A View From the North

COLONEL HILBORN:

The birth of Rogers Miles Blough, at Riverside, Pennsylvania in 1904 must be a source of great satisfaction and pride to Pennsylvanians as sometime prior to that noteworthy event Pennsylvania had been referred to as a State that had produced but two great men: Benjamin Franklin of Massachusetts and Albert Gallatin of Switzerland.

Mr. Blough, the hard driving Board Chairman of United States Steel Corporation, after graduation from Susquehanna University, which he now serves as a Member of the Board of Directors, taught school-eight grades in one room. After three years of training young minds during which time he felt the pull of both the Church and the Bar he decided with Gilbert and Sullivan that "The Law is the true embodiment of everything that's excellent". He married, entered Yale Law School, was graduated in 1931 and joined the legal firm of White and Case in New York City. His success on a U.S. Steel case led to his becoming the Company's General Solicitor in 1942. In subsequent years he held the successive positions of Executive Vice President and Secretary; Vice Chairman of the Board and in 1955 he succeeded Benjamin Fairless as Chairman of the Board of Directors and Chief Executive Officer.

Mr. Blough has received 14 honorary degrees including LL.D., and D.C.L. It is also to his credit that he resolutely declined to accept and add to the list other less honorific letters appended by a President of the United States.

Last year Mr. Blough received the National Football Foundation and Hall of Fame's Gold Medal Award. We are delighted to know this, Sir, as we in Toronto are very strong on football-unfortunately our team isn't, but we are.

About Mr. Blough, Mr. Fairless said, "he has many assets, but if I had to narrow them down to one, I would say that Roger's greatest ambition is to have a job well donehe is an organization man not an individualist".

A worthy successor to Carnegie and Schwab who runs the largest steel producing organization in the world and directs the activities of 250,000 employees -a leader with a capacity for hard work, highly respected for his modesty but a trumpet that does not give an uncertain sound-it is my great privilege to present and our honour to receive Mr. Roger M. Blough who will speak on "A View from the North".

MR. BLOUGH:

To be invited to speak to the joint membership of The Canadian Club and The Empire Club is an honour which I greatly appreciate. The fact that these two distinguished organizations are meeting together here, today, displays a sense of unity and co-operation that is especially refreshing to one who has just weathered the oratorical storms of another presidential campaign south of your border.

But now that the sound and the fury have ceased, I need hardly tell you how pleasant it is for me to visit your hospitable country and to enjoy the comparative peace and tranquillity that always seem to prevail here-or could I be mistaken? I confess, however, that my own feeling of tranquillity would be greatly enhanced if my role today were that of a listener rather than a speaker; for no matter how often I come to Canada, or how deeply I delve into the vast mountain of print about our mutual problems and relationships, I feel that I am inadequately prepared for an assignment like this.

Nevertheless, I shall persevere in the hope that some seed of economic truth may be found in these remarks, and perhaps even flower for a fleeting moment.

In this effort my Canadian friends have been helpful. True, they have differed widely in their advice as to what I should discuss, but they have agreed unanimously as to what I should not.

"Whatever you do," they said "don't indulge in any of those sentimental platitudes about the longest undefended border in the world. Canadians are very sensitive about that."

And this, of course, is understandable because the mere thought that the boundary which divides us politically might somehow vanish in the night is quite as disturbing to some of us in the States as it is to you. Heaven knows, we have troubles enough of our own, and we certainly aren't equipped to handle yours-especially since Betsy Ross, who created our flag, has not been around for rather more than a century.

Seriously, however, I have often thought about what our attitude at home might be if the situation respecting our two countries were completely reversed-if south of the border we had a land nearly one third larger than yours, rich in all the resources you possess, but with a population of only 19 million or so, while north of the border, you had a population of 193 million, a gross national product 15 times the size of ours, and the large capital resources needed to develop fully the great industrial potential that is yours.

Well, certainly we would be very conscious of the fact that you outnumbered us ten to one. We would be deeply concerned about preserving our national identity, our political sovereignty, our cultural heritage and our individuality as a people-not because we would suspect you of seeking, or even wishing, to annex us; but rather in the fear that you might simply engulf us as you grow. So perhaps we might want to check every once in a while to make sure that the border was still there.

We might also be a little sensitive about the fact that our airwaves were filled with Canadian music, our television screens with Canadian movies, our papers with Canadian comics and our magazines with Canadian fashions. We would follow closely all the political, economic and social developments in your country and debate their effects upon us. And in the end, we would probably know a great deal more about your affairs-your geography, your history and your government-than you would know about ours.

We would feel, no doubt, that this lack of knowledge on your part indicated a lack of interest in us or that, at best, you were inclined to take us for granted. Many of us would resent this, while you in turn might be puzzled-and a little hurt, perhaps-to find that your warm friendship for your neighbours to the south did not show through.

Nevertheless, you would understand-and sympathize, I am sure-with our unwillingness to become a mere tail to your kite, and our determination to stand on our own two feet, to assume our full stature among the nations of the world, to make our own decisions and our own mistakes, and to play our own part in world affairs in accordance with the dictates of our own conscience and our own best judgment.

So when we look at our relationships this way, it would seem that we really understand each other better than we thought. And indeed, it would be surprising if we did not, for as Prime Minister Pearson has said: "Our two peoples are closer together in more ways than those of any two separate nations. We talk together and in the same idiom... We react in the same way to the same frustrations.... We are all mixed up together."

And let me add that we both have the same deep-seated love of independence.

The recent Arden House conference reported: "The bedrock premise of the Canadian-American relationship is the independent existence and the equal sovereignty of both nations. Whatever the disparity between the two countries, the relationship must always embrace two nations of distinctive worth."

And that, I believe, is axiomatic. As we face our many mutual problems, any action taken by your government concerning them will undoubtedly be based upon your own conclusions as to what is best for Canada. And that is as it should be for I cannot imagine how any solution which worked to the ultimate detriment of your country and your economy could conceivably be of lasting benefit to ours ... and vice versa.

At the same time it would be disastrous, I think, to permit a spirit of independence or nationalism which flourishes on both sides of the border to blind us to the fact that our two politically independent countries are economically interdependent, that they are becoming more so, and that they will necessarily continue to be so, come what may.

So, with your kind and thoughtful indulgence, I should like today to look at some of these economic problems in the context simply of what I would think is most likely to benefit Canada.

In other words, I should like to abandon, temporarily, my usual vantage point from south of the border and, instead, take the view from the north-if for no other reason than to enlarge my own perspective. This, I realize, has its difficulties; but I hope, at least, to be more successful in achieving objectivity than the author, back in the States, who many years ago wrote a book entitled "An Unbiased History of the Civil War from the Southern Point of View".

Now in any examination of our mutual problems in the economic area, the first thing that strikes us, I suppose, is that they are, in many respects, essentially the same. For example, we both are concerned with the problems of unemployment, although in recent months the situation here in the north appears to have improved more than it has south of the border. We both have been plagued by unionmanagement problems which at times have been painfully noticeable. But the most bothersome of all of our unsolved problems, surely, is the persistent problem of international payments on both sides of the border. The United States has had a deficit in these payments for 13 of the last 14 years, and quite serious ones in recent years, while you also have had similar difficulties in many of these years.

When it comes to export-import trade, Canada is way ahead-relatively speaking. On a per capita basis, its total world-wide trade exceeds that of the United States by about three times; and of the $374 worth of goods you sell abroad for each Canadian, $206 worth goes to the States. In contrast, our exports to Canada amount to only about $22 for every person living in the States. But still, of course, you have a trade deficit in these transactions between us, and you want at least to bring them into balance. Viewing this problem from the north, then, it would seem to me that the most significant fact revealed by these figures is that each of our two nations is the best customer the other has. Nearly 60 per cent of your total exports go to the States and, while only about 20 per cent of ours come to Canada, this is a larger percentage than we sell to any other country in the world.

Now one thing we steelmen in the States have learned is that there is no substitute for a good customer; for in the lean years through which our industry has recently passed, these customers were few and far between. We followed their income statements almost as closely as our own; and we wanted to be very sure they prospered. Certainly we wanted to see that nothing we did injured their ability to buy from us. And in the same way, it clearly behooves each of our nations to promote, if we can, the prosperity of the other, and to prevent, by all appropriate means, any diminution of the other's buying power.

That, too, I think is axiomatic; for the more I look into our interwoven economic affairs-the commingling of assets, of business opportunities, of investments and of interests the more I am convinced that business in the United States is heavily dependent upon Canada, and that Canada's is likewise dependent upon ours. For I cannot hold with the easy assumption that in the matter of trade, we are more important to you than you are to us. This is like saying that three wheels of an automobile are more important than the fourth one -a fallacy, I might add, which is easily punctured.

So preserving the political borders and the sovereignty of our two nations as we shall, let us recognize that the business borders are becoming less and less distinct as they properly should.

But many of you have an understandably nagging worry that can affect decision-making both in the agencies of government and at business levels. You are concerned by the heavy influx of capital from the United States. You recognize that to the extent it exceeds the interest and dividends it pays, it helps materially to lessen your balance of payments problem. You also recognize that it has enabled you to develop the natural resources and the industries that provide so much of the product you export to the States and to the world. You are aware that without these large investments, your trade balance problems would be multiplied enormously.

But granting all this, you feel that these foreign investors are too numerous, that they have too much capital, that they control too much of your business, that they manage these enterprises primarily in their own interest rather than in the Canadian interest; and in short, that you may be-as I have said-"engulfed". These fears prompt you to wish to inhibit this flow of foreign capital; but your balance sheet tells you to attract and welcome it. So you are of two minds about it, and the issue is not yet resolved. As an illustration of this, I might point out that when the Interest Equalization Tax was proposed in the United States, you were deeply concerned about the inhibiting effect it would have upon the flow of capital northward across your border; and your prompt and vigorous protests succeeded-almost overnight-in having new issues in Canada effectively exempted from the operation of this levy.

Yet your government, in turn, has sought to make Canada less attractive to foreign capital by providing an additional 5 per cent withholding rate on dividends from corporations having less than 25 per cent Canadian ownership. You have also proposed that if 25 per cent of the shares of insurance and trust companies are foreign owned, the officers of these companies can be fined or even imprisoned -a situation which certainly makes life hazardous for these gentlemen, especially since it is so difficult to determine at any moment in time whether 24 or 26 per cent of a company's shares are owned abroad.

Both of these actions would tend, of course, to inhibit the flow of capital from the south, and seem therefore to be somewhat in conflict with your concern regarding the Interest Equalization Tax. But searching for the jewel of consistency, as I do in these matters, I find it in the fact that you naturally prefer to do your own picking and choosing among the inhibitors to the flow of foreign equity capital. Which is also understandable ... from the northern point of view.

I cite this, however, only as an illustration, for it is neither my province nor my wish to comment on your governmental actions. Rather, it is my purpose to discuss our mutual economic problems purely from a business point of view, or-to rephrase that slightly-from the point of view of good business, and therefore from that of the consumers and wage earners in both countries.

And the first thought I wish to leave with you is that if our two nations are to create more jobs and to enjoy better living, we must recognize two things: the value of broader markets and the size factor in business units.

Here in North America, the days of a primarily agricultural social existence are behind us. Ours is a mass production, mass consumption society. Our people are not willing to go without automobiles, airplanes, radios, television, better foods, finer clothing, homes with modem conveniences, modern educational facilities and all the other prerequisites that make for a fuller, more adequate life.

And the degree to which that more adequate life will be achieved in Canada, as in the States, depends upon the pace of industrial development ... upon highly skilled and ade quately educated people, and upon their having the opportunity and the facilities-the tools, plants, machines, and all the capital equipment-necessary to carry out their respective work assignments, their research, and their intricate operations, efficiently and competitively.

In today's world, industrial development-and tradedepend inevitably upon businesses of all sizes, from the family store to the huge enterprises that have to do the large scale jobs, and that require enormous capital investment. In a few days the longest suspension span in the world-the Verrazano-Narrows Bridge across the bay between Brooklyn and Staten Island-will be officially opened. To produce the components of this bridge required the united skills of many industrial units, but only the largest companies could have constructed it. And so it is with many other undertakings.

Now these larger business units not only thrive on larger markets but, indeed, require larger markets for survival; for there is such a thing as the economies of scale. How to achieve these larger markets may be debatable, but there is little question about their necessity. You can do almost anything if you have a market. You can increase your output, you can provide jobs for your people, you can enjoy higher wages, you can raise capital to assist you in acquiring the plants and equipment you must have if you are to serve that market, and you can utilize your extensive raw materials. Markets are essentially people who are willing and able to buy; and today your largest export market-the United States-is expanding at a most obliging rate of almost 3 million people annually. This means that about every 61/2 years, the increase in the number of people in the States equals the total number of people in the present Canadian market.

Now what does this mean for Canada, or for any province in Canada, or for the United States and any of its individual states? In the simplest terms, I think, it means that any attempt by a nation to be completely self-sufficient industrially is the height of economic folly.

Neither of our two countries, with its own raw materials, its own capital, and its own domestic market could possibly provide or support the production of all of the things that its

people insist upon having. So the ultimate choice is to permit the freer flow of capital and goods, to encourage the creation of such businesses-and jobs-as can be sustained ... to tax, of course, but to tax wisely with an eye to increasing business activity instead of throttling it.

Tax laws designed to protect residents against nonresidents may have their nationalistic appeal on both sides of the border, but inevitably they must do more harm than good; for capital will flow where it is invited and where it has at least an equal opportunity.

The road to industrial expansion and industrial strength is the road to national security and to better living. To pursue any other road-however inadvertently-must lead eventually, it seems to me, to loss of position, to stagnation, to an exodus of talented and ambitious youth from local communities, and to retrogression instead of progress.

Undoubtedly there will be temporary measures and the continuance of some institutional devices designed to hold home investment for local people and to maintain a percent age of home ownership. These will be tried, and perhaps may appear to operate successfully for a time-but only for a time, I believe. In the end, sustained growth will be found only by reducing-not increasing-the deterrents to profitable capital investment.

The second point I should like to make is this:

Each of our nations has a balance of payments problem, as I have said, and these are of concern on both sides of the border. And since each of us is the best customer the other has, these payment problems are a matter of mutual-not individual-concern. To seek to solve the problem in the States, for example, by methods which would increase the problem in Canada, would be a cruel policy, not only in its effect on Canadians, but also-in the long run-on the people of the United States.

So I believe that the best and only answer lies in the internal, or domestic, policies of each nation.

Today the United States is trying to improve its balance of payments and to protect the position of the dollar not so much through the imposition of damaging controls and restrictions that would be injurious to the trade of other countries, but primarily in a number of other ways.

Our government is trying to hold down on its expenditures abroad, both in the fields of defence and foreign aid. The demands are endless, of course, but there are limitations on the extent to which one nation can go in trying to strengthen and bolster the free world. At the same time it is seeking to expand its exports overseas.

In our economy domestic interest rates were raised as an aid to making domestic investments more attractive to capital. And finally our government is seeking to pursue fiscal policies that are designed to retain world confidence in our economy and our dollar.

Many in government are sincerely trying, I believe, to contain federal, state and local expenditures which have increased approximately ten-fold in the past quarter-century and which now take about 35 per cent of our National Income. Many of these expenditures are prudently required for defence, of course, but many are for other types of things including social benefits. Now all of us undoubtedly would like to see greater social gains for everyone; but these gains must be earned and paid for by those who do the earning. If we, in the States, desire greater social benefits than we can afford, too much of our Gross National Product will be sopped up by taxation; and this will not only hurt the prosperity of our country, but of yours as well, because of our interdependence. The same, of course, is true here.

We may struggle with balancing our payments till we are blue in the face, but in this modern industrial world, the problem will be solved only when there is discipline in spending, and when there is strength in the elements of a nation which give it industrial strength.

So recognizing that taxation is one of the factors basic to a healthy economy, it is gratifying to me-as it must be to you-to see that the United States-in addition to questioning expenditures-is moving in the direction of reducing the tax burden.

Now one thing of great importance remains, and that is the policy which Canada and the United States will pursue with respect to trade with each other. Will the deterrents at the border increase or diminish? There already exists a high_ degree of business integration between our two countries; and looking at it from the north, I have yet to find representatives of any major industries who suffer from this relationship or would wish to see it curtailed. On the contrary, there have recently been informal indications from businessmen in at least half-a-dozen of Canada's major industries to the effect that your nation, your consumers, your workers, and your industrial expansion, would benefit-not suffer-from what I shall term "less inhibited trade".

Now no one, I am sure, speaks for all industry, or for all of any single industry. Nevertheless, there is certainly a large group of thoughtful business leaders here who seem to wel come the gradual elimination of deterrents to more business between our two nations. They appear to believe, moreover, that this is entirely sustainable from the Canadian point of view. And why would this not be so? Canada has a wealth of raw materials within its own boundaries. Its hourly employment costs are generally less than those in the United States and as much as 25 per cent lower in some cases. And the fact that your dollar sells at about 7 cents less than ours, is an added advantage to you in reaching our markets.

In the steel industry for example, all three of these factors have been of advantage to your industry. In the past five years, the shipment of steel products from Canada to the United States has increased from less than 48,000 tons to nearly 583,000 tons-or more than 12 times. Contrarily, shipments from the United States to Canada have declined from more than a million tons to 313,000. This adds up to a situation not calculated to cause U.S. steelmakers to jump for joy.

I have also noted with interest press stories relating to the thorny problem of trade restrictions on automobiles and parts. If I read this story correctly, it seems that further arrangements may possibly be forthcoming to the mutual satisfaction of Canada and the United States which, if adopted, would reduce deterrents to trade in this field. Such arrangements, I am sure, could be of benefit, rather than injury, to Canadian manufacturers.

For example, you also have the experience of duty-free agricultural machinery and equipment which, as a World War II measure, were freely traded over the international border and have been ever since. I need hardly remind you that Massey-Ferguson seems not to have been hurt by this liberal trade policy.

As changes of this kind eventuate-and inevitably they must, I think-the development and expansion of new and existing Canadian industries with attendant job opportunities will automatically result; for industrial insularism is not the answer to national growth. But the opposite to insularism can be electrifying. It is said that no man is an island unto himself--and neither can a nation circumscribe its business units without suffering a case of arrested industrial development.

It is true that the freer flow of capital and trade both ways across the border will bring increasing competition; but competition under reasonably similar ground rules has never hurt the economy of any nation. For it is competition that removes from business the barnacles that slow down the boat of industrial progress.

Our real problem is the creation of industrial strength; for when we do that we create jobs, thus simultaneously creating the other productive strengths upon which each of our nations must depend.

Summing it all up then, what are the advantages and disadvantages of removing-gradually but perseveringlythe inhibitors to the flow of trade and capital?

Well, for one thing, it surely need not lead to a loss of sovereignty on either side of the border. That question lies exclusively in the control of the nation affected; and Can ada's future will be determined wholly and finally by Canadians. Merely doing the things that foster trade, provide jobs, open markets, and stimulate growth of Canadian business will not impair sovereignty one iota.

The concern for national individuality is an understandable and proper one-on both sides of the border. It is not, however, a substitute for industrial progress. It alone does not insure more of the better things for more people. The claim to individuality is as valid and essential as life itself; but like life, it must be clothed and fed and housed if it is to survive. Moreover, I would point out that the price of maintaining individuality in the world of today is the attainment of industrial strength and the increasing and updating of industrial capability. Nor is it the influx of capital from abroad that threatens to engulf the cultural heritage of Canada or any other nation, let me say; for the "control" which investors supposedly exercise over any enterprise is more theoretical than real.

The ultimate control, it seems to me, rests always in the hands of the customer-wherever he may be-because in the last analysis it is he who determines the policies of the business and the quality, price, kind and quantity of the products or services it sells in the market place. The better an enterprise serves its customers, the better, surely, it will serve the nation in which it operates; and if it fails to serve the customer to his satisfaction, it will certainly benefit nobody.

And that also is axiomatic, I believe. But if any nation does wish to exclude foreign capital it can do so quite simply. Let it merely continue, over the years, to spend more than it earns, and it will shut off the flow of such capital very successfully, without resorting to artificial restrictions. The existing fact of life confronting us, then, is that there is so much trade between us now and our business interests are so interwoven that neither country can afford anything less than the soundest economic policies -the ones most conducive to growth, to the free flow of capital, to the creation of jobs, to the movement of goods as freely as possible, to more abundant choices for consumers and to an improved standard of living for all.

So to me, it is a question of how-not whether-to move towards the more uninhibited flow of trade and capital between the States and Canada. It is also a question of when--and how rapidly.

The importance of finding the right answer to these questions cannot be minimized. And if your answer is what I suspect it will be, it seems highly probable that it is we, to the South, who will be worrying about your economic influence in our markets. But whatever course you choose to take, we wish you well, for economically we are an inseparable part of you.

Thanks

Thanks of this meeting were expressed by Mr. George Gathercole, Vice-President of The Canadian Club.