Canada—Today and Tomorrow

MR. MACDONALD:

Not often is the Empire Club privileged to receive a British businessman and public figure of the reputation of Sir Val Duncan; even more rarely is such a person one whose heart and enterprise is so deeply committed to Canada. Sir, we welcome you most warmly to our meeting today.

Sir Val Duncan was educated at Harrow and Oxford, a combination which undoubtedly foretold his later movements. Harrow was the school of Sir Winston Churchill, whereas Sir Val is now Chairman of Churchill Falls Corporation. Although the spires of Oxford are symbolic of an academic universe, Sir Val has subsequently scaled corporate heights which are equally imposing. Called to the English Bar in 1938, he was continuously engaged in the conduct of the war from 1939 to 1946. As a member of the Royal Engineers, he was twice awarded the American Legion of Merit, he had conferred on him the rank of Commander, Order of Orange of Nassau, by the Netherlands, and was honoured with an O.B.E. by his own country.

The twin paths of public service and business leadership began their dual appeal after the war when he was appointed as Assistant Secretary of the German and Austrian Control Office in 1946 and 1947. The early experience of the National Coal Board surely constitutes one of the great adventures in post-war reconstruction; the significance of that public corporation was such that it attracted men of great talent and responsibility. Among them was Sir Val Duncan, who served as Assistant Director for Marketing.

It was in 1948 that he began his long and fruitful association with the RTZ Companies, as they are known, joining the old Rio Tinto Company as commercial manager. He was responsible for one of the most significant chapters in the history of that Company, in 1954, by conducting the negotiations for the sale of the Rio Tinto mines to the Spanish Government. Following the merger of Rio Tinto and Consolidated Zinc Corporation in 1962, in which he played a major role, he became Managing Director of the new Rio Tinto-Zinc Corporation and, subsequently, Chairman and Chief Executive in 1964.

Although Director and Chairman of various companies in the U.K. and overseas, he has continued to respond to the siren song of public service. In January 1969, Sir Val was appointed a Director of the Bank of England. Earlier he had been Chairman of the Review Committee on Overseas Representation, which was charged by the Secretary of State for Foreign and Commonwealth Affairs with the responsibility of looking into all aspects of British representation overseas. If Sir Winston Churchill was obliged to preside over the liquidation of the British Empire, the Duncan Commission was asked to define the residual interest of the former principal shareholder in the post-imperial world. Yet, new empires have continued to emerge; perhaps, in a corporate sense, Rio Tinto-Zinc is one of them.

Last year, the tragic loss of Brinco senior management brought the name of Sir Val Duncan more vividly than ever to the Canadian business stage. Indeed, he came to Montreal to act as President of Brinco for six weeks because, in his words, "somebody had to. You can't operate with a board running the company."

We, Sir, are delighted that you also decided to accept an invitation from the Empire Club. A young visitor from overseas remarked to me last Sunday how odd he thought it was that, in this country of culture and achievement, so many Canadians still looked beyond their boundaries for inspiration. Apparently, this external reliance is not always reciprocated. For example, the Globe and Mail reported recently:

"On returning to the House of Commons on Thursday, Prime Minister Wilson answered four main and 13 supplementary questions about his business in North America. The exchange occupied nearly seven columns of the Hansard report. There was neither a single word of curiosity from the members, nor a single word of voluntary comment from the Prime Minister, about his stopover in Ottawa."

Certainly, there can be no doubt that Sir Val Duncan is possessed of great curiosity and considerable concern about Canada; more important, he is making a great contribution to this country. The impact of Canada on the world economy is, in large measure, the product of our extensive resources and gigantic reserves of power. It is only fitting and proper, then, that you, Sir, should chose to speak on "Canada--Today and Tomorrow", for your business activities are both resourceful and powerful. For those reasons, we anticipate your remarks with the greatest interest.

SIR VAL DUNCAN:

When the Empire Club did me the honour of inviting me to speak, my first instinct was to talk only about the development of Canadian natural resources. On reflection, however, it seemed that though natural resources form an extremely important segment of Canada's economy, the future is really bound up with wider issues and I therefore chose the present title of "Canada Today and Tomorrow."

As you may know, I have paid more than a hundred visits to Canada and have lately had the privilege of serving for a short time as Chief Executive of Brinco and Churchill Falls in Montreal in the interregnum between the tragic death of Donald McParland and our other colleagues and friends involved in the Labrador air accident in November, and the taking up of the reins as President and Chief Executive by William Mulholland. My visits to the great city of Toronto have been even more frequent over many years than to your sister city, Montreal, and as a non-resident I have a reasonable acquaintance with your country from St. John's to Vancouver; therefore if I speak candidly today about some of Canada's problems as I see them you will, I hope, take them from a man who has a sincere affection for, and faith in, Canada.

Moreover, judged by the fact that the British High Commission in Ottawa issues over 16,000 British passports a year, it will be self-evident that a lot of my fellow-countrymen have found Canada a pretty good country in which to live and bring up their children. For these figures are over and above the vast number who have already sought and obtained Canadian citizenship since the Second World War.

It has always struck me as strange that with the magnificent communications which are now available to us m the world there are so many English-speaking people who are still comparatively ignorant about your country, as is evidenced by someone from south of the border who, when motoring through Toronto one day, hailed one of my colleagues from his car and said: "Say, Bud, I want to reach Calgary tonight. Which road do I take?" And yet again, quite strangely to me, so many of you, when visiting Europe, are mistaken for citizens of that great country to your south. Of course there are many similarities between Canada and the United States. To me the most striking one is your broadness of thinking; for one feels in both countries that there are no real frontiers to man's achievements. This mentality has produced the most startling progress and what has been done in Canada with around 20 million people has been quite staggering.

So much of this depends upon leaders; and one thinks quite naturally of the great record of Sir John A. Macdonald, of the unification of the country and the building of the railways from coast to coast a hundred years ago. One thinks, too, of the tremendous subsequent achievements of such great men as C. D. Howe who, through the Mackenzie King and St. Laurent administrations, made such a powerful contribution both in war and peace to the building of the nation's economy. One can but be grateful that those who have had the vision, energy and strength in their time have given you the opportunity today to weld together the two great cultural streams of English and French which make up this nation.

And so perhaps we can take stock today of this young and virile nation, of its problems and challenges and perhaps peer a little into the future.

When assessing the situation in the past one has tended to divide this subject, amongst other things, into politics and economics, as if there were a clear line of demarcation between the two. This surely is no longer valid, for economics is the very stuff of politics. Therefore, when we are talking about the future of Canada, one cannot separate what goes on in Ottawa and in the provincial legislative assemblies from what takes place in the industrial and commercial life of the national--in particular, if you like, from what happens within a radius of 100 miles from where we sit, in which area I understand that 60 cents in every dollar which Canada earns is produced. And so you gentlemen here today have a vital interest in what takes place in Ottawa. You produce the wealth; Ottawa re-distributes it. Fair enough, but you cannot be uninterested, nor can any other wealth producers in the nation, in the policy of redistribution. And here, of course, I refer to the recent White Paper on taxation.

One of the principal reasons why my company was attracted to making a contribution to the development of Canadian natural resources was the coincidence of a stable political system and of an enlightened fiscal outlook. In the outside world I have always held up Canada as one amongst rather few shining examples of a country whose basic wealth has been built up by a long-term and consistent policy of attracting capital investment from external sources, without which Canada today would look distinctly different and in a far less advanced state of development than it has in fact reached.

We as a company entered Canada and Canadianized in the early 1950's with great enthusiasm, and had the privilege of taking part, for example, in your great uranium developments in the last decade. It was enthusiasm for the enlightened policy of Government, not only in Newfoundland but also in Ottawa, which started us off as founder members of Brinco in 1952, and the same enthusiasm which has kept us going over the years to a point where, in 1972--some 20 years later--power will first flow from the great Churchill Falls development. I doubt whether there are too many corporations who are prepared to take a 20-year view before the commencing of production of a single project. But our faith in Canada has sustained us through considerable trials and tribulations, in the confidence that Canadian national policy was consistent and long-term, like our own thinking, and that the ground rules would not be changed materially to our disadvantage. I don't believe that Ottawa has any intention of breaking faith with those who have placed long-term confidence in this nation on the basis of a fair deal, and I still have faith in the democratic process in the sense that when imperfections and inequities in proposed legislation have been highlighted, they will be redressed in due course in any legislation placed before the House for enactment.

You will not expect me to go into details on the proposed White Paper, but I do represent a corporation which is making a material contribution to the development of natural resources in other countries in the world as well as Canada, and from my experience on a worldwide basis of those factors which get natural resources developed and what leaves them undeveloped, I feel I must comment on this matter.

The mineral industry alone accounts for 25% of Canada's exports and is the largest earner of foreign exchange. Over 60% of these exports go to the United States, and since 70% of all Canadian imports come from that source it is not difficult to see the over-riding importance of maintaining and increasing mineral exports to the United States to pay for the imports. The White Paper, in effect, says that the extractive industries are too lightly taxed and proposes to rearrange matters so that a greater burden of tax falls on this type of business.

Now I am by nature in favour of innovation and do not consider that any new tax proposals, however sweeping, should be opposed without a most careful and constructive examination of the proposals. It could be true that these industries that I have referred to above are too lightly taxed, and if it were then the law should be changed. I have looked at this matter in a world context, and I am sorry to say that I think the general thesis is wrong.

Let us start by saying that the world's crust is filled with riches and that modern techniques of exploration are revealing these riches with breath-taking rapidity. There is, in my view, no country in the world whose single mineral resources are so vital to world industry that they could not, in due course, be replaced from somewhere else on this planet. If, for some reason, a country was unwise enough to make the development and mining of new resources unattractive, existing production would continue albeit on a less efficient scale, but mines are a wasting asset and for a mining industry to be efficient it is vital not only to replace the mineral assets removed year by year but also to expand them, if the standard of living of a country is to increase. This means that unless there is a buoyant climate for new exploration and development it is only a question of time and not very long--before the industry starts to decline. Maybe some countries can afford this. Perhaps, for example, Japan could afford it, for its mineral wealth is insignificant compared with its fabulous capability in the industrial field and its consequent ability to buy raw materials at the going price for processing and re-export. This is, of course, not the situation in Canada, nor in my view will it ever be, since the substratum of the whole country is its natural resources.

In the world today every country is competing for capital. It will flow in the future, as it has in the past, to those countries where it can get the best return. In this connection I would pose the question: are you satisfied that the overall equation proposed in the White Paper will attract the capital to Canada? Are you satisfied that an American or an Englishman, a Frenchman or a Japanese will be attracted by the new proposals? Are you satisfied that an American corporation, for example, will feel that it has an equal and attractive deal overall as it has in its own country or, for instance, if it went to Australia? Are you satisfied that the Canadian investor will be encouraged to invest here rather than abroad, and in Canadian natural resource development rather than in other industries? If you are not satisfied on these matters then it is certain that investment in Canada will diminish and the natural resources of other countries will be opened up. It is as simple as that. The revolution in world transportation now enables iron ore to be delivered from Western Australia to Europe as cheaply as it can be done from Canada. I emphasize again: it is the overall equation that matters, not the details.

I refer to one other matter of some importance. At present when subsidiary companies get tax relief the Canadian holding company which has the shares enjoys similar relief. This has two advantages. It means that the Canadian holding company is able to plough back a proportion of its profits into Canada. It also means that the dividend policy of the subsidiary need not be distorted because of the necessity of decanting the whole of the dividend to the overseas company. This has always been regarded as good policy by enlightened overseas investors because it gives Canadian shareholders an opportunity to invest in companies where the majority shareholding is held overseas. The White Paper now proposes that the holding companies should no longer enjoy the tax reliefs afforded to the subsidiary company and should themselves pay tax. This would have the effect, however, of forcing the overseas investor to eliminate the holding company and encourage the 100% ownership of the operating subsidiary, which would deny Canadians the opportunity to invest in it; or if the operating company were not taken over completely, the Canadian investors would be at the mercy of whatever dividend policy best suited the overseas company. Surely, this would have to be regarded as a retrograde step.

To sum up this matter, I am candidly fearful that the present White Paper proposals will reduce that impetus of investment in your great natural resources, as well possibly as in other industries, which is a prerequisite of a buoyant and growing economy. If some re-thinking can be done to ensure the continuing attraction of your country to overseas investors, and to Canadian investors, then I believe that your revenues will continue to soar, giving you the tax yield you need without changing the incidence. One thing is clear: Ottawa has acted democratically and wisely in not springing these new tax proposals on the nation without time for debate. The nation is far from being strangled by the existing system and all of us would wish to be sure that anything new is better for Canada.

Looked at through the eyes of an overseas investor in Canada, it would hardly be fair if I were to spend some time, as I have already done, in trying to point out the sort of attitude from government which we would hope to encounter, if I did not at the same time point out the strong obligations for good corporate behaviour which are, in my view, incumbent on an overseas company investing in Canada or, for that matter, in any other country. The attitude of the overseas investor can be summed up in four points:--

First, he should work as rapidly as he can towards ensuring that the citizens of Canada are associated with management to the maximum practicable extent.

Secondly, he should work towards a high degree of local autonomy, including a majority of the local Board being composed of Canadian citizens.

Thirdly, there should be a reasonable Canadian share participation when the major risk is taken out of any project. This of course requires a Canadian corporate structure. Such Canadian share participation might well connote a fair premium price as recognition of the risk taken by the original investor.

Fourthly, he should be sensitive to the reasonable national aspirations of Canada. It is difficult to define in detail what one means under this heading, but one example might be to carry out a measure of mineral processing in Canada. In this connection I don't think it is necessarily reasonable or wise to insist in all circumstances on processing all mine output in Canada. As in the case of any business transaction, the requirements of the customer are paramount. If he needs the finished metal, this is what he purchases. If his requirement is metal concentrate, he will seek out and purchase from the supplier who can satisfy this need. In addition, we must accept the realities of sales arrangements which are frequently required to support massive loan capital needed to develop many of the modern, large, low-grade mines. These are simply the economic facts of international trade. Of course, this does not preclude increased processing of mine output in Canada; however, the degree of processing must be influenced by the needs of Canada's customers and potential customers.

I have spent a little time on the rights and obligations of overseas investors in Canada. To sum the whole matter up in five words, the philosophy I have been trying to impart is simply "a fair and lasting partnership".

I would now refer for a moment to some of Canada's other external problems, and indeed her contributions to this planet. It is, I think, becoming increasingly clear that the United Kingdom will join the European Common Market and that most of her EFTA partners will join with her. It is my belief also that this will be succeeded by a political unification of many of the countries of Western Europe, including Britain, and that we shall end up with a type of confederation and a unified Europe. It is not reasonable to suppose that Canada and the United States should for ever maintain a strong defence system in Western Europe and you have, in my view, quite rightly given notice that the present system should not last, and that Canada's contribution to defence in that part of the world should be confined to a NATO contribution based on North America. A unified Europe should in the long haul provide its own defence, harmonized with North America so that if the chips are down there will be mutual assistance. In my view a unified Europe, with a unified European currency, is a prime possibility, even within the next decade. However, the first step of an enlarged Common Market is a great deal more likely than not, and this will pose certain problems for Canada. I believe that you will wish to establish processing industries within the European Common Market, thus valorizing more effectively your great mineral resources, which in crude form will be able to enter the Common Market free of tariff. Of course if your fiscal system becomes distorted, your mineral resources will become less important in the world scene, but I am assuming for the purpose of this argument that common sense prevails. I personally believe that after Britain has Europeanized, greater attention will be given in Canada to the attractions of a North American customs union. I don't mean political union, nor would it appear to be in the interests of Canada to join the United States even in an economic union at one step. But one feels that the automotive deal made some years ago will probably be extended to other industries on a progressive basis, just so fast and not faster than Canada can ensure that her own industries will not be placed at the mercy of United States industry, but just so fast also as it is attractive for the United States to come to this accord.

Many of you might worry about economic developments of the type I am envisaging, perhaps on the grounds that the identity of the nation might become submerged in your larger neighbour and that the undefended frontier might become no frontier at all. I personally don't see this happening, and if I may say so, I think candidly the main reason is because of the existence of the province of Quebec. The fascinating prospect of a growing bi-lingualism, at least in Eastern Canada, of the future achievements of French Canada which, in my view, will in due course reduce to negligible proportions the distinction between the "haves" and the "have nots"--all these factors will tend to mould a more and more distinct Canadian culture unhampered by some of the real problems evident today in the United States.

In conclusion, I believe the progressive realization that fundamentally mankind are all the same, and the progressive actuality in terms of human talents and performance which comes with this recognition, will increase the constructive influence of Canada in the Council of Nations as a great country without territorial ambitions. You have already made as large a contribution to the concept of the United Nations as any other nation on earth, and I am sure Canada can look forward to a fine and prosperous future, the continuing esteem of other nations and an environment in which you will increasingly be proud to bring up your children and your grandchildren.

Sir Val Duncan was thanked on behalf of The Empire Club by Mr. Bruce J. Legge.