his peers, Dr. Smith became active in politics in his university days--in our speaker's case at McGill, where he studied medicine. While there he actively opposed the policies of no less a personage than the then Premier of Quebec, Maurice Duplessis. Dr. Smith's particular concern and goal was equality of access to university education for all. Dr. Smith was elected president of the Students' Union, and as such he represented Canada in international debates, and visited the West Indies and the Soviet Union as a representative of Canadian university students.

Graduating with first class honours in medicine, our speaker went on to post-graduate studies, first at McGill and then later at the Maudsley Hospital in England. Along the way he found time to co-host a CBC TV show featuring young people's interests in music, interviews and panel discussions. The other host, Paddy Springate, became Mrs. Smith.

It was in Montreal in 1965 that Dr. Smith considered running for federal office in the riding of Mount Royal, but he stepped aside in favour of another prospective candidate, Pierre Trudeau. Dr. Smith was at the time an executive assistant to the then Speaker of the House, the Honourable Alan McNaughton, whose retirement resulted in the vacant seat for Mount Royal.

In 1967, Dr. Smith accepted an offer from McMaster University to join the faculty of its new medical school. In his professional capacity he has authored many scientific medical articles which have been widely published both here and in the United States.

It has been said that our speaker does not suffer sacred cows easily and this has led to charges of arrogance which he admits have a ring of truth since, in his words, he has always tended to be at the centre of attention. But our attention these days has been concentrated on Ottawa and this has deflected our interest, at least for the time being, away from provincial issues which the general observer sees as somewhat low-key compared with the federal scene. All the more reason then, that Ontarians are fortunate in having the business at Queen's Park come under the careful scrutiny of one with the concern, intelligence, and political acumen of our guest speaker in his capacity as Leader of the Opposition.

More often than not, articles appearing in the press on Dr. Smith make reference to his lovely wife Paddy, and their children, and we have been treated to glimpses of family life in the surroundings of their Burlington home. At a time when he could reasonably be expected to want to be left quietly alone with his family, during this respite from the give-and-take of political life, we are particularly grateful that he would give so freely of his time and on short notice to be here today.

Ladies and gentlemen, I am honoured at this time to present to you our first speaker of 1979, the member for Hamilton-West, the Leader of the Ontario Liberal Party, and Leader of the Opposition, Dr. Stuart Smith, who will address us today on the topic "Economic Strategy: The Myth of Provincial Impotence."

DR. SMITH:

I am delighted to be back on this platform. I guess it was about two years ago that I first had the honour of addressing this organization, shortly after becoming Leader of the Liberal Party. In that two years I have gotten older, if nothing else, and possibly a little wiser.

I should let you know that if you notice a certain imbalance up here, it has to do with a warning given to me by your chairman. He pointed out that the microphones that have been taped to this podium on the left hand side are very precarious indeed. I believe it was his way of telling me that any movement to the left at this time could have dire consequences.

I enjoy speaking to groups at these after-lunch occasions, but I am always a little nervous about the timing. I was speaking to a Rotary Club not long ago and when I asked the chairman, "How long would you like me to speak?" he said, "Well, Dr. Smith, you're the Leader of the Opposition. Of course, you may speak as long as you like. We all leave at 1:45."

I have received something of the same message today, so you can be reassured on that score.

Much has been said about the so-called twin problems, as the media people are wont to put it, of the economy and the so-called "national unity issue," which I think is too narrow a term. I don't believe the unity of our country is so much in question as the concept of the country. The idea of Canadianism seems to be coming under some scrutiny.

We usually hear that the economic problems of our country and the Canadianism problem are related. We hear, in the typical way, that if the unity of the country is hurt, then the economy will be hurt as well. Or, if the economy is ailing, then the unity of the country will be damaged. I think most of us have tuned out that message because it's too simplistic, and we are hearing it too often.

I would like to examine these problems from an Ontario perspective.

Let's think for a moment of why the provinces came together in 1867 to create a country here. You will recall that, to all accounts, it was not for the purpose of being richer than our American friends. The purpose was to bring together otherwise diverse groups of people living in small colonies, so as to resist absorption by the United States of America. We had an ideal in this part of North America, largely of British origin, although not entirely. Certainly in Quebec there were other origins to consider as well. We had an ideal that was worth preserving in a separate nation--something that we did not want to lose in the so-called "manifest destiny" of continentalism.

The decision to create Canada was made not because we could make more money that way. In fact, Canada has never made economic sense. If you were to plan a country from the point of view of trying to be economically viable, you would hardly choose one with a climate like ours. You would hardly choose an under-populated country with a ribbon of communities stretched from one ocean to another, with its huge transportation costs and communication difficulties. There was never an economic concept behind the creation of Canada or our original enlargement to include our western provinces.

By any standards in world history, for us to have remained an independent nation in the face of this economic illogic should have required us to make considerable sacrifices. I think of some small nations like Denmark, Holland, Finland or Israel. If you are trying to express nationalistic pride in the face of economic logic, if you are defying, as we have, both economic logic and the power of a large country to the south, you would expect to pay a price for that nationalistic pride. You would expect that, somehow or other, Canadianism would have cost us something. But look at what happened. We discovered a tremendous source of natural resources in and on our ground. We have had great natural wealth accrue to this country from these discoveries.

You know, I am reminded of an old and not terribly funny joke of two recent immigrants to Canada who meet on the street. One of them says, "I wonder why I ever came to this country. I'm struggling, and life is difficult for me. I can hardly make ends meet. Yet you seem to be prosperous, you seem to be so comfortable, so self-assured. Tell me, how did it happen?" The second immigrant said, "Well, I came to this country and I bought some fish. I sold some fish. I used the money and I bought some more fish. I sold some more fish. Then my uncle died and left me a million dollars."

This second immigrant, in a sense, had no reason ever to question his decision to come to Canada. He had no reason to review his reason for coming in the first place, or to renew his dedication to his adopted land. In a similar way, our natural resource inheritance has allowed us to have our cake and eat it too. We have been able to have our nationhood and also a high standard of living.

You know that we sell our raw resources as rapidly as we can dig them out of the ground and find international buyers. We live off the avails of our natural resource inheritance. With the proceeds of that inheritance, we have supported, basically, three things.

We have supported a manufacturing sector of sorts. It has been tariff protected. With the exception of steel and a few other industries, it has been a generally mediocre manufacturing sector, generally foreign dominated, generally research lacking, and lately shrinking and in danger. I'll have more to say about that in a moment.

We have supported, secondly, huge government expenditures, with which you are well familiar, and gigantic provincial and federal deficits, on the assumption that our children will somehow be able to pay for our extravagance. This has been one of these blithe assumptions that we have made: that the wealth will be endless, and that our children will find our debts nothing at all to pay. We have not thought for a moment of the fact that there will be far fewer children to support a far greater number of old people. We simply assume that our debts can be piled on to future generations, and that they will somehow or other be taken care of.

The third thing we have supported with our natural resource wealth is our habit of importing to our heart's content all the goods to provide a high standard of living.

I want you to note that our national purpose, our reason for coming together in the first place, has never had to be renewed. We never had to fight to create this country. We have never had any hardships during which we would say to ourselves, "Yes, things are tough, but after all, this country is worth preserving." We have never had to renew our faith in Canadianism. We have never had that faith tested and, consequently, it has never been understood by a good many people. You know that it has never been taught in our schools so our young people have not any real sense of how this country came together and what its purpose is in being independent of our American neighbour.

Very few of our young people have a deep sense of what Canadianism has meant over the years, and that's partly because we never had to pay for it. When you have to suffer a little, sometimes you at least ask yourself what it is you are suffering for and you renew your faith.

If our resources were endless, if foreign buyers were plentiful and we could continue to sell at the present rate, then frankly, we would have no problem. The problem is that our resources are finite. Poor management of our resources, and I think of our forest resources in particular, has led us to the point where some resources have turned out to be not as renewable as they should have been. Certainly our inland fishery resources are in some difficulty. We find, perhaps even more importantly, that markets are not as easy to come by as they used to be. The marketing of nickel, you know very well, has been a problem. The same is true of copper.

There have always been cycles in resource marketing but we are now coming under competitive pressures from other parts of the world, particularly from Third World nations. They have very large deposits of some of the same metals that we have and a great willingness to sell them in order to obtain foreign exchange. Sometimes they are willing to sell their resources at prices that lead us to believe that they are losing money and at which we would lose money to meet their competition. These are real forces in the world today.

I would put it to you that, especially in Ontario, we require another source of real wealth, or "value-added" industry and activity. One possibility is to expand our service sector. There is no doubt that possibilities exist, with international banking and so on. But I believe that we have no alternative but to develop a thriving, world competitive, manufacturing sector in Canada, largely centred in Ontario.

Secondly, I believe that we need in Ontario a willingness to curtail our demands, both private and public. We have to learn that we cannot consume if we are not producing. We have to get the basic message through to people that we cannot pay for things if we are not genuinely earning the money with which to buy them. To believe that governments are somehow different in this regard from you and me, to believe that governments can somehow pay for things without having the money to do so, is pure self-deception. It's about time that everyone understood that.

Thirdly, we have to pay some attention to the state of national feeling, because we in Ontario stand the most to lose if national feeling deteriorates in any way, and if the markets in this country in any way break or become fragmented.

Ontario has the most to lose in these areas, and Ontario has the most to be done in the area of manufacturing. What can we do? First of all, in each of these matters, there is a vital role for government. We hear so much, since Proposition Thirteen,* that government should just go away and leave everything to the private sector. I, for one, do not believe that it's so simple. For sure, we need less of the obstructive, burdensome kind of government that we have become used to. But we still need some government role in our economy. It must, however, be a more intelligent and a more selective role than the one we have seen heretofore. We need a government that leads by example, that sets priorities, that makes choices and fosters private initiative and a feeling of Canadianism.

Let's talk about manufacturing. I put it to you that we need a manufacturing strategy in Ontario and in Canada. In my view, Ontario should take the leading role in developing that strategy. You may be aware that, in the first half of 1978, shipments by Ontario manufacturers grew more slowly than all other provinces, except New Brunswick and Saskatchewan. There are fewer people employed in Ontario manufacturing today than in 1974. The Science Council of Canada describes our manufacturing industry with the term "de-industrialization." There has been a tendency in our country to become a resource-supported and service-oriented economy. Manufacturing has become little by little a down-graded activity, and that has hurt Ontario in particular.

Government, industry and labour, working together, must pick areas of potential success and we must put our resources there. We must, in other words, specialize. We cannot win the medal in every item at the Olympics. We have to pick the events in which we have a real opportunity to win and to do well according to world standards, and that is where we must put our resources.

We have some natural advantages. We have an educated population that has cost a fortune to put through school, and we are not now using these people to their full potential. This is a dreadful waste of money, to say nothing of human resources. We must pick areas of specialization that require and benefit from an educated population.

There is no point in trying to compete in some of the labour-intensive industries where we can always be beaten by the Third World countries with their very low wages. But in the newer technologies -in the technologies related to mining, to forestry, to energy, to communications, to transportation, to climatology, to oceanography; in these technologies where we have some knowledge, and some natural advantage--we should be leading the world in these technologies, not importing them as we do now.

I recently visited Texasgulf, for example, and learned that they have had to import a zinc-extracting technology from Japan. I asked why and they explained that it was the best available technology at a reasonable price. They were right to buy it. It was a good clean technology, an excellent one. But I ask the question, ladies and gentlemen, how did it happen that we now have to import technologies relating to mineral extraction? Japan does not have any zinc. Why are we not leading the world in zinc-extractive technology?

Why is it that most of our mining equipment now comes from Germany, Switzerland, and Sweden, from the United States of America and from Japan? What happened to our manufacturers of mining equipment? There was a time when we led the world in this industry.

What about forestry equipment? The forestry industries in Canada will be spending a billion dollars this year to renew their equipment, to buy new equipment and to make repairs to existing machines. About half of that billion dollars will be spent outside the country and almost every large piece of machinery will be coming from outside of Canada. Why? How did this happen? Lest anyone say that the problem is slave labour wages in Germany or Sweden, I'm sure you know that is not true. Nor is it because free enterprise has somehow done a better job in those countries. In fact, their machinery giants were given several forms of assistance by government.

Government agreed to purchase their machinery for the first few production runs, and government supports them when they go around the world trying to sell their product. Now many of these machinery companies have become industrial giants meeting very specialized world-wide markets, and it's pretty tough for us to compete.

But why did we let our industries fall behind? How could Ontario, the centre of such manufacturing, allow that to happen while we just sat back blandly saying that there is no place on earth we'd rather live and all that sort of stuff? How did we permit our own manufacturing base to be taken out from under us?

When we look at Ontario's declining position in Canada, it's not good enough to say that naturally the west is rich because they have oil and gas. Sure, they have oil and gas and they are rich. But manufacturing can still provide a good living as they are showing us in Germany and Japan. The Japanese don't have any resources, but they are doing pretty well in manufacturing without paying slave labour wages.

There are definitely government procurement and purchasing policies which can be introduced to renew our manufacturing sector. We need research policies in Ontario to bring together our universities, our industries and government itself. In the area of pollution technology, let's take Inco as an example. Inco, as you know, is shipping up its smokestack huge amounts of sulphur dioxide. They claim that it is not profitable to produce sulphuric acid from that sulphur dioxide because the market is limited for sulphuric acid. I understand that. But if Inco put sulphuric acid together with phosphate rock, as an example, they could produce fertilizer to be sold throughout the world and they would create a tremendous industry here. Inco has not found much phosphate rock, but how hard have they looked for it? How much encouragement have they had to look for it?

Why have we not had government, universities, and industries working together on all kinds of innovative research to find ways that Canadians can have new technologies in these areas? In pollution control, recycling, energy-related areas, why has there not been the kind of teamwork that could make us world leaders? We can ignore pollution if we like, but the world won't ignore it for long. Sooner or later we will need the new pollution-control technologies. We will soon be importing those as we import every other technology, unless we get busy now to do the research to produce our own technologies in this country and particularly in Ontario.

We also have to educate our people for a tough, competitive world. It is a great mystery to me, ladies and gentlemen, how we could have arranged in free enterprise Ontario an education system which has in it everything except competition. How do we expect people to come out of that system as highly competitive entrepreneurs with a feeling for free enterprise? We let our kids compete on the athletic field, we hope our businessmen will compete world-wide. We know it's a tough competitive world, but we do not let our kids compete in school. All that competition was taken out of the schools by the man who is presently Premier of Ontario.

I suppose that I should say nothing of a partisan nature here. You invited me to speak because of my psychiatric background, no doubt. But I am a partisan politician.

Have you ever asked yourself, how are we supposed to produce from this "misguided egalitarian" school system people who are going to go out and compete in the real, tough world?

Similarly, we are not producing the people we need in manufacturing. Manufacturers go begging for skilled workers while many of our young people are collecting unemployment insurance. Our apprenticeship program in Ontario was allowed to wither, to virtually disappear, and despite some recent stirrings, it is still not even worth talking about. Our technical programmes in the schools were virtually eliminated by the new "smorgasbord" approach to education in which every student is able to choose every subject he may possibly want to learn: a little of this, a little of that, but nobody was to be streamed into any kind of technical education. Then when our students are finally finished in high school, they have to start all over again in the community colleges which cost us another fortune. I remind you that all these things have happened to our education system in Ontario under a Conservative government, ladies and gentlemen of the Empire Club.

We also have to figure out what is wrong in our business schools. Why is it that in American business schools, almost all of the students say that they are going to open their own company someday, yet in Canadian business schools, almost all of them intend to work for the government or to work for large corporations? There is nothing wrong with large corporations, but it would be nice to see a solid corps of people in our business schools who have the ambition to operate their own business some day, to branch out on their own, to have that feeling of upward mobility and ambition. Our business schools seem to inspire this kind of risk-taking attitude in a very low proportion of their students. The Ontario government controls the universities. It should get together with our business schools and find a way to change student attitudes.

Apart from leading the renewal of our manufacturing industries, government is going to have to curtail its demands. You may remember that in the 1977 election, I said that government should have to live with the same constraints that apply to workers' salaries, that government should not be allowed to grow any faster than salaries were growing, that it should not take any larger portion of each dollar than is in the pocket of every citizen. My opponents--even Darcy McKeough, so staunch a Conservative as that--said that such restraint was impossible. "Are you going to put old people on the street?" I was asked. "Are you going to deprive children of milk, or of education?" I said at that time that school boards and municipalities should also have to live within the constraints of the Anti-Inflation Board. "Oh, that's impossible," I was told. "Five thousand teachers would be out on the streets," and so on and so forth.

"It couldn't be done," you remember. Well, it has been done, and now it has become the conventional wisdom in Ontario and elsewhere, that government cannot be allowed to grow any faster than the economy itself is growing.

Remember the 37-1/2 per cent increase in OHIP fees that was going to be imposed on you? We were told that there was no possible alternative. So we did the research and we showed the alternatives to the government, areas where expenses could be cut. Finally, in the showdown, they cut the proposed increase in OHIP premiums by one-half.

Despite the difficulties, I am convinced that there are ways that we can curtail the demands of government. We simply must do so if only because the pension funds, from which we borrow to finance our deficits, are going to have to be repaid at some point in the not too distant future. But more fundamentally, it is about time that we taught people, as I said earlier, that we cannot consume what we do not produce.

Before concluding, I want to say a few words about our national feeling.

I don't know how you felt about it, but I was very upset recently when Premier Bennett of British Columbia commented on the proposed takeover of Macmillan Bloedel by an eastern Canadian company to the effect that he did not like the idea of a "British Columbia company" being bought by an eastern Canadian company. What have we come to in this country?

The latest First Ministers' meeting, which you may have seen on television, left me personally most despondent. Our government leaders could not even agree to bring home our constitution from Great Britain. What is wrong with us in this country?

Why is it that Premier Lougheed of Alberta feels that he has a right to export all of his new-found natural gas when we in Ontario have paid handsomely to fund the exploration that led to the discovery of all that new gas? Do we not have a say in the disposition of that gas, the finding of which we paid for?

As for Premier Levesque, we don't expect him to say anything good about Canadianism since he is trying to break up the country. Certainly his Quebec-first purchasing policy and his semi-racist Bill 101 have not helped Canadian feeling at all.

Here in Ontario, we now have a policy of some kind--though nobody can find out what it is--of giving money to companies like Hayes-Dana of the United States to locate in Barrie, which is not an area of high unemployment at the moment. If Ontario is going to give money to various corporations to locate here, will Quebec not do the same? Will Manitoba not do the same? Are we in competition, one province with the other?

Similarly, the proposed incentives to the pulp and paper industry may well be needed. But are we providing these grants as a provincial initiative alone? Are we getting into competition with British Columbia in this regard?

What is happening to us as a country? We have a slight downturn in the economy, or even a serious downturn in the economy, and every province wants to go its own way. We suddenly have forgotten the need to be Canadians above all. In my view, we have to renew our national spirit, and we need leadership to do so.

I love the vastness, and the challenge of this land. I love and respect the land itself. I value the diversity of our people and I, for one, love and take pride in the French fact in this country. I appreciate our tolerance, our pluralism, our reasonable pace of life, our respect for privacy, our concern for those in need. These are Canadian attributes which I deeply respect and are the reason for the existence of our country.

Canadianism has to be more important than the policies of each province. Ontario must lead and must speak out for Canada and for economic renewal. Ontario must not pretend to be impotent, waiting for federal initiative. We can act to revive manufacturing. We can, as a province, do a great deal about education, about research, about national feeling, and about that leadership which has been so seriously lacking.

I would like to conclude with a word from the excellent Christmas message of our Queen, which I am sure many of you heard.

We must not let the difficulties of the present or the uncertainties of the future cause us to lose faith. It is far from easy to be cheerful and constructive when things around us suggest the opposite. But to give up the effort would mean, as it were, to switch off hope for a better tomorrow. We must work for the future which our grandchildren will step into one day.

I deeply believe that every one of us can take heart and take direction from those words.

The appreciation of the audience was expressed by Joseph H. Potts, C.D., Q.C., a Past President of The Empire Club of Canada.

*Editor's Note: Proposition Thirteen was a privately-sponsored California state constitutional amendment to reduce property taxes which was overwhelmingly approved by the voters on June 6, 1978.