Looking Ahead

MR. LANGLEY:

Dr. G. Arnold Hart became President and Chief Executive of the Bank of Montreal in 1959 at the age of forty-six, following a brilliant banking career which began in 1931 and which saw him serve in all areas and at all levels of the bank's operations. Brief as this period was in which to achieve such prominence, it was really much shorter when you consider that within that time he had to set aside five years during which he served in the army in the Second World War, winning an MBE in the process. An outstanding example of today's youthful and dynamic banking executive, Mr. Hart has found the time to take a prominent role in a great many activities such as the Boy Scouts, the "Y", and the Canadian Red Cross, as well as lending his talents to many other business and community-oriented organizations. Under his leadership, the Bank of Montreal has made giant strides forward, in the impressive growth and the contributions to the development of Canada, which have characterized it, since its formation in 1817. We are delighted that on the occasion of the Bank's regular monthly meeting in Toronto and in the company of many of the Bank's Directors who have come from the meeting to join us for lunch, we are able to welcome back to the Empire Club an outstanding Canadian--Arnold Hart.

MR. HART

I was especially pleased to receive your President's kind invitation to speak to you in this your sixtieth anniversary year. This is the second time I have had the honour of addressing the Empire Club--the first was on January 16, 1958, by coincidence exactly six years ago today. It is, of course, always a pleasure for me to visit the City of Toronto, for, as you are aware from Mr. Langley's kind introductory remarks, this city is anything but unfamiliar terrain to me. This is the city of my birth, school days, and early years in the Bank, and a visit to Toronto always has for me the warm personal pleasure of a homecoming.

When I last spoke to you the world was still talking about the first successful attempt to thrust a man-made moon into the skies. Today the launching of a satellite is almost commonplace. In the past six years there has been a radical change in relations between the western countries and those of the Communist world. Within the last year alone, we have seen the reins of leadership and authority pass to new hands, not only in Canada but also in Britain, the United States and West Germany, to name but a few.

In the fields of commerce and industry, too, each year brings many changes, and in order to be in a position to adapt to these changes most businessmen find it necessary to make an assessment of the future course of the economy. At this time of year it is customary to weigh current trends in an attempt to judge prospects in the months ahead. In the past few weeks a good many analyses of this kind have been forthcoming and it is encouraging to note that there is fairly widespread agreement that the prospects for 1964 are promising. But although the near future is of most direct and immediate interest to business, in many cases the longer-term outlook is just as important.

In recent months a number of commentators have suggested that the period of relatively slow growth that has been evident in the Canadian economy since the mid-fifties is nearing an end and that the period of dynamic growth which was so widely predicted as we entered the decade of the "sixties" is at last within sight. They point to a number of expansionary forces that seem to be gathering strength.

Capital investment outlays may well have turned the comer and be heading towards another dynamic phase. Several major projects such as power developments in British Columbia, Quebec and Newfoundland are under way or are at the advanced planning stages. Important new outlays for pipeline construction and to complete the twinning of the Welland Canal are in prospect. The heavy programme of road construction of recent years seems likely to continue. In addition, a number of Canadian industries which for several years have been burdened with overcapacity are now, as a result of recent increases in output, approaching the day when additions to existing facilities will be warranted. In other industries extensive programmes of modernization will be required in order to keep abreast of changing technology.

In the fields of housing and social capital a growing realization of existing needs points to an upsurge in the construction activity. Several of our major cities are work ing on plans for large-scale slum-clearance and urbandevelopment programmes. All across Canada there are plans for the building of additional schools and hospitals. Our universities have embarked upon expansion programmes which call for new facilities costing hundreds of millions of dollars. There will also be a great deal of construction activity connected with the World Exhibition planned for 1967, including the provision of suitable access highways and other transportation and communication links and the preparation of the site itself.

Another factor which is seen as providing the basis for a major surge for the economy is the changing age structure of our population. The rapid increase in the number of teen-agers in recent years has already had an effect on the pattern of consumer demand. In the next few years today's teen-agers will become young adults entering the labour force, earning incomes, and forming families, with all that this implies in terms of demand for housing, appliances, and everything that goes into the setting up of a household these days.

Less easy to predict but no less important in its consequences is the prospect of innovation and technological change in the years immediately ahead. Such change could not only result in many new products and lower production costs but also give rise to substantial investment outlays. Taken together, these various factors give substantial support to the predictions of an economic upsurge now in the making. How soon such an expansion will get under way is difficult to predict, but it seems reasonable to expect a very sizeable increase in Canadian output between now and the end of the current decade.

You may be interested to know that, for purposes of our own planning, we in the Bank of Montreal expect to see a rise in real output of at least one third by 1970. Let me put this into some sort of perspective. An increase on this scale means adding to Canada's current output almost the equivalent of the present production of Ontario. Expressed another way, it is the equivalent of adding each year between now and 1970 the production of an industry the size of our pulp and paper industry. This is a tall order, but it is well within the realm of possibility. I can just hear some of you saying "Somehow or other all of this has a familiar ring". Many of us can call to mind previous forecasts of unbounded prosperity for Canada.

Perhaps the most famous is the phrase that was frequently used about the time this Club was formed, "The twentieth century belongs to Canada". Similar statements have been made by speakers many times, both before and since.

Sometimes these enthusiastic forecasts have been very far from the mark. Certainly I would not wish to go on record as implying that, because all the signs now point to another surge of activity in the second half of the current decade, prosperity will fall into our laps, even if we just sit back and do nothing. Perhaps everyone would have his own list of things that have held us back in the past and to which more attention must now be given. I cannot possibly cover all the points that I should like to mention in the few minutes at my disposal. Let me just put forward a few thoughts for your consideration.

To begin with, I think I am right in saying that in the past there has been a tendency for Canadians to assume from time to time that the possession of "vast natural resources" was in itself sufficient to ensure prosperity. In the immediate post-war years, it is true, conditions were such that prosperity was easily achieved for Canada, thanks in part to a strong world demand for our natural resources. In recent years, however, conditions have changed and it is surely by now quite clear that we cannot afford just to wait for prosperity to come to us.

A number of years of relatively slow economic growth, of high rates of unemployment and of increasing competition in world markets have forced Canadians to re-examine the assumptions which gave rise to the exuberant claims made for Canada's prospects in those heady days of the late forties and early fifties. The past few years have been a time of questioning in this country and one of the results, I think, of this exercise in self-examination is that today more Canadians have a clearer understanding of the extent to which events in the world beyond our borders, and our reaction to these events, can have an important influence upon the degree of prosperity we enjoy here in Canada.

In this connection, the substantial increase in the value of our exports in the past three years is extremely encouraging. While part of the gain represents to some extent special sales of grain to countries which cannot as yet be considered firm long-term markets, these sales by no means account for all our improved export performance. The pegging of the Canadian dollar at a lower value in terms of other currencies has also played its part, and there is growing evidence that the efforts of Canadian businessmen to find new markets can be successful. The long-held belief that Canadian manufactured goods could not compete in world markets is at last being challenged, and more and more Canadian companies are discovering that international boundaries are not insurmountable barriers to a good product at a competitive price.

Thus while agricultural products and raw materials from our mines and forests continue to dominate the list of goods shipped to world markets, aggressive salesmanship is demonstrating that it is possible to sell an increasing variety of manufactured goods abroad. I am convinced that we have only just begun to scratch the surface of the opportunities in foreign markets for Canadian goods embodying a higher degree of Canadian labour content than is involved in our more traditional exports.

Thus implicit in the Bank of Montreal forecast is a continuing policy of aggressive salesmanship in foreign markets. Also implicit in our forecast is the assumption that Canada will continue to maintain a climate receptive to foreign capital. This country is still in many respects a developing country. There is no doubt in my mind that policies which seek to discourage an inflow of development capital would seriously hamper our efforts to achieve the economic gains projected.

I am not suggesting that we should encourage largescale indiscriminate borrowing abroad, but I do feel strongly that foreign capital for productive purposes should not be discouraged. As I have said on other occasions, there is no shortage of investment projects in the world today and it may well be that in a few years the competition from other countries for capital funds will cause us to wish we had been more receptive and far-seeing hosts.

At the same time I feel more could be done and should be done to encourage Canadians to maintain and increase their ownership of productive enterprises in this country. A suggestion I have made before, but one which would perhaps bear repeating, is that there should be more emphasis on the positive use of taxation to encourage such domestic investment. For instance, as you know, corporate profits are now taxed at full rates as they are earned, and then taxed again to the extent that they become dividends in the hands of individuals. While it is true that the dividend tax credit grants some relief at present, if steps were taken to reduce such double taxation, or what would be preferable, to eliminate it altogether, this, it seems to me, would be a powerful incentive for Canadians to increase their investment in their own country.

In any case, whatever the source of capital funds, a high rate of investment will be necessary if this country is to grow and develop as I have outlined.

In any optimistic forecast there is also the implication' that the question of costs and efficiency of Canadian industry and their effect on our position in an increasingly competitive world will continue to receive top priority. Our record in this respect in recent years is encouraging, and as a result we have been spared some of the strains now being faced in certain European countries, not to mention the severe problems of inflation being encountered by many of the developing countries. However, our recent record is no ground for complacency. The benefits to our exporters arising from the devaluation and pegging of the external value of the Canadian dollar could quickly be eroded if price changes in this country were to get seriously out of line with those in other countries.

There is another form of discipline to which we shall have to pay more attention if we wish to remain competitive in world markets, and that is fiscal responsibility. It no longer seems to be fashionable to suggest that governments should not increase the scope of their spending. Nevertheless I am convinced that the vast majority of Canadians do not need to be reminded that government benefits have to be paid for and that they have a pretty clear idea of where the money is coming from. For far too long we have been subjected to a philosophy that sees government in the role of a dispenser of ever-increasing benefits to a presumably grateful electorate, with apparent indifference to the effects on the processes of saving and investment on which the creation of wealth and increasing productivity ultimately depend. Nor does shifting the taxation structure in favour of one or another level of government make the burden any easier to bear.

There are a number of important areas where a greater amount of public funds could usefully be employed. But, in the present circumstances, when tax reductions rather than increases would seem to be more appropriate, it seems to me that proposals for enlarging the scope of government expenditure ought to receive very close scrutiny.

There are a number of other matters which will require greater attention and positive action if we are to adapt our economy and its institutions to the demands of the "sixties". It seems clear that if we are to achieve the fullest and most efficient utilization of our resources, both human and material, we shall require outlays for research and development in Canada on a much larger scale than we have been accustomed to. A further rise in the general level of technical and technological training of Canadian workers is also an essential part of the picture.

Much has already been done to improve the efficiency of Canadian industry but much more remains to be done and I am well aware that many of the same considerations apply to banking. Our financial system has recently had a thorough investigation by the Royal Commission on Banking and Finance, whose report will be available shortly. My own views on some of the changes which would improve the banking system without, at the same time, sacrificing the standards of sound banking practice that have served so well in the past, were expressed at the Royal Commission hearings last year and I don't think I need to repeat them today. Perhaps it is sufficient to say that Canada's chartered banks are seeking more scope in order to move with the times and to make the greatest possible contribution to Canadian economic progress.

That solid economic progress is in store for Canada cannot be questioned. Only the timing and the rate of advance are uncertain. What I have tried to do today is to present one man's assessment of where we are headed during the balance of the decade--a sober appraisal of what seems to me to be clearly within our grasp.

Gentlemen, I am not a pessimist.

Thanks

Thanks of the meeting were expressed by Past President Donald Jupp.