Canadian-American Relations—A Mild Breath of Heresy

MR. MACDONALD:

How often have Canadian institutions been described as a pale imitation of their American counterparts--a mere carbon-copy, as it were. Can there be any doubt that such an historical characteristic, even were it true, must surely be in the process of reversing itself now that a Canadian is president of a major American duplicating corporation? In fact, there would appear to be more to XEROX than duplicating. I read recently, in the financial press, that XEROX shareholders were multiplying at a great rate-an entirely appropriate phenomenon for that major growth industry, notwithstanding the double meaning.

Our speaker, C. Peter McColough is the President and Chief Executive Officer of XEROX Corporation--a corporation which has added a new dimension not only to business life but to business practice in America.

He is a native of Halifax and the son of a former Deputy Minister of Public Works. As a civil servant, you will allow me to say that his talent for duplication was obviously inherited. During World War II, he served as an airman in England with the Royal Navy--a fitting situation for one born by the sea but destined for high places. He returned to Canada in pursuit of further study at Osgoode Hall Law School and Dalhousie University Law School where he was awarded an LL.B. degree in 1947 and admitted to the Canadian bar. A clear fascination with business and industry drew him to the Harvard Graduate School of Business Administration where he graduated in 1949 with an M.B.A.

Prior to joining XEROX in 1954, Mr. McColough worked for a corporation which must have been reminiscent of Nova Scotia and its economy, in terms of coal and water, when he was VicePresident in charge of sales for the Lehigh Coal and Navigation Company in Philadelphia. He became President of XEROX in 1966 and was named Chief Executive Officer in 1968.

Not surprisingly, his public responsibilities are numerous: a Trustee of the Rochester Institute of Technology, St. John Fisher College, Manhattanville College, the University of Rochester and a Director of the Community Chest of Rochester and the Memorial Art Gallery, while his private responsibilities are multiple, as the father of five children. In March of 1966, Mr. McColough received a Presidential appointment to serve as a member of the United Service Organizations for a three-year term.

Apparently, we have no monopoly in our concern with our American relationship: a Mexican recently remarked to me that Canadians and Mexicans had one common problem between them! But, we rarely hear the story of our relationship from a Canadian resident of the United States. Some may lament talented Canadians who leave our country, but members of this Club surely believe in the empire of ideas and the contribution which Mr. McColough is making to the business community of the world. We welcome back a Canadian, a maritimer who is such an accomplished sailor in the powerful seas of American business.

MR. MCCOLOUGH:

Thank you.

Some years ago, when I first began to address audiences, I was told never to begin by saying, "It's good to be here." Such declarations, apparently were too common and therefore a little synthetic.

Today, I feel so much at home I hope you'll forgive me if I treat this occasion as the exception that proves the rule. It is good to be here.

First of all, this is one of the few times that I could look forward to an introduction in which the name Dalhousie Law School would be pronounced correctly. On one occasion a few years ago, I was delivering a speech before an influential group of American Security analysts and was introduced as a graduate of Dahousie Lie School. Of course, the master of ceremonies was deeply apologetic . . . and when the laughter stopped, he corrected himself instantly. He re-identified the great institution as Da-Lousy Law School.

By that time, my distinguished audience was almost in tears and I began to feel that no matter what happened next, there was bound to be a credibility gap in whatever I might say.

But I need not tell you, I hope, that my pleasure in being here goes far beyond the assurance of proper pronunciation.

In a very real sense, this occasion also gives me the opportunity to focus more intimately than usual on my own personal posture, both as a man of Canadian origin and heritage . . . and as a businessman working in the United States for a large American corporation.

When I left home more than twenty years ago to attend the Harvard Business School, I left as a Canadian who fully expected to return to Canada. Except for one brief period, I never did return. And I have never been able to decide whether I was a dropout, a renegade . . . or what. At one point I toyed with the idea that I might be an example of what some Canadians call "the national brain drain". But one of my ardently nationalistic Canadian friends effectively killed the notion when he said, "Peter, your decision to stay in the United States was one of those happy circumstances that simultaneously raised the intellectual level of both countries."

Whatever my label, I must confess that after so many years in the United States, after marrying and having five children, my point of view can no longer be called that of a Canadian. It is that of an American whose concern for Canada's well being is a lasting one. And it is that personal cross-current of concern for both nations-each with its special problems-that has brought me to the subject I would like to discuss with you today: the recurring uneasiness of Canadian-American economic relations.

From what I've read in the Canadian press and the reports from Parliament in the past few years, the controversy in this country as to the significance of U.S. capital involvement in Canada recurs with the regularity of a bad television commercial. The phenomenon is variously described as investment, imperialism, economic collaboration, threat, opportunity, and a host of other conflicting definitions.

Included in the negative indictment are complaints that U.S. companies in Canada have too few Canadian executives; that they foster too little research and development here; that they buy too many components from the United States; and that they make little effort to increase Canadian exports.

The logical implication of these charges is that U.S. owned companies tend to work against Canada's interests rather than for them . . . exploiting rather than contributing to Canada's resources.

This represents, in its most skeletal form, a harsh and deeply serious accusation.

Those who try to defend the influx of U.S. investments believe that it will generate greater executive capabilities for Canada, that the volume of new capital will produce the kind of research and development best suited to Canada's needs, and the deliberate specialization will serve Canada far better than full-line production.

As a man whose background permits a reasonable understanding of both points of view, I can only hope that the outcome of this waxing and waning argument will be equally constructive for both countries. But at a time when Canada's mood seems so optimistic and positive, it occurs to me that such differences also can polarize quickly particularly in the public mind--and contribute to a hardening of positions not only as between Canadian and Canadian but between our two countries as well.

Of course, apprehension about American influence is certainly not a new phenomenon here . . . or one without a degree of historical precedent. After all, it was only about a hundred years ago that the United States gave up all hope of annexing the Dominion . . . and Canada in turn stopped building fortifications along the border.

And I think it was around 1910 that a major Canadian political party ran on the slogan, "No Truck or Trade with the U.S."

It's readily understandable, in my view, for any nation which shares borders with a far more powerful neighbor to worry about its sovereignty and to look with suspicion on any action that could bear, directly or indirectly, on its independence.

I must also grant that Americans themselves have not always been as sensitive to the position of Canada as they might be. To be called "our cousins to the North" is not exactly a Canadian's idea of national identity. The fact is, of course, that Canada does not share, as many Americans tend to believe, a common culture and heritage with the United States.

Yet whatever insensitivity and misconceptions Americans may be guilty of, it is my personal conviction that they do not arise from malice or bad faith. Americans simply know too little about Canada. As Henry Ford has said, the characteristic American attitude toward this country is well-intentioned, but not very well informed. Furthermore, their misconceptions seem to me almost peripheral to larger considerations.

I guess my position, basically, is that any realistic discussion of Canadian-American affairs must assume that the relationship between two nations of unequal strength who share so much, and who have so much to gain from each other, will never be one of total ease. Despite an interdependence greater than between any other nations of the world there are bound to be issues between the United States and Canada that simply can't be resolved to the complete satisfaction of both.

But I think reasonable people in both countries understand and accept the inevitability of occasional disagreements with each other's policies . . . and recognize that many of them dissolve with time and changing circumstance, plus the customary quota of reason and good will.

What concerns me far more are the specious concepts which inhibit our relations . . . concepts that exploit fear and fan it into a kind of subtle almost paranoid loss of perspective. They represent to me the real impediments to more mature and much more fruitful cooperation between us. And in my view, quite frankly, the specious elements which cloud rather than clarify Canadian-American relations can be found more readily today in Canada than in the United States.

American investment in Canada, as you know, is enormous and far in excess of our investment in any other country of the world. Total U.S. investment here is now about $25 billion. Some estimates claim more than half of Canadian business is controlled by American capital.

But, in fact, actual American control of all Canadian industries, including merchandising, amounts to about 27%, an increase of 7% in the last twenty-eight years. In all, Canadians own and control about two-thirds of the country's total enterprises.

Of course, the fact remains that a number of key manufacturing and resource industries--oil and gas, rubber, automobiles, mining, electrical apparatus--are controlled by American investors and corporations.

I've heard it argued frequently that Canada is weakened and compromised by foreign domination of so many primary industries. Naturally, if that domination were used as an instrument of American foreign policy, I would agree.

It's true, of course, that American policies do occasionally affect American-owned subsidiaries, as they did in the 1965 guideline dispute. But when that happens, the impact is usually brief, and that action, after all, was designed to protect a currency far more important to the world than any other. Canadians, as well as people of other nations, don't always recognize that--despite its problems--the Yankee dollar carries with it responsibilities that transcend the immediate interests of any single nation. And by that I mean the United States as well.

The point is that situations like the guidelines dispute occur with such amazing infrequency. Perhaps "amazing" is not the word. Twenty years in the United States have taught me that Americans are acutely sensitive about the wealth that they have been able to create. Granted, they are not out to lose money. Yet there is--in the search for profit--a sense of responsible mission and restraint that characterizes the overall conduct of their present international business ventures. And as we have all seen in the soul-searching crises that the United States has experienced over the last several years, Americans have never before been so anxious to do the 'right thing".

I am not, believe me, pleading here for your greater understanding of an American dilemma . . . desirable as that might be. I am simply saying that Canadians who interpret as dangerous the percentile ownership of Canadian enterprise by American investors would do well to ponder first the real nature of the American investment.

American investment here is private, not governmental. By definition, this guarantees that there can be no guiding or over-riding force which is pursuing some Machiavellian goal. What is pursued--by over 1,500 highly competitive American-owned and thousands more Canadian enterprises--is the development of this economy through profit.

So far as I'm concerned, the mass of evidence clearly suggests that the motives of American investment in Canada are purely economic, by which I mean the creation of wealth; and that domination is by no means synonymous with intervention or political control.

To translate the simple fact of American economic power in Canada into a half-formed fear of political subjugation, and to support it with itemized but unrelated accusations against American business behavior in Canada is really to beg the question and to create a mythology that violates logic for the sake of emotion.

A case in point lies in the widely publicized charges against American-operated business that I mentioned earlier. An investigation conducted over a period of years at the University of Saskatchewan suggests that, to date, none of the charges have any foundation in fact. On the issue of not pushing Canadian exports, for example, a total of ten industries were examined in which both Canadian and American companies operated.

The export efforts of the two groups were barely a hairsbreadth apart. The median percentage of output exported by the Canadian companies was higher in five, lower in four and exactly equal in the other.

But apart from that kind of simple misconception, there are also half-truths about American policy which fog the issue even more.

As you're aware, 70% of Canada's imports come from the United States and contribute to a trade deficit every year with the U.S. of about $1 billion. This is a situation with which the Canadian government is obviously and understandably unhappy; and one which it seeks to correct. Yet that deficit--which in itself seems to create resentment in many quarters--is not the whole story.

For one thing, it is nearly balanced by large exports to other countries . . . one billion dollars of which is generated by American-controlled companies. That represents about one-quarter of all Canadian exports to countries other than the United States.

What's even more important, however, is that Canada has a large surplus in its capital account: almost one billion new foreign dollars are invested here every year, and roughly three-quarters comes from the United States.

The long-term result of that investment can only further the development of Canadian manufacturing, and thus create an even stronger export position both to the United States and the rest of the world.

For these reasons, among others, I think it would border on folly for Canada even to contemplate unilateral action to balance its American trade account.

Fortunately there are a number of Canadians who share this belief and realize that such action would seriously undermine the two immeasurable assets that have historically made Canada so irresistible to foreign capital: economic stability and freedom of operation.

These two factors are, in my opinion, the nation's most valuable media of exchange in dealing with foreign capital. They are what led 1,500 major subsidiaries of American companies to Canada. They are the factors that encouraged foreign money to infuse the Canadian economy with a vigor which it would have taken decades longer to generate on its own. Moreover, the capital has brought with it a great deal of managerial skill, modern manufacturing methods and sophisticated technology . . . all of which have taken root and may ultimately be of greater value to Canada than the capital itself.

Yet too few Canadians seem to understand or take pride in the climate that has made Canada such an attractive place for capital investment. At the same time, too many fail to recognize that lacking the American venture capital they now bemoan Canada would probably not enjoy the second highest standard of living in the world. Without it would she not be weaker and possibly far more vulnerable to the very kind of domination with which she has been so preoccupied in public debate?

There is a real paradox in this situation . . . and it's one that often disconcerts Americans who look at Canada. What they see is a country of extraordinary vital statistics.

Only one other nation--the Soviet Union--has greater land mass than Canada. She is the fifth largest trading nation in the world. Only one other nation uses more energy per capita. Radio reaches 98% of Canadian homes--and television 94%.

With only one-half of one percent of the earth's population, her gross national product has risen more than 80% in the last ten years. And her economy is still accelerating, blessed with what appears to be inexhaustible natural resources.

This nation has overcome enormous obstacles of climate, geography, ethnicity and underpopulation to become one of the wealthiest, stablest and most respected nations on earth. How can one possibly describe the magnitude of that achievement?

You yourselves came as close as humanly possible to explaining Canada's achievements during your Centennial celebration, with Expo '67 drawing millions of visitors from all over the world and far outshining the Fair which we Americans had produced in New York several years earlier.

Yet although Canada has achieved--against great odds--a glowing prosperity at home and an influential position abroad, her posture toward the United States often continues to exhibit the kind of hypersensitivity that so often signals a shortage of self-confidence and self-esteem.

Certainly it would be gratifying if more Americans knew more about Canada as a unique culture. And I think they should. But self-esteem in a nation, just as in a man, is a function of internal values . . . not of the understanding or praise of others.

So if I'm correct in my assessment both of Canada's powerful stature, and at the same time her bewildering lack of confidence--then the obvious question is "Why does heavy American participation in Canada's economy continue to generate such resentment?"

I can't believe that the sheer weight of that participation . . . or the far greater power of the United States . . . or the scant knowledge of Canada that many Americans have . . . or even disputes like the 1965 American guidelines policy and the recent banking argument in Ottawa add up to adequate answers. Each is, of course, a contributor. But each is also external.

In essence, I'd like to suggest an internal source of that resentment . . . and one which you may like as little as I like advancing it.

The problem faced by Canada is quite simply that she does not have enough capital to provide her people with the standard of living they demand . . . and, therefore, she must--unless she chooses to wear a "hair shirt" seek foreign capital. Anyone of good sense must recognize that such investment is an economic necessity and probably a political one.

But in the process of generating foreign capital, I'd like to suggest to you that, in some respects, Americans over the past forty years have had more faith and confidence in the business future of Canada than many Canadians themselves . . . and that this could be a sensed but unspoken factor in antagonism toward the United States.

During the Depression years of the 1930s, a number of Canadian banks took pride in the fact that they were surviving while their American counterparts were failing in great numbers. But the American banks, some of which did fail through bad management, also failed because of their confidence in the economy and their faith in its viability. They failed, in other words, for the right reasons . . . while Canadian banks, whose extreme caution insulated them from the plunge of their own economy survived for the wrong reasons.

To this day, Canadian businessmen complain that the conservatism of their banks forces them to go abroad for money, largely to the United States where receptivity to venture, to innovation and to the future seem greater. If that's true even in part, then the degree of foreign investment in Canada is obviously a situation that Canadian conservatism, not American aggressiveness, has created. And to inhibit that investment would seem to inhibit the health and growth of Canada itself.

Another major lending force, the insurance companies, actually corroborates this thesis. As you know, life insurance companies in the United States area major source of corporate financing . . . and their proportionate stock holdings are nearly 65 % greater than those of the Canadian life insurance industry. Only now are some positive steps being taken to liberalize your institutional investment policy.

So while the common argument is true that Canada's under-population makes both capital accumulation and an expanded industrial base exceptionally difficult, Canadians have not always tried to make it less true.

It's possible to say, of course, that financial conservatism is just a part of the Canadian temperament and history. But that's a little too glib. I think it's worth asking whether this inbred conservatism guides Canadian action in other economies.

I found one answer within my own company, Xerox Corporation. Historically Xerox has been at heart a venture company possessing all the risks and pains of growth. Yet today the value of Xerox shares held by Canadians is well in excess of $60 million.

Although I can't confirm my feeling, I doubt whether there is a venture company in all of Canada whose shares are valued to that extent by Canadians. And I am convinced that Xerox is not the exception that proves the rule.

The overall picture, which to me is persuasive, is that per-capita Canadian investment in American industry is greater than the per-capita American investment in Canada. Given that fact alone, Canadians must at least grant that control of a portion of their industry has been relinquished to the United States by default. They must grant too that there is a potential for venture among their own people which their more cautious policies do not satisfy.

These are factors which make American investors skeptical when they are criticized for doing what Canadians could do more of themselves. Canadians--in my opinion owe it to themselves to keep such factors in perspective.

Please don't misunderstand me. I'm not suggesting that Canada should pay its debt to the United States with fealty to American policies . . . or that Canadians should be more tolerant of American mistakes. Canada now pays to foreign investors, mostly American, a return on their investment of nearly $11/4 billion a year, which amounts--I should add to only about 2% of your gross national product. It has met and continues to meet its economic obligations.

Nor would it make much sense to encourage greater Canadian control of Canada's enterprises by punishing or artificially retarding American ownership. Canada needs and will continue to need American funds for a long time to come.

My argument is simply that in establishing and maintaining a relationship of equality and mutual respect between nations of unequal strength, the less powerful country should not on the one hand solicit help from abroad -help that some of its own institutions have been unwilling or unable to grant -and on the other hand accept that help with resentment . . . or malign it as unjustified domination.

Agreed there is a great deal Americans can do to improve and nourish their relationships with Canada. I continually suggest to my American friends that they must think with great intimacy and depth about Canada's unique role in our hemisphere and our world.

To my Canadian friends I make the same plea. As Robert Stanfield suggested in a speech last year, I believe Canadians owe more to themselves than distrust, resentment, suspicion and antagonism in their relations with the United States. Instead they owe themselves a pride of great accomplishment, achieved by their own hard work and by offering freedom and stability to those who have had the faith and incentive to invest in this nation's future.

If the events of the past year are any token of the future, I believe the road ahead should be easier for us both to travel.

The election of your Prime Minister Trudeau, for one thing, is widely regarded in the United States as a sign of fresh Canadian vigor--of a greater willingness to change of a more confident readiness to experiment. These are really the core elements of national pride. And in the realization of that pride--from Halifax to Vancouver--in the confidence and assurance that arise from it, lies the best and surest guarantee of Canada's sovereignty . . . and the only route toward greater rapport and more successful fraternal existence with the United States.

I hope and pray Canada will travel it.

Once again, my deep and very sincere thanks for the opportunity to return here . . . and for your patience in listening to a point of view which, I assure you, is born of concern for a country whose stature is far too great for anyone--American or Canadian--ever again to doubt.

Thanks of the meeting were expressed by Mr. R. H. Hilborn.