Rocks on the Road Ahead

MR. STARK: Our speaker today has won a distinguished name for himself in the field of financial journalism. Son of a Presbyterian Clergyman, Ronald A. McEachern was born in Ontario on February 17, 1908. He received his Bachelor of Arts Degree from the University of Toronto in 1931. After post-graduate work leading to his Master of Arts Degree, he was awarded the degree of Doctor of Philosophy in 1934.

He received his early journalistic experience on the daily newspapers but joined The Financial Post in 1937. Indeed, most of his working life has been spent with Maclean-Hunter. In 1942 he became Editor-in-Chief of The Financial Post; and a few years later he was appointed its Publisher, directing all phases of operation.

In 1948 he was the author of a book entitled Putting Your Dollars to Work. He has written many articles and has travelled widely--including trips to Russia and Japan--and has frequently appeared before audiences in this room. He is a member of The Empire Club, and his favourite recreation is golf.

Mr. McEachern will now address us on a subject of his own choosing, "Rocks on the Road Ahead".

MR. McEACHERN: As a subtitle for the topic printed on your invitation card, I paraphrase Edmund Burke. What I am going to say might be called, "Some observations on the present and coming discontents".

I do not come with glad tidings. I do not bring comfort because we are now in a disturbing and very challenging period of our national history.

Let me start off by emphasizing that I am not speaking here about the little current recession we now have. There is almost complete agreement that the business cycle will be on the up-turn again before this year is out. The exact time of the up-turn, its vigour, and above all its longevity are matters for argument. That an up-turn is soon On the way is not being argued.

That is good news. You all know about it. Our economy will have the appearance of health. Most of our people will feel better about their own affairs and their prospects.

But it is not this short-term picture that I am here to talk about. What I do want to bring to your attention are some of the very hard and disagreeable problems which now confront Canada on a longer-term basis, and particularly for the period between now and 1970.

My first point is this: our quarter-century of easy and swift growth is over. Most of the time since the end of the great depression, the business signs have been pointing upward. Recovery from the great depression stimulated all sorts of demand. It unleashed a great variety of creative enterprising energies.

Then came war with its insatiable demands. Then came the recovery period with its insatiable demands.

So the fact is that for over two decades the trend of business generally was nearly all of the time one way-up, and up, and up. It was a long period of virtually full employment, of a swiftly rising standard of living. Despite enormous taxation, the average Canadian today is far better off than he was before the last war.

Here is a very important and astonishing fact. After paying his taxes and after adjusting the figures so they are not distorted by price increases, the Canadian per capita ability to spend increased between the years 1949 and 1960 by a clear 23 percent. That is quite a remarkable increase. But, we now have about 11 percent of our labour force unemployed. That is a very large number. It compares with virtually no unemployment in the countries of western Europe. In Germany today, the main economic problem is shortage of labour.

You and I know that not all of those 11 percent are yet undergoing real hardship-the hungry, cold, naked kind of hardship. There is nevertheless a good deal of misery presently around, and it is increasing. Unemployment by itself, over any extended period of time, is an extreme misery, a total demoralizer.

Let us never forget this basic fact about unemployment apart altogether from feelings some of us have about human brotherhood. An unemployed man is not a producing man, not a spending man, not a taxpaying man. He is not only a burden to you and to me. You and I and our country do not prosper as much as we should because of him.

What has gone wrong? In addition to finding ourselves in the low part Of the business cycle, we now find our economy as a whole has entered a period of relative stagnation, of seriously slow growth. Between 1953 and 1959, the annual average growth rate of the German economy was 6.6 percent per year. For Japan it is almost the same, over 5 percent for Italy, over 4 percent for the Netherlands, 3.5 percent for Portugal, 3.2 percent for India and for Canada, and 2.4 percent for Britain and the United States.

Let us take a look at some of the economic realities facing us in the decade ahead. Agriculture used to be a great Canadian industry. This is now a very troubled industry. Nobody thinks its problems will be solved in a decade. It has many troubles.

It is bedevilled by politics in the cheap sense of the word. It is now in the transitional stage where the economically almost hopeless family farm is being superseded by the factory farm, the very different kind of enterprise run by scientific and business skills rather than by the medicine man's almanac and the state of "Uncle Bob's rheumatism".

A rising standard of living is bad for our wheat sales. North American flour consumption per capita has been declining drastically. Our historic advantage in foreign markets is declining because of the spread to other countries of scientific knowledge about agriculture and a drive almost everywhere for increased self-sufficiency.

So, the decade of the sixties will bring Canada no good news in agriculture. This will be an area of declining, rather than increasing, employment.

Mining during the past quarter-century was a great energizer of the Canadian economy, and minerals were one of our very major exports. Here again we have a major Canadian industry in a period of slow growth-quite slow by comparison with the past 20 years.

For gold it is extremely difficult to foresee any situation in the sixties at least which would lead the Americans to raise the price. To do so would mainly benefit Russia. No present ills would be improved and some problems could be made worse by raising the gold price.

Copper, lead, and zinc make up another very big Canadian export. The world now has positively enormous copper, lead, and zinc capacity. Because of new methods of prospecting, it is much easier than ever before to find ore deposits.

In addition to enormous world capacity and great ore reserves, the copper, lead, and zinc business finds itself sorely assailed by new and violently competitive materials -two of which are aluminum and plastics.

We will continue to do well in nickel exports, and before long we are likely to see very big business in potash. Aluminum has been one of the great growing industries in Canada during the past quarter-century. In the next decade, its growth in this country will be at a much slower rate. The next major aluminum projects will not be in Canada. They will be in Africa, where very low-cost power is very close to magnificent supplies of bauxite.

Uranium is a sad story, which you know well. In recent years it has been Canada's biggest single mineral export. Now the industry is sick and on the decline because the world finds that in relation to all conceivable needs we now have enormous amounts of uranium ore.

The sad truth seems to be that out of honest ignorance, and frenzied fear, we and the Western World vastly over-estimated world need. We now find that nuclear weapons and atomic power stations cannot use much of the stuff. Research indicates that other uses will likely be developed and this, quite a few years from now, may improve the picture a little.

We will continue to be big iron ore exporters, but growth in the present decade for our petroleum industry looks as if it will be quite slow and quiet.

So-taking the mineral industry as a whole, it is very improbable that it will do anything better than maintain present employment during this decade.

Pulp and paper has been our largest single manufacturing industry and our major export. With Scandinavia, we used to think we were far and securely ahead of the rest of the world in this business. But now we find that many other countries can make paper and paper products out of a wide variety of fibres. Canada and Scandinavia find the traditional monopoly increasingly shaky and insecure.

Pulp and paper will continue to be a very great Canadian industry and a great export. It will soon make important technological advances. But in the decade ahead, its rate of growth in Canada is likely to be quite different to what we have known in the past.

We have now glanced over our raw materials industries. The prospect for all of them in this decade is a relatively slow growth and very little, if any, increase in employment.

Now look at secondary manufacturing-the industries that make finished products. This segment of the economy is a very big employer and a very big payer of taxes. Here the sad truth is that secondary manufacturing has been falling behind. It has been growing very little in a period when our whole economy has been growing a very great deal. Employment in Canadian manufacturing is just about the same as it was in 1951, although in the same time, our output of all goods and services rose 94 percent and population rose 31 percent. For Canadian manufacturing, that is an extremely gloomy record indeed.

What has gone wrong in manufacturing? Enormous imports is the brief answer-our traditional imports from the U.S. and Britain, plus a growing torrent of imports from Germany, Italy, and Japan. Canada's imports of manufactured goods are about $244 per Canadian, per year. The same figure for the U.S. is $38; for Britain, $52; and for Germany, $46.

In connection with the growing torrent of manufactured imports remember this: Germany, Italy, Japan, and some other countries have just got going on their export drives. Their industrial rehabilitation after the destruction of war is by no means completed. We have yet to feel the full force Of their competition. And so far, the Communist countries have hardly come into this picture at all. But their appearance in world markets, particularly in raw materials, is likely to come quite soon.

The violence and vigour of the competitive forces which will be beating on the Canadian economy in the years ahead, will have a force which we have not before experienced.

What makes the foreign competition so powerful? Lower foreign wage rates are Only part of the Story. Many brand new, superbly equipped plants are another part of the story. Our bombers enforced their complete modernization.

Very important, also, is foreign design, imagination and ingenuity.

Very important is really good salesmanship, an art at which Canadians may not be as good as we think we are. Because of easy economic conditions for so long, some of our sales forces have not had to work very hard or think very hard.

Very important in giving force to the foreign trade drive is the imagination and resolve of foreign governments to help their industries sell abroad-to help with tax incentives and tax concessions, with export credit financing, and in various other ingenious ways.

Just a few facts about what has been happening in Canada.

In 1953 that group of Canadian firms which make automobiles and auto parts employed 76,000. Last year it employed 51,000 and the figure is still declining. In the Same period, our population grew 17 percent, and GNP increased 38 percent. In the past five years, employment in the Canadian electrical industries has declined 35,000. In the first six months of last year alone, the Canadian Steel industry dropped 2,000 workers, and that meant that some 16,000 more were laid off in related steel-using industries.

Now, one more figure. It applies to all kinds of manufacturing in Canada.

In the ten years following 1949, wage costs in Canada increased 22 percent per manufactured unit. The increase in the U.S. was 7 percent.

In the period just ahead of us, the present prospects are for a very slow rate of new job formation in manufacturing. In nearly all our manufacturing industries, we now have overcapacity. Few Of our manufacturers are able to develop any significant export volume. Some of those which are subsidiaries of foreign companies are not permitted to go into exports at all.

The sad truth is that Canadian secondary manufacture is for the most part inclined to be marginal in its profitability and in its stability. And now it faces competition such as it never faced before.

Well now, what can be done about these woes of both our raw materials and our secondary industries? When is there some hope for a reversal in our prospects? When will the basic forces in Canada start rolling forward again?

Here is one positive factor. Along about 1965, the extra large crop of post-war babies will be reaching marriageable age. The kids are here, they are healthy, and we can count on their biological urges. Provided they have some spending power, they will be creating a tremendous boom in family formation. There will be a very strong push for new houses and apartments, furnishings, appliances, and all the other stuff a new family needs.

This will mean another big explosion in demand for schools, highways, hospitals, churches, and other public services. We will be getting a fortunate boost for our economy out of this population increase. But the heart of our Canadian problem requires positive, deliberate, planned action on our part.

Canada is not geographically or economically a natural unit. It became a nation, and has so far continued as a nation, mainly because our people, through our government, took courageous and imaginative action to make it so and to keep it so. Let me emphasize this. It was government action and government policy which made us a nation and which has so far kept us a nation.

Canada, from its inception, has never been able to afford the so-called free play of economic forces. Since long before Confederation, Canadian governments have been conditioning the climate in which business operates, and have been thus influencing the direction of Canadian development.

So Canadian prosperity and growth all through our history has been very dependent on government policy. The present batch of very disagreeable problems now facing us is not the creation of any political party nor has any political party an easy, swift solution.

What has happened is this: During the past quarter-century, most things--most of the time--went well for us Canadians. Old ideas and old policies seemed to work fairly well. But now we see that old ideas and policies do not serve us at all well in a new, difficult, and extremely competitive world.

Particularly in the past fifteen years, our world has been transformed. There has been a big speed-up in the technological revolution. A host of difficult problems have been intensified by the fact that people are living so much longer. In every part of the globe, we see young nations driving ahead, usually attempting to industrialize and to supply more of their own needs.

We see great trading blocs forming in Europe. Their aim, at least in their formative years, it to buy less from us and from the rest of the world. If present plans for the Six-Nation and the Seven-Nation group work out, Canada will eventually benefit; but during the formative years of these European blocs, our troubles may be aggravated.

Based on Canada's population growth alone, we need about 1,500,000 more jobs created by 1970. The number of new jobs required will be even greater, because some now at work will lose their jobs due to technological advance and the total disappearance of their present jobs.

The total number of Canadians currently in the working age group with jobs and without jobs, is around 6,400,000. The Canadians of working age in 1970 will be nearly 8,000,000. This figure of 1,500,000 brand new jobs by 1970, is no estimate. It is no guess. It is a fact. The people I am talking about are now born. They are here. They are healthy. They are going to need and want jobs.

The problem of creating more than 1,500,000 new jobs in the next eight years is challenging in the extreme. Surely it will awaken us and send us searching for fresh ideas and preparing for courageous, daring action.

You have heard President Kennedy complaining bitterly about slow growth in the U.S. He has reason to. On growth rate, Canada is still a little better off than the U.S., but this problem is much more serious for a small country like ours. It is serious because we already have a large number of unemployed and because great new swarms of people will very shortly be reaching the age when they will be looking for their first job.

The U.S. will soon be getting itself out of depression, and it may get its growth rate speeded up. But Canada, because we are Smaller, because we have less diversity and less resilience, has more deep-rooted and more difficult problems than those which the U.S. is facing.

There are many things we can do to keep Canada a good place in which to live and work.

We must rid ourselves of smugness, superiority, and self-satisfaction. We must stop pretending that all is well and that the easy, wonderful days of boom will soon be back with us. In 1939, Canada faced the crisis of war. In 1961, Canada stands before a new crisis, and the turning we take in the months and years immediately ahead will permanently affect the lives of all of us here, our families, and the history of our country.

Nearly all business needs to take a hard look at itself, its practices, its methods, and its products. Some businesses will find that they were well organized for 1930 or 1940 or 1950, but that they are or soon will be, in trouble because 1960 has arrived. The period ahead of us puts a very high premium on really good and vigorous management with great adaptability to new circumstances.

The second thing we can to about our present predicament is to decide whether we want Canada to survive as a separate country. If we want that, then we need to make the hard decisions that will help to produce the result we want. If we want 1,500,000 more jobs created in Canada by 1970-and we certainly do-then steps must be taken to unleash our men of energy and enterprise and give them real incentive to be enterprising.

The sad fact is that in some ways we Canadians are acting like babes in the woods in dealing with some of our problems. We are so full of old ideas, of old feuds, of old slogans, of old dogmas and old theology about how government should operate and how business should go, that we just are not giving ourselves much of a chance. Certainly we are not playing the same game as other countries--particularly the countries of western Europe.

In this country, old wars between the various economic groups continue unabated. Where light is needed, there is mainly heat. Where unity of national purpose is needed, we have no unity and little unity of purpose. We do not seem to have a set of national goals about which our people are fairly unanimous.

In some of the thriving countries of western Europe, they have achieved a very tight liaison and a spirit of cooperation and understanding between government, labour, and industry. Working together, those three elements define needs and objectives and agree on the means by which they will be achieved. If you look around at the great surge of industrial development, the rising standard of living, the low or non-existent unemployment, and the force of the export drive these European countries are waging, you do not need to be told what this united effort can achieve.

By comparison, the Canadian spectacle is pitiful and embarrassing. Our tax system which, at present levels, is a key factor in most important business decisions helps kill off some jobs, and it discourages the creation of new ones. The trouble with our tax system is that it was created in an entirely different age for a very different set of national problems.

Nearly all European countries encourage their industries to form trading groups-or cartels-for the efficient, vigorous, and economical promotion of export sales. Though Canada desperately needs to increase exports, our combines law still holds that all combinations of businessmen for any purpose whatsoever are dangerous and evil and that the perpetrators must be punished. They recently tried to change this law, but there was an administrative bungle, and as the law now stands, it is merely a bear trap.

The Europeans have many ways of building their prosperity, of making their economy move forward. They talk much less about free enterprise than we do, but their governments do a very great deal to make it possible for their enterprises to be enterprising.

Canada's troubles come from what we Canadians are allowing to happen. Our problem is not what others are doing to us, but what we are doing to ourselves. We do have the world's second highest standard of living. We have a good group of people, most of them very ready to accept the discipline of work and orderly living. We have an extremely valuable infusion of industrious, imaginative, and often highly cultured new Canadians. Our system of government works as well as most and better than some. Our machinery for the administration of justice and the collection of taxes works passably well.

Our educational machinery, if no cause for self-satisfaction and (except for a few isolated areas) no cause for national pride, is at least gigantic.

We have an enormous country filled with raw materials. We have everything that is needed to make and to maintain a good country. But we must wake up and face the realities of our new age and take sensible, positive decisions on how to survive and prosper in this new age.

Canada very much needs new ideas, a revival of spirit, a renewal of hope, and an incentive to move forward. Canada's future can be very wonderful, indeed. By the next decade--that is during the seventies-we will see a much higher standard of living in western Europe and some other parts of the world. That will mean a new period of very strong demand for most of our raw materials. It will afford much greater export opportunity for many of our manufacturers. At the same time, their market potential here in Canada will be higher because of a substantially higher population. We can stand proudly among all nations on earth if we recognize, face up to, and do something about, basic problems--and do it soon.

THANKS OF THE MEETING were expressed by Dr. C. C. Goldring.