Some Thoughts on the Threshold of the New Year

LT.-COL. MONTAGUE: We are proud and delighted to welcome from Montreal a native Torontonian who, in the remarkably short time of 26 years, progressed from bank clerk to general manager of Canada's oldest bank. Five years of this period were spent in distinguished wartime service, here and abroad, with the Canadian Army, during which time he advanced from second lieutenant to major and was appointed by his Sovereign to membership in the military division of the Most Excellent Order of the British Empire.

I refer to Mr. George Arnold Reeve Hart, M.B.E., General Manager of the Bank of Montreal.

Arnold Hart entered the service of the Bank of Montreal in 1931 in Toronto. He gained valuable experience in several Toronto branches and at Montreal in the Head Office and the West End Branch before he joined the active army.

On resuming his banking career in 1946 he was appointed Secretary to the President--the late Mr. George Spinney, who had also been one of the Bank of Montreal's youngest General Managers. In 1948 Mr. Hart became Assistant Superintendent of Alberta branches and moved to Calgary. In 1949 he was advanced to Manager of the Main Branch in Edmonton.

Two years later, 1951, found him Third Agent at the New York office and by 1953 he was back at Head Office, Montreal, as a Superintendent. The following year, 1954, saw him promoted to Assistant General Manager and, after two years in that post, he was advanced to Deputy General Manager in 1956.

Just one year ago now, early in 1957, Mr. Hart was appointed General Manager of Canada's senior financial institution--at 44, one of the youngest general managers in the then 140-year history of the Bank of Montreal.

When he was a Superintendent at Head Office, Mr. Hart made an extensive tour of the Far East. He travelled 35,000 miles by air which, at that time, established something of a record in banking circles.

Despite the fact that he has experienced three promotions since his return to Montreal in 1953, Mr. Hart has displayed keen interest in community affairs and has assumed responsibilities as Associate Honorary Treasurer and Member of the Executive Council of the Canadian Chamber of Commerce, as a Member of the Metropolitan Board of Directors of the Y.M.C.A. (Montreal) and as a Director of the Montreal Boys' Association.

We consider ourselves fortunate that he has selected as his topic for today "Some Thoughts on the Threshold of the New Year".

Gentlemen--Mr. G. Arnold Hart, M.B.E., General Manager of the Bank of Montreal.

MR. HART: It is an honour for anyone to be invited to address this Club and to join the distinguished company of those who have done so in the fifty-five years of its history. For me it is a special honour to be here today and always a pleasure to visit the city of my birth, school days and early years in the bank.

You who live here are, I know, very conscious of the remarkable extent to which Toronto has grown in recent years. But I sometimes think that those who dwell in the midst of gradual but unceasing evolutionary growth are less fully aware of the dramatic changes that are wrought about them than are those who see it only from time to time. To me, not only since my younger days, but even between the not-infrequent trips I make here, this city seems to alter and expand in ways that are better described as revolutionary than evolutionary. Change is the order of this city.

And change is the order of our day. When your President asked me, last June, to suggest a title for my remarks I was hard put to imagine what questions and issues would be uppermost in the minds of us all and deserving of consideration and comment now--seven months later. I therefore suggested a non-committal title that would cover whatever might become appropriate. As the months have gone by and I have endeavoured to shape the thoughts that have occurred to me, I have been very forcibly struck by the sharp changes that have occurred in what seemed to be the accepted order of things so short a time ago.

To mention only three, there was a change on the political front in Canada; a new dimension was added to international relations as the western countries saw two man-made moons thrust into the skies from beyond the horizon; and on the economic scene within North America the subject of predominant concern has shifted quite suddenly from inflation to contraction.

I find difficulty, and I imagine I am not alone, in trying to discern the implications of these and other developments for the year on which we have embarked. Because I work in a bank and have an opportunity to observe influences affecting all kinds of business in all parts of Canada, it is the business scene that chiefly interests me and it is about it that I propose mainly to speak.

I do not, however, intend to review in detail the changes that have occurred in Canadian business conditions in the recent past. Were I to do so, I might have tried to outdo the headline style of a prominent financial weekly of this city by entitling my address, "Here's Low-down on Slowdown". The business record has been sufficiently analysed and diagnosed to need no elaboration. Suffice it to say that we are clearly in the midst of a period of somewhat less active business--be it labelled a levelling-off, down-tilt, let-up, readjustment or whatever--which most business enterprises and most areas of Canada have felt in some degree.

Nor do I intend to add to the many specific forecasts that are always made at the time calendars are changed. The majority of these seem to prescribe "more of the same", at least through the winter months.

What I propose to do is to share with you, in the hope that they will be worth while, some of the thoughts that, for me, serve to put current conditions into perspective; that help me to keep my bearings, as it were, in the changing pattern of events.

To begin with, it is a demonstrable fact that the Canadian people have achieved, and are enjoying, a measure of material well-being that is second only to that of the United States. How did we achieve it? I think you will agree that the principal ingredients have been the fortunate possession of a very wide range of natural resources in great abundance; the diligence and skill to develop them wisely, either for our own purposes, or with outside assistance in response to external needs; and the willingness to trade our abundance in return for the even wider variety of things that contribute to our standard of living. These, it seems to me, are the eternal verities of Canada's economic growth that are so obvious as often to be lost sight of, or so frequently aired as to be in danger of becoming platitudes.

But in them are to be seen, also, the reason why Canada's growth has not proceeded steadily. At times our expansion has been accelerated by sharply enlarged world demand for our resources, as during wars, or by mounting external needs for basic materials that other countries were beginning to run short of, such as forestry products in the 1920's and minerals in the 1950's. At other times discovery and development have had to await some mechanical or technical break-through, in the way the railways opened up the west in the early years of the century and more recently the way the aeroplane and the geodetic survey have opened up the north. Yet at other times our expansion and our whole pace of business activity have been retarded by an abatement of demand in the United States or in our export markets generally.

What is more, phases of rapid resource development have always brought in their train an accentuated need for other capital outlays to broaden the base of the economy by the provision of more housing, and more manufacturing, distributive and service facilities, required by a population that tends to be enlarged rapidly by a rise in immigration and often by a rise in the birth rate.

The point that seems to me important to bear in mind in considering this historical pattern is that our treasure chests cannot be found, and opened, quickly or easily as the need arises, and our broader development cannot keep exactly abreast of requirements. Such capital expenditures which, with exports, are the prime movers in our prosperity, are immense and often relatively long-term in nature and are bound to get out of step at times with the demands that give rise to them.

If we could, as it were, turn a tap to attract or create all the working people and to produce all the materials, pipelines, seaways, factories, houses, roads and so on that were needed, precisely when they were needed, and no more than were needed, we would avoid periods of overcapacity such as we are now in. But obviously we cannot expect to match capacity to demand, and phases of temporary surplus are bound to recur.

If I felt that this present phase would be other than a passing one, I would be worried. But I believe it will be of a temporary nature. Let me trace my reasons for this conviction.

The Second World War and the years since have been an unusually long period of unusually strong demands on the Canadian economy. The emphasis of expansion shifted, of course, as the demands changed from military to civilian, then subsequently, after Korea, back towards rearmament and again, later, to catching up with the formation of other capital facilities. In the decades to 1955 as a whole the over-all result of these shifts in emphasis was a well rounded and well balanced growth. But the spurt in 1955 and 1956 was in the direction of expansion of basic industries, mainly to serve export markets. That expansion approached completion in 1957 just when exports happened to level off or decline. What we are witnessing, therefore, is a change in the mixture of the traditional pushes and pulls on our economy that I have described--an abatement of export demand, the subsiding of capital expansion in a certain direction and possibly a respite from the long period during which the economy operated under forced draught.

These conditions have created difficulties in the past year--difficulties which are still with us and to which are being added the seasonal slackness that is characteristic of some sectors of the Canadian economy at this time of year.

We may therefore expect to see in the next few months reports of rather more unemployment, both absolutely and relatively, than we have known for some years. It should not rise to a percentage of the labour force that would be regarded as serious by historical standards but it will be serious for those affected. For the person who has no job and cannot find one, unemployment is 100% of the labour force. But the extent of unemployment should be mitigated by the concerted efforts being made to provide more winter jobs, while government payments have been extended to a larger number of the unemployed, and more job opportunities will open up, as always, with the coming of spring.

Some industries will continue to be conscious in the months ahead of the problems of operating at a lower level in relation to capacity than they have been accustomed to in years past. Again, without minimizing the difficulties, it is being found that efficiency is often increased at something less than full-scale output and that some excess capacity is desirable to meet peak demands that do not hit all industries at the same time. Moreover, in the case of some materials, particularly certain metals that have been scarce for some years, more adequate supplies are being welcomed as opening, or re-opening, the prospects of wider long-term markets. In the case of other materials, however, notably some other metals and petroleum, the problems of Canada's position as a marginal supplier to the United States have reared their heads and we have not seen the last of them.

There are other difficulties that I could describe and that have no doubt occurred to you. But, like those I have mentioned, they are largely manifestations of the set of circumstances that surround us. If we allow ourselves to become preoccupied with the problems we can easily become discouraged. If, however, we keep them in the perspective of the conditions that caused them, and focus our sights on the forces that seem likely to alter those conditions--and alter them for the better--I believe we have good grounds for confidence that the problems can be resolved.

One of the forces already at work is the resilience of the Canadian economy. This country, with its free institutions and people, has shown many times in the past that it has a remarkable ability to adjust to changing circumstances and the advantages of that flexibility are again apparent. An example of this is to be seen in the role played by our free exchange rate. In 1956 and well into last year, when resource development was at its height, the flow of foreign capital, which financed much of it, put our currency at a premium. At the same time, the premium, in reducing the domestic price of imports, served to alleviate some of the inflationary pressure that would otherwise have been felt. The premium also, of course, operated to the disadvantage of our exports. But now, with resource development diminishing and inflationary forces subsiding, the exchange value of our currency has fallen nearly to parity with the U.S. dollar, thus providing positive encouragement to our export industries.

In addition to its resilience, there are elements of resistance to recession now built into our economy in the form of a wide range of social security benefits which I do not need to mention in detail.

Moreover, there is a broad area of what might be called social capital where needed expenditures that were deferred in the past two or three years can now be made, and likely will be made. This includes housing, schools, roads and other public works. Housing will undoubtedly emerge as a source of strength in the years ahead. With special assists from the government and from financial institutions, residential construction was rapidly regaining momentum in 1957, and 1958 could quite possibly see more new dwellings started than any year in our history.

Also, the pick-up in housing will bring with it larger requirements for furnishings and appliances and thus strengthen one of the few weak sectors of retail trade. Apart from this need, which is in early prospect, for the many things that will go into new houses and into (or not quite into) their new garages, there is, I think, a somewhat longer-term swing in the demand for what are called consumer durable goods. Let me put it this way. The high material standard of living we enjoy consists in part of the possession of these fairly long-lasting big-ticket items, of which automobiles, television, automatic washers, home freezers and garburators are a few obvious examples. They are semi-luxuries, the purchases of which, or the upgrading of which into later models, can for a time be postponed. I suspect that the comparatively poor sales of such durables in the past year have been a reflection of a general disposition to postpone their purchase, partly because so many had been bought in the two preceding years, partly because credit, which plays a large role in their purchase, was less readily available. But I feel that this element of postponement will not persist indefinitely. Sooner or later, and possibly before this year is out, there may be a renewed surge of demand for durables apart entirely from that generated by new housing construction.

Nor can I be anything but optimistic about the outlook for our export industries. That we have at the moment capacity to produce more than we can sell is, as I have said, a transient condition. That we have in abundance what other countries, particularly our neighbour, have needed more of in the past and will come to need yet more of in the future, is the abiding fact. You may remember that the Paley Report of 1952 which forecast the enormous needs of the United States for imported materials, especially metals, was published at a time when many of these materials were in ample supply, and its predictions were decried in some quarters. But in the succeeding five years its conclusions were more than vindicated, and I feel sure they will be again.

Even more significant, of course, has been the sweep of the forward look taken by our own Gordon Commission. Seldom, if ever, has a country so thoughtfully, so thoroughly and in such detail attempted to plot the future course of its economy as a basis for examining its policies. In the hundreds of painstaking submissions, which were loosely called "briefs", that were made by business organizations, governmental bodies and individuals across the country, and in the studies and reports that have appeared or are yet to be published, there is a body of knowledge about our economy and its past, and of conscientious conjecture about its future, that will form a sure footing on which to base informed public discussion of current and future problems. Moreover, regardless of what may be thought of some of its particular findings and suggestions, the Gordon Commission has sketched, in broad outline, dimensions of possible future growth which, while not guaranteed, should inspire us to great endeavours.

One aspect of our growth that is worth dwelling on for a moment is population. The number of people in this country has been increasing at a faster rate than for some decades past and at a significantly greater rate than in the United States. Since 1945, our population, apart from the entry of Newfoundland in 1949, has risen 36% while that of the States has risen 23 %. When we think that the small fry and teen-agers who now surge around our suburbs will one day be filling out applications in our employment departments, the prospect may be a little frightening, but it is not a prospect of lack of demand for our products and services, or of lack of young people to pitch in and produce them.

There is also, on the horizon, the possibility of an enlarged flow of trade with the United Kingdom that may follow from the Canadian trade mission and the keen and warm reception it received from British firms. Beyond that horizon, again, are the trade possibilities that could arise from the economic integration of Europe that took a step forward this month with the formal inception of the plans for a common market.

In another way, I am beginning to think that a resurgence of demand for industrial materials may be upon us sooner than we expect. I said at the outset that a new dimension had been added to international relations. One satellite, or a second carrying a dog, may not seem significant. There will in time be others, penetrating farther into space, possibly over the moon and even carrying the fabled cow.

What is significant about the satellites is that the race for space will call for new dimensions of effort and expenditure in the free world. The request for authority to spend an additional four billion dollars for defence, which was made by President Eisenhower in his State of the Union Address a week ago, may be only the beginning.

I wish with deep sincerity, as I know you do, that our manpower and our material wealth did not have to be diverted, to an even larger extent than they are now, to armed preparedness. But the defence of our freedom is a matter of paramount importance and urgency to which there can be no alternative. It is a realm in which we must rely on the wisdom of our statesmen. For my part, I feel competent only to comment that what I have called the race for space may be a stronger force than we can yet gauge in changing business conditions from slack to stress in this country as well as in the United States and throughout the Atlantic Community.

To mention the subject of inflation in Canada in January 1958 may seem belated, or premature or even incongruous. As I noted at the beginning, general concern has shifted rather quickly in recent months from inflation to contraction. And as I went on to say, we seem likely to be facing slackening trends for at least the next few months. Inflation and deflation are opposite tendencies and are widely regarded as mutually exclusive. In the short run they are. But in the longer perspective that I have tried to take today, they are manifestations, at different times, of the same thing, namely the undulations in the intensity of business activity that we must expect in this country. In recent years it came to be considered by many that the business cycle was a thing of the past. The year 1954 and the years 1957 and 1958 should serve to remind us that the cycle has not been obliterated. But I believe that progress has been made towards taming it and that the need to mitigate its extremes must be constantly in our minds, on whatever curve of the cycle we happen to be. Which brings me--and you may have thought I wasn't going to get there--to the role of monetary policy. The late Will Rogers once remarked in his typically dry fashion that "There have been three great inventions since the beginning of time: Fire, the Wheel and Central Banking". Certainly we have all been aware during the last two or three years in this country, as in the United States and elsewhere, that the central bank is a force to be reckoned with and, as you realize, the tight money policy made life very difficult and uncomfortable for the chartered banks, which are the principal means through which central bank policy is implemented. But within its sphere of influence the Bank of Canada has done much towards taming business gyrations by exerting restraint when restraint was called for and subsequently, in the light of changed business conditions in recent months, by permitting a significant degree of monetary ease. Without going into detail, it may be said that monetary restraint is not now an inhibiting factor on the availability of credit through normal channels and for legitimate purposes.

But the responsibility of keeping the Canadian economy on an even keel is not one that should be left primarily or even mainly to the financial system. It must rest as well upon the conscience of governments, business enterprises and individuals. In this connection, I feel strongly that this country's growth will be assured, and the purchasing power of its currency preserved, only if Canadians are prepared to work for those rewards. It has been well said by my distinguished predecessor, Mr. B. C. Gardner, that if we do less for a dollar, we can hardly complain if a dollar does less for us. Rising productivity is the key to rising personal incomes and rising business profits without rising prices--the key to growth without inflation. This country was not built by people whose chief concern was how little they should work.

Given the willingness to work, and given the ability to keep our problems in perspective as we tackle them, we surely need have no misgivings about our short-term, or long-term, prospects.

What can make a difference, however, is our attitude to current conditions. It is really to this psychological factor that my thoughts today have been directed. My remarks, for what conviction they may carry, have been aimed at discouraging discouragement.

Mr. President, I deeply appreciate this opportunity to share my thoughts with the Empire Club. If there were times when my remarks were not exactly solemn, my thoughts were at all times serious. And if I might conclude with a less solemn, but none the less serious, thought, I would suggest that 1958 is a year in which we should be guided in our attitudes and behaviour by the words on the mayonnaise bottle, "Keep cool, but do not freeze".

THANKS OF THE MEETING were expressed by Mr. Donald H. Jupp, Past President of the Club.