Capital Has No Nationality

DR. CRANFIELD:

Next year British Columbia will celebrate its centenary as a province. In 1871--there were 36,247 people there and 3/4's of them were native Indians. Today there are 2,161,000 and one of the most important of these is on my right.

Our guest of honour here today is the Executive Vice President Administration, to MacMillan Bloedel Limited and it is characteristic of him to begin close to the top and move upwards. The secret of this type of success seems to rest in skill at planning.

As an example he was born in Vancouver on September 10th, 1920 and this guaranteed that he eliminated all the argument over age-at-entry to school for he was, in the parlance of horse racing, a yearling at the optimal time and thus off and running. He did not mess around acquiring a hit-and-miss education but got right down to it, for he took all of it, without having to travel from his place of birth, including his bachelor degree in Economics and Political Science at U.B.C. by age 21. By 1942 the Cold War portion of World War II had just ended so he hadn't to wait around in camp like the rest of us for angry shots to be fired. He went straight into the army with the Seaforth Highlanders and was quickly off to North Africa. A sufficiently seasoned soldier he crossed into Sicily when the first European front was established and worked from the toe of the boot of Italy up through it with a valorous record. A major at 24, he was wounded in action in Italy and retired from the active armed forces in 1945. I doubt if this wounding was by plan but "first in first out" was the usual order of army discharge unless, like him, one were wounded. Thus, up he went to the front of the queue. He then went straight back to British Columbia and promptly became the Commanding Officer of the University of British Columbia Officers' Training Corps where he was raised to the rank of Lieutenant Colonel and continued to direct this operation from 1946 to 1953. In the first two years of this period he obtained his Bachelor of Law degree. He went directly into practice with the respected firm of Clark, Wilson, White, Clark and Maguire where he remained until 1953.

If in 1862 the Hudson's Bay Company had not established themselves in Victoria, which was to become British Columbia's future capital, it would have belonged to the U.S.A. for it is located at the most southern tip of Vancouver Island well below the 49th parallel which was later to be selected as our International Boundary line. Without this fortuitous circumstance the constituency of Victoria would have been American. Instead it is in Canada and here in 1952 our speaker ran for parliament and from there was subsequently re-elected six times. On his first election he went right into the Cabinet as Attorney General of British Columbia and held this post for 16 years. Concurrently, off-and-on, he was Minister of Education and Minister of Commercial Transport. He sat in the Bennett Cabinet with the father of one of our directors, Mr. Arthur Chetwynd, when Mr. Chetwynd Sr. was British Columbia's Minister of Agriculture who by the way has a grandson in this audience today. Very importantly, he held another Cabinet post for 7 years. I'll tell you about it in a moment for it relates to his present interests. His political career ended with his retirement from the Government of British Columbia on May 27th, 1968 so that he might join MacMillan Bloedei Limited as its Senior Vice-President Administration, now called Executive Vice-President Administration.

Consider if you will these simple statistics: the total shipments from British Columbia have an annual dollar value of about three billion. A third, or more than one billion of this, is from the forests and its products, the saw mills, pulp and paper mills, the veneer and plywood mills, the publishing and printing industry and the Sash and Door and other millwork factories. The total payroll within the province of British Columbia is 200 million per year; more than half of this is paid to workers in these industries. Big stuff anywhere, and especially in our third largest province B.C., and who is the biggest producer of them all? MacMillan Bloedel! and I stand right in the middle of it!

The Ministry that created the milieu for such expansion was that of Industrial Trade and Commerce of which our speaker was minister for seven years, in addition to the other governmental posts of which you heard earlier. So our Speaker's life always seems to move as though he were planning every step of it. He has added a career in the Moving Picture Industry by his election to the Board of Directors of Famous Players Canadian Corporation Ltd. This is a reversal of the Ronald Regan order. Since everything he does is planned, I would expect he will be a movie actor and matinee idol next. I now give you Mr. Robert William Bonner, Q.C., B.A., LL.B., C.D.--soldier, lawyer, law maker, cabinet minister and industrialist whose topic today will be, "Capital Has No Nationality".

Mr. Bonner:

I have watched with growing amazement as one effort follows another in an attempt to persuade Canadians that there are differences among the capital investment dollars coming to Canada--that some of these dollars are very good and that others are very bad. The thrust of these criticisms is to persuade Canadians that if the source of invested capital lies outside the country, then Canada is somehow in danger of losing control of its own economy.

This conclusion has already prompted some to urge that Canadians set about to buy back their own country--whatever that means--and even Marcel Cadieux, Canada's Ambassador to the United States, in mid November wondered aloud whether Canada might not find it advantageous to take "social, regional, political and linguistic factors into account when drawing up a new set of behaviour rules for 'good corporate citizens'." When remarks of this sort come from such a responsible quarter, who knows what future discussion will bring?

As to foreign investment, I can say confidently that we have found in Western Canada that we can absorb vast amounts of capital from a number of sources, including the United States, without becoming the less Canadian in our characteristics and without loss of proper control of our own affairs.

As this national discussion about foreign investment proceeds, Western Canadians may be pardoned if they begin to question, looking back on the post-war period of almost uninterrupted expansion, just how much of it would have occurred in the West if the present discouraging discussion about foreign and particularly American investment had begun twenty-five years ago.

It will be my thesis in these few remarks to say that not only does capital have no nationality but, indeed, it may be supra-national as it flows between countries. However, it certainly becomes an integral part of the nation once it comes to rest, which is to say, once it has been invested in the host country.

I further believe that when we attempt to apply simplistic tests of nationality to capital, we not only jeopardize investment and the obvious benefits which flow from it, but also we embark upon a course which compels bureaucratic intervention at home and invites protective reaction abroad. In these circumstances disruption of the functioning machinery of the capital market place becomes inevitable. This is an experience which Canada would be wise to avoid.

Traditionally, and deliberately, Canada has been one of the world's most hospitable countries for venture capital. Some now say we have been too hospitable and that capital ought now to be screened before it is admitted. Screening, of course, would be done by government officials with little experience in and no responsibility for entrepreneurial decisions. Thus, the influence of a government bureaucracy would be brought to bear on the normal ebb and flow of capital across the borders. There is no reason to believe that this influence could be confined to foreign capital.

Inevitably, this screening process will result in discriminatory judgments against one body of investors in favour of others and will invite retaliation against Canadian businesses striving to enjoy the benefits of international trade or multi-national operations in other countries.

A basic flaw, it seems to me, in the reasoning behind nationalistic movements that are super-sensitive to foreign investment, is the confusion between governmental and private influences as they relate to outside capital, and in this context the reference is usually to American capital. If a man from Denver, for example, buys shares in my company, it is not because he hopes to exercise some Americanizing influences on our operations. He is not engaging in a conspiracy to dilute the Canadian nature of MacMillan Bloedel. He is simply exercising a business judgment!

Similarly, when Chrysler decided to set up shop in Windsor, its motives were not those of the fiery John L. O'Sullivan who declared in 1845 that it was the United States' "manifest destiny to overspread and possess the whole of the continent which Providence has given us." Chrysler's motive was simply to manufacture automobiles inside Canada's tariff barriers. Indeed, much direct foreign investment in this country is here because our own protectionism encouraged outsiders to set up Canadian subsidiaries.

As you probably know, my own company is 75 percent or more Canadian-owned, but in both Canada and the United States it operates alongside American companies in the same industry--some of them larger than we are, some of them smaller. I suspect some of them have learned something from observing certain industrial methods we have developed over the years. Certainly we have benefited from imports of technology which were perfected earlier in the United States than in Canada. The Americans are vigorous competitors for the same markets we serve, so we have had to be competitive with them in every phase of our operations--in production, distribution and marketing. Competition from outsiders, in our case then, has been a spur to excellence and we would not seek to restrict it. I think this view is widely held among Canadian businesses.

Business investments are the result of business decisions--diverse, non-political and mostly unrelated to one another. Consequently, the fear that the thousands of U.S. owners of all those investments in Canada would suddenly begin to act deliberately and in unison to frustrate Canadian policy strikes me as being both groundless and absurd.

We suffer, perhaps, from a kind of statistical psychosis arising from those figures which show that foreigners own 99.9 per cent of the petroleum and coal products industry, 95.7 per cent of motor vehicles and parts industries, 91.6 per cent of aircraft and parts industries, and so on through a long list which leads to the too easy assumption that the country's assets have been virtually confiscated by outsiders.

The illusion is heightened by the frequent habit of referring to the sale of a Canadian company to a U.S. company as a "takeover." The U.S. buyer is often referred to as a "giant" and the Canadian company cast as its victim, the poor Little Nell of international economics, when in fact the Canadian company was fairly sold by a willing seller to a willing buyer. We are frightening ourselves with scare words.

Statistics chosen less selectively than those I have just quoted lead to a better balanced picture. Overall, it appears from figures reported under the Corporations and Labour Unions Returns Act that American-controlled corporations own 19 per cent of Canadian corporate assets, and the portion of total business assets owned by Americans in Canada would be much less than 19 per cent.

In the last half of the 1960's new U.S. investment in Canada has been running at a fairly constant rate of something over a billion dollars a year. Last year that included $619 million of new capital, $937 million of reinvested earnings and $182 million of net new acquisition. Viewed in that light, American investments look less like takeovers than votes of confidence in Canadian stability.

The 1969 figure of new U.S. investment in Canada $1.7 billion--falls into better perspective when judged in relation to total capital formation in Canada for that year $16.9 billion.

Regardless of the source, once the investment dollar is injected into Canada's economic bloodstream, is is in effect naturalized.

Plant and equipment may not always become a commercial success--but they remain resident assets virtually irremovable from the country. Thus, investment is subject to Canadian law and regulation. Moreover, it is not disputed that Canadian subsidiaries owned by people outside Canada have usually been exemplary citizens, if anything working a little harder than some of the natives to live up to their obligations.

It is at the governmental level that difficulties arise, not at the corporate or personal investment level, and it would appear to be mistaken nationalism to restrict investment by private individuals because of the policies of their government.

It must be admitted that Canada does on occasion have a problem with the extra-territorial application of U.S. laws and regulations. This is a subject of frequent discussion between the two governments. Attempts by U.S. government officials to make U.S. anti-trust laws apply to Canadian companies, simply because they are subsidiaries of U.S. parents, is an irritant in relations between the two countries. This same irritation occurs when regulatory bodies try to make their edicts apply to Canadian companies. These are the incidents which inflame nationalistic sentiments in Canada and they are often just as irksome to U.S. businessmen as they are to Canada because they impose dual national responsibility on some of their operations.

Somehow, a better way must be found to assure that Canadian companies, regardless of where their owners reside, are subject only to Canadian law insofar as their Canadian operations are concerned.

This assurance may require long and delicate negotiation but fortunately we are dealing with a friendly government which we know and understand and with whom we have resolved more difficult problems in the past.

Having acknowledged occasions of genuine irritation, I repeat that we make a grave mistake if we seek a solution to inter-governmental conflicts by lashing out at private outside investment, as some of us are inclined to do.

A new dimension has been added to Canada's love-hate approach to foreign investment and that is the multinational company. There is a risk that its importance may be overlooked as we strive for a national consensus as to what policy the government should adopt with respect to outside capital. The multi-national company is proof that capital works more efficiently for society if it is allowed to function outside the confines of a single nationalism and those organizations which qualify as true multi-national companies have nearly divested themselves of national colorations. Thus, host countries can accept them and their investments for what they are, rather than mistake them as long arms of some political power trying to expand its influence.

Canada needs to encourage the development of an international community of thought in which business decisions can be made multi-nationally. Free capital movements are part of that community. By allowing capital to move freely across borders we do more for Canada's national independence than by throwing up nationalistic barriers to investment because new capital bolsters our economic strength.

We cannot be strong politically if we are weak economically.

At the same time we should, ourselves, be moving beyond our borders, participating in the assembly of international organizations that will bring new wealth in the form of profits and technology back to Canada, and we should be more alert to the investment opportunities in our own back yards. Then, perhaps, we would be less sensitive to the presence of others in our midst.

In the face of today's social needs, however, I don't know how it can be suggested that we ought to forego millions of dollars in investment simply because it comes from American or other sources. That is an emotional and self-defeating approach to national independence.

Quebec alone stands in need of 100,000 new jobs by the end of next year and by any measure the creation of those jobs is going to take a prodigious amount of capital. Taking the forest industry in British Columbia as an example, one new job in a new pulp mill can cost upwards of $120,000 in capital invested. Granted that the pulp and paper industry is a capital intensive industry, but that is the trend in all industry today.

It has been reported that the federal government has invested $1.1 billion in projects in depressed areas over the past two years but has succeeded in creating with that outlay less than 37,000 new jobs. Therefore, each of those jobs cost almost $30,000 to create.

The need for capital is both great and growing. I do not know how it can be argued that a Canadian working at a job provided by an outside investor would somehow be better off if he remained unemployed until such time as domestic capital filled the investment gap.

I hold no brief for economic dependency and I do not claim that it is a good thing for Canadian capital to lie idle while others take the risk and the profits, or losses, which follow. But Canadian capital is not idle. It is simply insufficient for full Canadian development.

I should like to see Canadian investors far more venturesome and innovative than they have been in the past, and I detect unmistakable trends in this direction, particularly among younger enterpreneurs. But until such time as we can produce domestically a greater share of our capital needs, I reject the timid proposition that our Canadianism is too weak to survive the influence of outside investment.

Our Canadian characteristics, it seems to me, are better defined today than they were in the past. They have been exposed for generations to outside ideologies, customs and mores. We have always adopted those that appealed to us, and turned our backs on the rest.

I would hope that we are not about to experience a resurgence of the kind of nationalism that marked the old reciprocity debates of the mid-1800's and re-emerged in the period leading up to the federal election of 1911. That was the election in which Sir Wilfrid Laurier urged the country to "Follow my white plume" into a free trade compact with the United States. But his slogan was countered by that highly emotional cry attributed to Sir George Foster--"No truck nor trade with the Yankees," and the emotional approach won. It is ironic that the 1911 outburst of nationalism was based partly on a fear that American capital investment in Canada would be reduced in an era of free trade. The protectionists argued that American companies would not build branches in Canada if they could get their raw materials from us duty free. We have certainly come full circle.

It came as something of a blow to our national pride the other day to note in the press that Canada had slipped in the ratings that are periodically made of the relative standings of nations in various categories. Once upon a time, every school boy took for granted the claim that Canada was second only to U.S. in the store of goods she produced, per capita. For a northern nation with few people that seemed a fair achievement. Sometime in the postwar period, however, another northern nation, Sweden, overtook us in the ratings. Now we learn that tiny Switzerland has achieved a higher GNP per capita than Canada, according to latest compilations. While this certainly is no catastrophe, and we should not begrudge Switzerland her new stature, it does stand as a commentary on Canada's recent failure to turn in a performance closer to her potential.

One Canadian resource in particular--our manpower is wasted in underemployment and unemployment. The surest source of jobs for those now without them is industrial growth. I now collide head on with the environmentalist but otherwise nationalist argument that our society can no longer afford industrial growth for the sake of growth. It is argued that the capitalists of the world have got to stop this incessant creation of new plants which spread farther and farther into the countryside. In Canada today I can only say that growth is not undertaken for the sake of growth but for the sake of providing the basics of life to a constantly growing population. When zero population growth is achieved, we can then consider the implications of zero industrial growth.

Because it is the area I know best, British Columbia's experience with economic growth is the best example I can think of to illustrate the benefits which flow from a policy encouraging capital investment. In the past ten years capital investment in the province has grown by 125 percent. Investment of that magnitude then helped to stimulate a 134 percent increase in wages and salaries, a 126 percent increase in gross provincial product, a 157 percent increase in building permits and a 78 percent increase in retail sales, from a population which increased 32 percent.

Much can be read into statistics such as these, but more than anything else, they illustrate the multiplier effect of investment into various sectors of the economy. The sum of the benefits, in other words, is greater than the total of the investment because of the widespread stimulation of the economy. Investment in British Columbia has come from any number of sources--from the Americans, from Japan, from Europe, from Ontario and from British Columbia.

Investment from a polyglot kettle of capital has gone into joint ventures, wholly-owned subsidiaries, and individual portfolio investments. Each part has sought a reasonable return based on British Columbia's particular economic advantages, yet no part has sought any privilege based on nation of origin.

I think our experience might be cited as an example of Canadian identity strengthened by the infusion of outside capital. Our children may drive, in their Japanese cars, into an American franchised eating establishment. Some of their parents may have jobs with a company owned by Finnish or German interests. But these young Canadians will receive first rate educations in universities financed by the revenues of a thriving economy, and, make no mistake about it, they know very well that the slopes they ski on and the waters they swim in and the laws they live under are Canadian.

Our concern with foreign investment in this country is as much a product of history as our problem of learning to live with two cultures. The die was cast long before Confederation when we determined to make a modern nation out of half a continent with a handful of people. It was then that we began as a country with perhaps the world's most liberal climate for investment. It was a national policy which had problems but these have been repeatedly overcome by the progress in nation building which we have achieved. The basic posture of the country as a free economy would be almost as difficult to change, now, as it would be to impose a single culture upon our people--and just as unacceptable. Both would represent an historical wrench that most Canadians do not want.

I have come upon a quotation dealing with nationalism which I would like to share with you because it has good advice for Canadians in this current national debate. "It is possible that nationalism may still have a role to play in backward societies where the status quo is upheld by irrational and brutal forces . . . But in the advanced societies, where the interplay of social forces can be regulated by law, where the centres of political power can be made responsible to the people, where the economic victories are a function of education and automation, where cultural differentiation is submitted to ruthless competition, and where the road to progress lies in the direction of international integration, nationalism will have to be discarded as a rustic and clumsy tool."

The author of this quotation is Pierre Elliot Trudeau.*

The speaker was thanked by Mr. William Karn.