Preparedness and the Canadian Economy

MR. HOWE: I was privileged to hear my good friend, Mr. Paul Hoffman, speak to a Toronto audience last month. As evidence of his appreciation of the honour of addressing you, he said that he had travelled all the way from sunny California to Toronto.

I have travelled only the short distance from Ottawa--where the climate is not above reproach--so I do not expect you to believe that my presence here involves any great hardship. Nonetheless, I do not often have the privilege of speaking to a gathering such as this, and I wish to thank the executives of both The Canadian and The Empire Clubs for making a joint meeting possible.

My subject is advertised as "Preparedness And The Canadian Economy". Many of you will expect me to talk about unpleasant things like controls and shortages and so forth. And in due course I shall probably do so.

It seems to me, however, that this way of looking at preparedness misses the real point. The purpose of preparedness for Canada and for other countries of the free world is not war. It is an effort to prevent all-out war with its infinite sacrifices and miseries. Of course war may come. But if the free nations bring their united strength to bear quickly enough, war can, I believe, be avoided.

I share the views of General Marshall which he expressed before a Committee of the United States Senate:

"We are not building these stronger forces for any aggressive purpose . . . our aim is primarily to defer aggression if that be possible . . . what we want above everything else is . . . a certain freedom of action to establish a deterrent against the development of a general war."

That is why I suggest that we should look upon the preparedness effort not in a negative sense but as a positive measure to preserve our way of life and to protect our standard of living.

For Canada, preparedness is a many-sided effort. It means increasing our military establishment and our civil defences. It means supplying arms and equipment to countries that have joined with us under the North Atlantic Treaty for mutual defence. Equally important, but often overlooked, it means building up productive facilities and increasing the supplies of many of the vital raw materials upon which depend our defence effort and the defence effort of the democratic world.

Needless to say, this is a complex undertaking. It requires the most careful use of resources. Were we now involved in all-out war, the problem would be infinitely simpler. We would then be concerned mainly with turning out maximum quantities of arms and equipment with the facilities and materials immediately available.

But we are not now engaged in all-out war. We may not be at war for five or ten years, if ever. Our concern then must be to enlarge our capacity to produce as well as our immediate output, so that, if and when the need arises, Canada will be in a position to make a maximum contribution.

In other words, economic preparedness is much more than defence production in the usual sense. It involves a strengthening and an expansion of the whole range of activities that support the defence effort. That, as I see it, is my main responsibility as a member of the Canadian Government at the present time.

We are bringing into production the great variety of modern weapons needed for the armed services and for their support. As you probably know, procurement of weapons and equipment in Canada is a civilian job. It is presently entrusted to the Minister of Trade and Commerce and operated through the Canadian Commercial Corporation and, so far as defence construction is concerned, through a new Crown Company, Defence Construction Limited, associated with the Central Mortgage and Housing Corporation. The services tell us what they require and when and where they want it. The civilian organization in my department then takes over the task of production and supply.

In 1950 we placed contracts valued at 629 million dollars. In the fourth quarter of the year, the rate of placing contracts was six times as high as in the first quarter. From information now available it is clear that the rate of awarding contracts will be still higher in the first quarter of the present year.

A very high proportion of the defence contracts, over 40 per cent., has been for aircraft. In this field Canadian manufacturers are making notable headway. A Canadian firm has designed, built and successfully tested the most powerful jet engine yet to be developed in North America--the Orenda. This engine will shortly be in quantity production. We are producing, in quantity, air frames for the most modern short range jet fighters. We are getting ready to manufacture a long range, jet propelled, all-weather pursuit ship, designed and successfully flight tested in Canada. Quantity production of small aircraft of the Harvard trainer type is being undertaken, in part for Canadian account, in part to meet United States requirements.

Our ship-building industry on the Great Lakes and on both coasts is pushing ahead with the construction of fast escort vessels and mine sweepers.

In the electronics field, Canada is producing a great quantity of radar equipment for our own network of radar defences as well as for transfer to European countries, within the North Atlantic Treaty Organization. Canadian ingenuity has created certain types of electronic and related equipment which, in quality and performance, are in a class by themselves. I might mention particularly a Canadian-developed portable radio set which is being produced in large quantities both for our own forces and for our allies.

Our largest gun plant of the last war has a programme in hand of naval guns and field artillery, partly for ourselves and partly for the United States. Our six arsenals, owned and operated by Canadian Arsenals Limited, a Crown Company, are turning out small arms and ammunition.

I could give other examples, but this is sufficient to indicate the big strides that are being made in Canada to supply the weapons of modern war. Once again, and to an extent never approached before, Canada is becoming an arsenal of democracy.

But Canada is more than an arsenal of democracy in the limited sense. It is the source of many of the strategic basic materials upon which is dependent defence production in the United States, the United Kingdom and other allied countries, as well as in Canada.

Expansion of these sources of basic materials therefore has a high priority in our planning. Our steel industry has in progress an expansion programme involving new investment of close to one hundred million dollars. Canadian production of copper, zinc, lead, nickel and tungsten is being expanded as rapidly as possible. An aggressive search is being made for cobalt, antimony, molybdenum and chrome. As announced the other day the Government is offering a higher price for cobalt. Although Canada is now the world's largest producer of aluminum, a vast expansion of this highly strategic war material is under construction. All these metals are now in short supply. I cannot think of any greater contribution that Canada can make to the defence of the free world than the effort now under way to overcome these shortages.

We are also doing some stock-piling and some advance production of defence supplies. Materials for uniforms are being acquired. We have a modest but adequate programme covering the acquisition of strategic materials not readily available in Canada. The Polymer plant is raising its output of rubber by about 25 per cent. El-dorado is expanding its facilities for the production of uranium. A new and larger atomic pile is being constructed.

As I said at the outset, what is involved is an expansion in the whole range of activities that support the defence effort. Consequently, relative priorities are involved, and I should like to illustrate some of the problems that arise by a few specific instances.

How much of our limited steel production should be used to expand the steel industry? Our answer has been to give the steel expansion programme the green light.

How much of our productive capacity should be used in expanding our petroleum industry? Canada, in the last war, was largely dependent upon the United States for this vital war material. Since then discoveries in Western Canada have transformed the outlook. We think this programme is essential and should go ahead.

The last war depleted iron ore reserves in the United States. Important new discoveries have been made in Canada, on the Quebec-Labrador border, at Steep Rock and at Sault Ste. Marie. Vast quantities of materials and manpower are needed to bring these projects into full production. What share of these materials and manpower are they to obtain in relation to other vital uses?

What of the St. Lawrence Seaway? It is becoming more obvious day by day that adequate quantities of iron ore cannot be transported from Northern Quebec to the steel mills of the Great Lakes until this waterway is built. We also badly need the hydro-electric power that would be generated. I have come to the conclusion that the development of the St. Lawrence Seaway is a "must" as part of effective mobilization of North American resources for defence.

These problems of relative priority will become of even greater importance as the preparedness effort moves ahead. In the meantime we are pushing along on as broad a front as possible.

We are doing so, it should be emphasized, not by ourselves, but as a member of a team, the North Atlantic Treaty Organization. During the last war, Canada and the United States pooled their resources to an unprecedented extent.

We are profiting from that experience. The decision of the armed forces to standardize on U.S. type equipment has added importance to co-operation. Last October the Governments of Canada and the United States agreed to a new statement of principles for economic co-operation. That statement is now in effect and producing tangible results. We have reciprocal arrangements for steel priority and we are working together in many other fields. It is a relation of mutual trust and confidence, and I think every Canadian must have been gratified when Mr. Acheson, the American Secretary of State, said the other day, "The Canadian Government has never gone back on an agreement."

Co-operation is also growing within the North Atlantic Treaty Organization in the field of defence production, and we welcomed particularly the decision to constitute the United States, the United Kingdom, France and Canada as a committee to decide on standard types of weapons and equipment that will be recognized by all NATO countries. This, in our view, will greatly expedite the production programme of certain kinds of equipment, particularly army vehicles.

In past wars, Canada has fought with British type equipment. The nature of the present emergency is such that it has seemed desirable for Canada to change over to U.S. type equipment as rapidly as possible. This decision has enabled us to furnish British type equipment for one full division to The Netherlands and we are in process of shipping the same type of equipment for a full division to Belgium.

What will be the impact of this programme of preparedness on the Canadian economy and the Canadian standard of living? No clear and precise answer to that question is yet possible.

The Government, however, is preparing its plans and putting together an organization to deal with. the problems as they appear. Legislation is now before the House of Commons for a Department of Defence Production that will have functions very similar to those of the old Department of Munitions and Supply. Meanwhile men are already at work dealing with some of the more urgent problems.

A system of end use control for steel is already in existence and orders have been issued under the Essential Materials Act to prohibit or regulate the use of steel for certain less essential construction purposes. As I have said on previous occasions, these restrictions may have to be extended to assure that steel is available for high priority purposes. In this connection, it does seem to me that there are economies in the use of steel and other critical materials which can be made without involving any important reduction in the quantity or utility of the goods being manufactured. I urge industry in its own interests to make these economies before it is required to do so by the Government.

We also have operating divisions in existence in my Department concerned with non-ferrous metals, chemicals, explosives, oil development, aircraft manufacture and priorities. It has been a source of pride to me that men of high calibre offered their services to my Department during the last war and turned in a magnificent performance. This is happening once again, and I can only say how much it lightens the burden of office to know that men holding high positions in private business, regardless of their politics, are willing to drop their private affairs in the present emergency and join the service of the Government.

Some restrictions are in effect to ensure the fulfilment of the defence programme and others will no doubt be necessary. They will, however, be introduced only as they are necessary for this purpose. The defence effort must proceed, but there is no point in causing more disruption to industry than is absolutely necessary.

A defence effort involving the expenditure of 5 billion dollars over three years cannot help but have a significant impact upon the Canadian economy. I do not for a moment believe that we are now at the peak of our productive capacity. My advisers tell me that we have a condition of full employment in Canada, but I have seen Canadians respond to the call for increased production in a way that amazed the statisticians and I think they will do it again.

Nevertheless, there is no great amount of slack in the economy and as the Governor of the Bank of Canada said in his annual report:

"In view of the rate of growth in defence requirements, it seems more likely that this demand on our resources will exceed the increase in the available supply of goods and services for the foreseeable future. If this takes place, the amount available for civilian purposes inevitably will be reduced."

If these are the facts, then I am sure Canadians will take them in their stride. All of us, I am confident, would rather accept some moderate lowering of his or her living standards now than the terrible consequences of all-out war which we are trying by our present preparations to avoid. To devote 10 percent of our output to defence is pretty cheap insurance against the demands that would be made by all-out war.

This leads me finally to the question of price control. It seems to me that many of those who are now advocating price control think that such controls can keep the Canadian standard of living from being affected by the defence effort. Whatever price controls may do, they cannot reduce the real costs of defence. There is no painless way of meeting these costs that the Government has been able to discover. If we had found such a way, we should undoubtedly have adopted it without delay. The Government has received a number of requests from various organizations that price control be imposed immediately. So far, there has nearly always been a suggestion that the particular product which the particular group is itself concerned with be not controlled until certain adjustments have been made to bring prices of that particular product to a fair level. Obviously, to adjust all prices to a fair level before imposing price control is an impossible task. Those of us who had experience with price control during the last war know that unfairness is inherent in any overall control, and that all that those administering the control can hope to do is to remedy the unfairness before it reaches the breaking point. My own experience leads me to believe that the Canadian people will not stand for the regimentation by controls administered by the vast bureaucracy required for the purpose except under conditions of all-out war. It seems to me that some better system of accomplishing the purpose can be devised other than an overall price freeze, and my officers are analyzing various alternatives with that thought in mind.

The Canadian Government has never been opposed to price controls as such. In fact, legislation is now under discussion in Parliament which would give the Government power to impose economic controls of all kinds as the need may arise.

We will not impose any system of price controls, however, unless and until we are satisfied that those controls will serve a helpful and not a harmful purpose in combatting inflation. It may seem strange to speak about price controls as having a harmful effect in the fight against inflation but that can easily happen. Price controls would be harmful if they did not have overwhelming public support. They would be harmful if they were relied upon as a substitute for more fundamental measures such as taxes and credit controls. They would be harmful if they were not accompanied by adequate wage controls.

Nor do I think it would be wise, even if it were theoretically possible, to move into price controls until there is reasonable assurance of price stability in the United States. All I am stating is the simple truth, that the price levels in two countries, as closely linked as Canada and the United States cannot, for very long, be insulated from one another.

I listened the other day to a prominent radio commentator giving his views about one of my speeches in the House of Commons. He said that I asked more questions than I answered. That was a shrewd comment.

I did ask a number of questions to which no one yet knows the answers and I have raised some of them again today. The essential thing, it seems to me, is to have a sense of purpose, to keep the desired end clearly in view. The mistakes--and there are bound to be mistakes--can then be kept to a minimum.

The over-riding aim of national policy today is to strengthen the defences of our country and its allies to the point where aggression will be deterred and, if it is attempted, cannot succeed. This cannot be given a secondary place to any other national objective, however desirable. It will be a costly effort, but much less costly than all-out war, which is the probable alternative. Let us keep these alternatives ever before us in the difficult days that lie ahead. The choice is not between doing less or doing more now. It is between doing sufficient now or doing enormously more later. The price of peace is high. The price of war is infinitely higher.

VOTE OF THANKS, moved by Mr. Sydney Hermant President of The Empire Club of Canada.