Some Questions about Economic Planning in Canada

MR. KENT: I am pleased to present to you today as our guest speaker, Mr. Arthur J. R. Smith, B.A., M.A., Ph.D., who is Director of Research for the Private Planning Association of Canada.

This Association is a private, non-profit research company established in 1958 to undertake objective studies on issues of national importance. It sponsors the Canadian Trade Committee which was established in 1961 to study problems and policies of Canadian Trade. Its membership represents business, labour, agriculture and the professions. At present it is particularly interested in international trade, in the development of the European Economic Community -as these affect the economic growth of our country. The Private Planning Association also sponsors the Canadian American Committee established in 1957 to study problems arising from growing interdependence between Canada and the United States.

Mr. Smith is Director of Research-the Private Planning Association and in the Canadian American Committee and is the Secretary of the Canadian Trade Committee. He is a graduate of McMaster University in Mathematics and Political Economy and is a Master of Arts and Doctor of Philosophy, from Harvard in Economics.

In 1949-50, he held a teaching fellowship at Harvard University-then was an economist with the Federal Reserve Bank of New York for 4 years. Since then he has been Canadian Economist with the National Industrial Conference Board and a lecturer in the Extension Department of McGill University. He will now address us on the subject "Some Questions About Economic Planning for Canada".

MR. SMITH: The subject of my remarks today is Economic Planning for Canada. This is already becoming a popular subject. Indeed, during the coming year it may well threaten to rival, if not supplant, Britain and the European Economic Community as the leading topic of economic discussion in Canada.

During the past year or two, interest in economic planning has obviously been growing on all sides-among Canadian businessmen, labour union leaders, economists, and the provincial governments. More recently, the Federal Government has made an announcement which is being interpreted as an initiative to develop national economic planning for Canada. The Speech from the Throne on September 27th contained a rather enigmatic paragraph which read as follows:

As one of my government's measures to develop the Canadian economy, maintain a high level of employment and strengthen the balance of payments, you will be asked to approve legislation establishing a national economic development board. This board would be broadly representative and would review and report upon the state of the economy and upon economic policies. It would also have the duty of recommending to the government particular projects and measures which it considers would be in the interest of national development, including projects which may require direct governmental participation by way of financial aid or otherwise.

This statement unfortunately sheds little light on the possible objectives, scope or nature of any such board. It could presumably be aimed at being little more than a rather narrowly-confined hybrid between a public works planning board and a Canadian counterpart to the Council of Economic Advisers in the United States-both of which functions could perhaps be more effectively handled within an existing departmental organization in Ottawa, or by a special task force attached to the Privy Council Office. On the other hand, as was indicated in some remarks about this proposed Board by Mr. Nowlan in Parliament last week, it could well be given much more far-reaching objectives and functions. In particular, he appeared to suggest that this Board would be given sufficiently wide terms of reference to enable it to work towards very broad objectives-such as expanding employment, strengthening the balance of payments, improving. "the pattern, the quality and the rate of our economic growth", and serving as a basis for effective coordination of varied public and private policies. And he spoke of three interrelated tasks for the proposed Boardfirst, to act as "a broad new bridge between government, on the one hand, and on the other, those who are thinking and planning the future of industry, labour, agriculture, and the other important economic groups in our community"; second, "to supplement, develop, and expand our government machinery for economic analysis"; and third, to recommend to the government, projects and measures along the lines mentioned in the Speech from the Throne. In short, what Mr. Nowlan appeared to be proposing was a kind of partnership between public enterprise and private enterprise in the interests of sturdier and more rapid economic development in Canada.

These remarks of Mr. Nowlan could therefore conceivably herald the establishment of a national economic planning agency with broad terms of reference, containing some of the characteristics and functions of economic planning organizations among other industrially advanced countries.

If the latter is in prospect, I suggest that it is high time that we encourage a far-reaching public discussion and debate on national economic planning for Canada-on its possible purposes, organizational form, methods of operation, and limitations. Greater understanding about these possibilities is essential for the launching of any venture into successful national economic planning-or we may find ourselves in the position of the young girl who, on her first visit to a Chinese restaurant, became fascinated by the Chinese characters on the menu. She asked to take a menu home with her, and then had the brilliant idea she would knit some of these characters into the back of a sweater which she had just begun. It wasn't until she was later walking down the street, proudly wearing her new sweater, that she discovered, under embarrassing circumstances, what her sweater said in Chinese, "This dish is cheap and mighty delicious."

I suggest that before we attempt to weave an economic planning agency into our national life, we need much clearer conceptions as to what kind of planning might be useful, what it should seek to do, how it might be done, and who would do it. My remarks today are intended to be a somewhat provocative scratching of the surface of these questions.

I should like to emphasize that in much of what I have to say, I am deeply indebted to a very able young economist -Mr. Richard J. Line- who, until his recent return to England. was the Economist for Chemcell Limited, and with whom I have been collaborating since last spring on an examination of some important questions relating to economic planning for Canada.

At the outset, I would like to stress that in the following discussion of economic planning for Canada, I am not talking about the kind of economic planning that is used among the centrally-directed and rigidy-controlled economies of the Soviet bloc, or among various less-developed countries seeking to achieve increased industrialization and rising living standards. Many of these countries do not have economic planning. They have planned economies, the essential feature of which is that a government takes the direction of the economy into its own hands and makes the achievement of planned targets the sole criterion of success. Instead, I am talking about the kind of national economic planning which has now been introduced very widely among the democratic and industrially advanced countries of the West, which has taken forms that are fully consistent with the preservation of all essential elements of the private enterprise system-and in particular, with the rights of business and labour to make their own decisions. In short, it is with reference to economic planning arrangements in Europe, and perhaps in Japan, that any form of economic planning is now being proposed or discussed in Canada.

Even then, it is perhaps surprising that economic planning is being discussed as widely as is now the case. For many Canadians, the term "economic planning" has automatically tended to arouse suspicions and antipathies, conjuring up various ideological issues, such as economic controls, government dictation to industry, the stifling of individual initiative, or even the erosion of democratic traditions. Yet many of the same Canadians who are hostile to "public planning", are involved in "private planning" within organizations with which they are associated, and frequently point with pride to the methods and results of such private planning- for example, with respect to planning for new investment and new market developments.

Moreover, many Canadians accept, and at times encourage, various government policies which inevitably have a major influence on the structure of the Canadian economy, on the "conditions of competition", and on the course of economic growth. Indeed, the emergence of proposals for economic planning in Canada have understandably gone hand-in-hand with spreading pressures for governmental action to adjust taxes, tariffs, subsidies, monetary conditions, the exchange rate, governmental regulations of various kinds, and so forth. This is not a new phenomenon in Canada. It goes well back in history to the building of the Canadian railroads, the introduction of the National Policy in 1879, and the whole framework of policies influencing the course of Canada's growth and development.

But two elements in the present picture have added point to proposals for some kind of more formalized system for appraising economic trends and problems as a basis for policy formulation in government and in business. The first is that with the development of an increasingly complex economic system, there has emerged a growing need for appropriate coordination of increasingly complex government policies. This coordination appears to be becoming more difficult to achieve under an apparent trend toward increasingly fragmented responsibilities for economic matters, in existing government departments. The second is that "togetherness" and cooperation are now being enjoined on business, labour, agriculture and government to an unprecedented extent in our increasingly complex system. Antipathies, or lack of understanding and confidence, between government and the private sectors of the economy, or among the private sectors, can only lead to attitudes and actions which will tend to multiply a nation's economic problems and make national objectives much more difficult to achieve.

Among other democratic, industrially advanced nations, economic planning has invariably been developed in response to a challenge. For example, France and the Netherlands introduced economic planning early in the postwar period to facilitate the reconstruction of their economies. Belgium has established its new "Programming Bureau" to help overcome structural problems in its economy-for example, to assist in appropriate redeployment of resources from the declining coal and textile industries to other industries with a more promising future. The Italian government has decided to move towards more economic planning because of the regional distortions arising from the very heavy concentration of Italian industry in the northern part of the country. Britain has recently moved to create the National Economic Development Council-or NEDDY, as it is popularly called-to develop and maintain a faster and steadier rate of economic growth.

Canada today also faces a great challenge. This is widely acknowledged. Mr. Donald Fleming put it very succinctly in his Budget Speech of June 19, 1961.

Our technological development, the enterprise of our business community, and the skills and training of our people, great as they are, have not kept pace with the needs of a rapidly changing world.

A past president of the Canadian Chamber of Commerce has similarly suggested that, "insufficient foresight in planning to meet changing conditions" is an important reason for Canada's economic troubles today. Dr. John Deutsch, the Vice-Principal of Queen's University, has also recently emphasized that:

The basic problems now facing us arise out of adjustment to change. Not for a long time has the Canadian economy been up against such a baffling array of farreaching changes both at home and abroad.

"The greater part of planning for growth consists of planning for change," according to Sir Robert Shone, the Director General of the National Economic Development Council in Britain. And it is essentially in this context that the potential value of economic planning for Canada must be assessed. In short, can it be useful in facilitating swifter and better adaptation of the Canadian economy, especially under conditions of rapidly changing technology, intensification of competition, and altered international trading arrangements?

The greatest impetus for economic planning in Canada now obviously comes from the simple fact that the Canadian economy has experienced an extended period of relatively slow gains in output over the past decade-slow, not merely in relation to the experience of virtually all other industrially advanced countries of the world, but slow also in relation to the economic resources which we have available to promote expanded production and increased living standards. The slowing of growth in total Canadian output since the early 1950's has been accompanied by a growing array of problems-a virtual halt to increases in living standards, relatively high levels of unemployment, underutilization of our productive capacity, relatively small gains in productivity, balance of payments strains, and a sharpening of some of the problems arising from natural competitive disabilities within our economy. These kinds of problems, I suggest, cannot be dealt with satisfactorily with short-term, ad hoc policies and actions, conditioned primarily by shortterm considerations. We need to see all of these problems in a longer-term perspective, and consider carefully how our economy will be developing over a period of time. We obivously need to do a much better job than we have been doing to anticipate problems on our horizon, and considering what we can do to avert them. And we also need to do a much better job than we have been doing to anticipate new opportunities on our horizon, and considering what we can do to exploit them. Economic planning, it is claimed, can contribute to these ends.

In my discussion about the place of economic planning in the Canadian economy, I have inevitably gravitated to its possible purposes. As regards the purposes, perhaps I should emphasize, first, what economic planning should not attempt to do. It is unlikely, for example, to play a genuinely useful role if it is intended primarily as a means for the government to educate the public about economic trends and problems as it sees them, or on the other hand, if it should be conceived mainly as a vehicle for pressing the government into lines of action promoted by business or labour. Nor will it be worth much if it is intended to be merely a clearing house for ideas, or if it permits vested interests to sit in happy deadlock, confident that nothing will be changed. Nor can it play a useful role, as some returning Canadian visitors to Europe have almost been hinting-either as a means for promoting the interests of labour through an alignment of labour and government against certain business policies and practices, or as a means for promoting the interests of business through an alignment of business and government against certain labour policies and practices.

The primary purpose of economic planning as it is being practised in Europe and Japan today, is to provide a basis for sound policy decisions by government, business, labour and other groups. And in the last analysis, economic planning can play a useful role only if it provides objective appraisal and analysis of economic trends and problems that can serve as an effective basis for such policy decisions.

The Canadian government in establishing the terms of reference for the proposed National Economic Development Board might do well to think about the mandate which the former British Chancellor of the Exchequer, Mr. Selwyn Lloyd, gave to the National Economic Development Council in Britain. Its task, he asserted, "is to examine the economic performance of the nation with particular concern for plans for the future in both the private and public sectors of industry, to consider what are the obstacles to quicker growth, what can be done to improve efficiency, and whether the best use is being made of our resources." The basic objectives of any economic planning arrangements for Canada should be broad. They should involve making the best possible use of all our national resourcesits mineral and agricultural capabilities, its industrial plants, its service industries, and the training and skills of its people. But, at the same time, it should not confine itself merely to cold hard economics in an abstract way. As economic planning officials in other countries have stressed, especially in France and Japan, economic planning must ultimately be concerned with the relationship of people to economic development.

Let me now turn briefly to consider organizational arrangements for economic planning. Any review of the organizational arrangements in Western Europe and Japan reveals that considerable differences exist between them, but four guiding principles appear to be common to all.

First, the planning organization, though close to government, is not part of the government. For example, in France, the Commissariat General du Plan is responsible to the Minister of Finance and Economic Affairs, but is independent of the Minister's department. Moreover, before detailed economic planning is undertaken, the first outline of each French four-year plan must be approved by a Council whose members are broadly representative of major groups within the nation.

Similarly, in the Netherlands, the Central Planning Bureau functions as an advisory body attached to the Ministry of Economic Affairs, but operates with substantial independence. Its analysis and conclusions, in the form of an economic plan for the year ahead, are first discussed by a policy sub-committee of government, but are subsequently discussed by the Economic and Social Council on which industry, labour and the general public are represented.

In Japan, the initiative for drawing up a new long-range economic plan comes from the Prime Minister's Office. A small, permanent technical group, the Economic Planning Agency, directs and coordinates the economic studies. Its work, in turn, is guided by the Economic Deliberation Council, which sets up committees employing experts from business and the universities to assist the small planning group on detailed analysis.

In Britain the National Economic Development Council is completely independent of government departmentsalthough its Chairman is the Chancellor of the Exchequer, and the Minister of Labour and the President of the Board of Trade are members.

It is perhaps this British type of arrangement which would best fit Canadian needs and conditions. Such an independent group would probably meet the suggestion of Mr. Leonard Hynes, the President of Canadian Industries Limited, who earlier this year said that:

We need in the worst way a body to speak, not with the voice of government, or business, or any special group, but with the voice of voluminous knowledge, penetrating study and accumulated experience.

The second principle evident from foreign experience, and already implicit in what I have just said, is that national economic planning should be done by a small group of experts whose work is guided by some appropriate combination of representatives of government, business, labour, agriculture, consumers and the universities. Many of these interests are, for example, specifically represented on the Commissariat General du Plan in France, the Economic Deliberation Council in Japan, the Economic and Social Council in the Netherlands, and the National Economic Development Council in Britain.

A third guiding principle is that the planning organization must be kept free of political controversy. Some particular features of organizational arrangements can help to assure this vitally necessary condition. But even more essential is a broad public acceptance of economic planning as a constructive tool for helping to define and achieve desirable national objectives. It is worth noting that economic planning has not become the subject of any debilitating or seriously inhibiting political controversy in any of the industrially advanced countries which have introduced it. The fourth principle, and this is perhaps the most important of all, is that the planning organization must have a top-calibre staff, and if possible, be directed by an outstanding public figure. For example, the success of the planning organizations in France and the Netherlands owe much to the early leadership of such dynamic and widely respected figures as M. Jean Monnet and Professor Jan Tinbergen. Similarly, Britain has chosen a well-known economist to direct its small group of planners, Sir Robert Shone, who had been in charge of forward planning for the Iron and Steel Industry in the 1950's.

A corollary is that the group of experts in the planning organization should be kept relatively small. No substantial bureaucracy has in fact been developed in any of the planning organizations of the industrially advanced countries. France started with thirty key officials in the immediate postwar period, and has only a few more today. Britain is starting NEDDY with perhaps half that number. Economic planning cannot be really effective and successful if it should become a large bureaucracy.

Now let me turn to some comments on methods of planning. The central tasks of national economic planning organizations in other countries have been to prepare economic projections on trends and cycles in business activity, to appraise the prospects and difficulties for achieving and maintaining a satisfactory rate of growth, and to examine in considerable detail the changing pattern of economic development within the economy. In this context, I might note the initial British decision to examine the possibilities for, and the obstacles in the way of, achieving a rate of growth of 4% a year in volume of total British output over the next five years.

It might also be appropriate for Canada to approach economic planning in a similar way-that is, over a time horizon of five years. But while the eventual task will presumably be to delineate a reasonably satisfactory rate of growth for the Canadian economy-perhaps on the order of 4% per year-the immediate task under present conditions would be to concentrate attention on a fuller and more efficient use of our presently underutilized capacity and manpower and other resources. As I have already emphasized, however, we can only move towards this immediate task successfully if we develop better and more coordinated economic intelligence about the economic road ahead.

I will not attempt to explain in detail the wide range of questions and problems likely to be involved in any such study of the Canadian economy. Let me only say that it will be a far more difficult task to appraise the prospects for the Canadian economy over a period of five years than it is to examine the short-term business outlook over a horizon of a year or eighteen months. Such intermediate-term prospects will also be much more difficult to analyse than longterm prospects, such as those developed by the Royal Commission on Canada's Economic Prospects. In the latter, business fluctuations and a variety of special short-term factors could be ignored, with attention merely focussed on basic trends.

Obviously, many basic questions would have to be examined in any such analysis. For example, what level of imports will be required to generate full employment and to sustain rapid growth, and can exports be expanded sufficiently to finance them? What level of investment will be required, and will adequate financial resources be available?

While the initial exercise will involve a very broad examination of the whole economy, and of its major sectors, accompanying analysis will also undoubtedly be necessary with respect to many of the major industries. This will require close cooperation with industry if the analysis is to be realistic. Such close cooperation with industry exists in other countries, perhaps most notably in France, Sweden and Japan. In addition, new statistical information and new techniques of economic analysis may be useful-such as the "input-output" model in France covering 28 sectors of the economy, and the very much more extensive model now being developed in Britain.

Finally, economic planning should give considerable attention to some of the broad factors which determine an economy's capacity for growth. Also, it should be concerned with the competitive conditions of industry-for example, appraising the spreading claim in Canada that there is a need to rationalize the structure of many Canadian industries. An economic planning organization should similarly assess the requirements of the economy for skilled and trained labour, as well as the prospective capacity of the educational system and training programmes to meet these needs. It will obviously need to study both the need for, and the consequences of, technological change. Regional problems can also be constructively examined by a national economic planning agency-as they are being examined, for example, in the Central Planning Bureau in the Netherlands. The essence of many of these regional problems will concern the need for reconciling the best possible use of our varied resources over an immense geography, with the need for assuring that reasonably rapid and sustained growth for the whole economy will not be compromised by the location of industry at points at which its basic competitiveness and efficiency will be handicapped.

In conclusion, there are a variety of important questions concerning whether we yet have a good basis in Canada for economic planning. Do we, for example, yet have the degree of sophistication in Canadian business, labour, and other circles which permits easy grasp and effective use of the kind of economic appraisals and analysis which a national economic planning organization would produce? Are we likely to find serious difficulties in the way of assembling personnel of the quality and technical competence required for successful economic planning? Do we perhaps even have serious deficiencies in available statistical information which will detract from our capacity to use some vitally important techniques in planning analysis? Will such an organization become involved in political controversy in a way which would inevitably compromise its ability to perform well? Do constitutional questions in the Canadian federal systemfor example, concerning provincial jurisdiction in a number of vitally important areas-provide substantial handicaps for economic planning? And perhaps above all, will any form of economic planning for Canada be worth serious consideration until we are fully prepared to broaden our horizons about desirable national economic goals, to determine more clearly what these should be, and to work in broader cooperation towards their attainment. I doubt very much, for example, that economic planning could have been very useful under the conditions we had in Canada in the late fifties, and into 1961, with a general atmosphere of overriding and excessive concern about inflation, and with rather inflexible approaches to government policy formulation to deal with developing problems.

In many quarters-perhaps not least among economists -there have existed some important elements of skepticism about the possible value of economic planning. But despite this skepticism, there appears to be a widening circle of people who believe that national economic planning has made a substantial contribution to the maintenance of full employment and high economic growth rates in various countries in recent years. Thus, it may no longer be a question as to whether Canada will have some form of economic planning or not, but when it may emerge, and in what form. My remarks today have been intended to stimulate your thinking about these matters, with a view to encouraging increased attention to the question of what the new National Economic Development Board could and should do.

THANKS OF THE MEETING were expressed by Mr. D. C. G. Menzel.