Canada At The Crossroads

Mr. Seymour

Reverend Sir, distinguished head-table guests, members and friends of The Empire Club of Canada: It is my pleasure to welcome as our guest speaker today David M. Culver, President and Chief Executive Officer, Alcan Aluminium Limited, Montreal.

Born in Winnipeg, David Culver obtained his Bachelor of Science degree at McGill University and his Master of Business Administration degree at the Harvard Graduate School of Business Administration.

He joined Alcan in 1949 and served on the staff of the Centre d'etudes industrielles in Geneva before transferring to the company's sales office in New York.

Over the ensuing 27 years, he accepted positions of increasing responsibility in Alcan International Limited, Aluminum Company of Canada Limited, and Alcan Aluminium Limited, before accepting the presidency of the parent company, Alcan Aluminium Limited, on October 1, 1977.

When David Culver assumed the position of Chief Executive Officer as well as President of Alcan Aluminium Limited on July 1, 1979, he became only the third executive head in the company's 51 years, Nathanael V. Davis and his father, Edward K. Davis, being his predecessors.

On formulating new policies for restoring the economy to a position of sustained growth combined with lower inflation and lower unemployment, David Culver was quoted in 1982 as saying:

"The best thing governments can do is take a long holiday. Instead of moving the tiller back and forward because the waters are rough, they should keep it steady and ride the storm out. My advice for economic policy would be not to change course because tampering leads to more trouble. It sounds tough, but we have taken the soft option for years."

On another occasion, that same year, he was further quoted as saying:

"We must learn to save an economy from those who know what is `best' for us, while at the same time effectively managing that amount of government control that is inevitable in a modern industrial democracy."

On boosting Montreal as a major world-class city, David Culver says:

"I feel strongly... It's a great city to live in, a city that can have a lively, distinctive future, a gateway city where cultures meet and business can thrive."

David Culver's leadership skills are best exemplified, first, by his appointment as an Officer of the Order of Canada, and second, by his recent nomination by a leading management firm as one of the ten "most admired Chief Executive Officers" in Canada, and, third, by his transference of his skiing ability to two of his four children who made the Canadian National Ski Team at various times during their teens.

Ladies and gentlemen, it gives me great pleasure to introduce David Culver, President and Chief Executive Officer, Alcan Aluminium Limited, who will address us on the subject, "Canada at the Crossroads."

David Culver

As Chief Executive Officer of one of Canada's larger companies, people sometimes say to me: `Why don't you go to Ottawa and tell those guys to do thus and so?" Such questions tempt me to reply: "There is no point going to Ottawa until one has first gone to the Canadian public!" After all, we are a raging democracy. Political survival in this country requires those we elect to practise precise followership suitably disguised as bold leadership! Perhaps I exaggerate, but I hope I make the point that these kinds of occasions do present to you and me the chance to influence, however minutely, the Canadian view. If the Canadian view changes, our politicians will be the first to know, and policies reflecting that change will not be far behind.

So what are some of the features of the Canadian view that I suggest need to be changed, however minutely, at this time?

The first has to do with geography, where we are situated that spaceship that we call Earth. In his last public appearance in June 1983, American engineer Buckminster Fuller was asked what life was going to be like in a space colony. Fuller said roughly the following:

"If you mean what is it like living in outer space, my answer is: I never thought we lived anywhere else! We already live in a space colony, and we are never going to be able to build a better one. All we have to do is use more effectively the features of this incredibly rich one that we have been given! "

Canadian soil makes up a significant part of that spaceship, and that fact alone commits us to interdependence with the rest of the world. Cities, provinces and nations all have had, and continue to have, their role to play in our evolving culture. But the thrust and parry of economic competition is now moving steadily into the larger world arena. The nation-state, still bound by its domestic politics, has to make its policies appropriate to that arena, if it is to survive and grow.

My second point about geography is that there are three relationships of overwhelming importance on our spaceship: U.S.A.-Russia

U.S.A.-Europe/Middle East

U.S.A.-Japan

Geography, politics, and trade put Canada in the noman's land of these three relationships. If you are in the noman's land, you are in some danger of getting caught in the crossfire if trouble breaks out.

Canada is uniquely associated geographically and commercially with the United States, an association which brings with it both benefits and vulnerabilities. But we are also the no-man's land over which any future major conflict-trade or (God forbid) otherwise-will be fought. In its own inter-, est as well as the interests of the rest of the world, Canada must try to exercise its influence wherever it can to help resolve emerging problems before they become damaging.

The third point to be made about our geography is its effect on Canadian attitudes to trade, culture and political independence. Here a comparison with Australia is interesting. Australia shares much of our historical background and cultural origins. However, instead of living alongside the world's largest market, it is somewhat out of the way geographically. This has caused its trade policies to be somewhat protective, but its cultural and political identities to be secure, not to say robust!

We Canadians, on the other hand, have tended on the whole towards freer trade policies, while exhibiting growing uneasiness with respect to protection of our cultural identity, and, I suggest, basking in a more secure confidence about our political independence than is warranted by our economic performance.

Geography, then, has some implications for us, but what about this question of cultural identity? It is another aspect of the Canadian view that, in my humble opinion, needs some light thrown upon it. This is important not only because we must support and grow unique Canadian culture. It is important because it is so easy to see cultural "cry wolf" attitudes being used, consciously or unconsciously, to question and even to torpedo sound economic proposals. that would bring Canadians a higher standard of living.

What are the facts? First, we cannot lose our culture through the actions of others. No one else wants it as their culture; they already have their own. Second, we can ignore our culture or let it languish through disuse and lack of support. Third, it takes money to grow and diversify our culture. Governments do not have any money anymore: the money to support Canadian culture must come from the private sector, but a private sector healthy enough to have the resources to do so. The cultural community should be in the front row of supporters for economic policies that strengthen the Canadian private sector!

Let me turn now to a second aspect of the Canadian view, economic performance, because it is here that we are truly at a crossroads. It is on this question that the future of Canada hangs. If we cannot make ourselves economically strong, our cultural independence will be in danger, and our political stature diminished. If we can reverse the trend of the past fifteen years, not only will our real standard of living rise, but we shall confirm and strengthen our cultural identity, and we shall be able to play the valuable political role in the world scene necessary to keep our no-man's land free of conflict.

Among the many economic problems to be solved and decisions to be taken, there are in my opinion two that transcend the rest in importance. These are the question of the national budget deficit, and the question of our trade relationship with our good neighbours to the south, the United States.

As far as the budget deficit is concerned, I am disturbed not only by the severity of the problem, but also by the comparative lack of understanding by the Canadian public of its far-reaching implications. Without that understanding, there will be little political pressure to take far-reaching action.

Meanwhile, the clock goes on ticking. To borrow an example from a colleague, how many people would be aware that the national debt has increased by $4 million since we started lunch and that it will have increased by about $100 million in the course of today?

The Canadian national debt is indeed growing much faster than our economy, and our deficit in relation to the size of our economy is among the highest in the industrialized world. We hear a lot about the size of the United States budget deficit, and it is large, but it is much lower than Canada's in relative terms. The United States is already taking clear and probably painful steps to reduce its annual deficit to zero by 1991. The Gramm-Rudman Act may be a very blunt instrument, but it represents an expression of political determination which is very impressive to an international observer. By contrast, the Canadian attitude is seen to be confused and temporizing.

The recent federal budget certainly deserves praise for addressing the budget deficit squarely, and for its fiscal approach. It is a step in the right direction along the rough road of deficit reduction. It is, however, only a first step and. more will be needed, which will have to contain continuing emphasis on government expenditure reduction, rather than tax increases.

Further, the major economic assumptions in this budget, of interest rates around nine per cent and oil prices around $22.50 a barrel for the next year and then rising, seem questionable. If they are not fulfilled, we shall have once again underestimated the magnitude of the problem, once again have failed to measure up to the challenge.

For we are not talking only about this year's or next year's budget. We are talking about the future of Canada, our children's Canada. We must be clear about what we should spend and not spend, now, to safeguard that future. Canadians will argue and debate (they always have and they always will) but ultimately they have to convince the federal government and, I may add, the provincial governments also, that they are ready to accept cutbacks and compromises in what they seek and expect from the public purse.

What is more, they must do it quickly. The Canadian economy has recently been doing reasonably well, just the time when the measures to deal with a growing deficit should be in place. It will be far more painful to cure the problem when the economy has gone into decline. The necessary steps, and stronger ones than we have so far seen, must be taken urgently to stabilize and then reduce the budget deficit, before the growth of this malignant situation condemns future generations of Canadians to an insupportable financial burden.

The second major economic decision facing Canada is in its trade relationships with the United States. Here again we arrive at the decision point burdened with the legacy of earlier decades.

Canada's international competitiveness has been steadily declining, at least partly due to the soft option taken during the apparently prosperous Seventies. Our traditional strength in world trade has lain with our resource industries, and in the past Canada has indeed done well in that sector.

Unfortunately, that part of world trade is growing more slowly than the manufacturing sector. It is also suffering more from the downward pressure on commodity prices that accompanies today's disinflationary conditions. That is bad enough, but, in the manufacturing sector, there is another problem.

The Canadian market is relatively small, and by itself offers less than the "critical mass" for modern industrial investment, particularly when compared with the internal markets of the U.S., Europe and Japan. Yet it has a manufacturing diversity incompatible with its size, which leads to shorter production runs and higher costs than the competition, which forfeits the economies of scale available to others. In addition, it has barriers to free trade between provinces, which further accentuates the problem.

For a modern industrial democracy to flourish, it must have a vision of what it can become and what its needs are to get there. Canada must clarify and hold on to its vision. It must provide the incentives and the conditions that attract modern investment: a work force with the necessary attitudes and skills, the ability to generate and receive appropriate technology, and, above all, guaranteed access to markets of the right size.

Canada has always depended upon exports, and will do so increasingly. We can improve on productivity, introduce the most advanced technology, but, without secure access to export markets, we are wasting our time. Given that we can organize the first two, and some changes will be necessary to make this happen, why should we ignore the opportunity to open access to the great neighbouring market of the United States, a market with the same language, with similar business styles and ethics, a market in which we already operate and in which we are welcome?

To my mind, it is just this securing of access to the most important export market we have, or are likely to have, that is the mainspring and justification of the Government's decision to proceed to enhanced trade negotiations with the United States. I can think of almost nothing that will do more for the ultimate prosperity and security of this country than the successful accomplishment of those negotiations. I am not overlooking the difficulties (commercial and political, of substance and of timing) which lie in the way. We must not expect immediate results, particularly in view of the political agenda of a United States congressional election year, and a slow low-profile approach may be wise, as well as probable.

Nor am I overlooking the fact that there will be problems of adjustment, changes to the sectoral levels of activity and employment in this country. But I believe that the severity of these problems can be overstated. There are many economists who have studied the probable effects of a freer trade agreement with the United States who are predicting an overall increase in employment and in GNP as a result.

What we have to accept and deal with are the problems of transition. We shall need time. Changes must be introduced on a time scale compatible with the investment, training and redeployment requirements of affected industries. We shall need to provide the kinds of social support necessary to solve the human problems the changes will bring.

But what will be the benefits? We shall indeed have gained the main objective: guaranteed and free access to the world's, and our, largest market. But we shall also have gained, and I hope grasped, the opportunity to make ourselves truly competitive on a world scale. We shall still face the problems of competing with Third World countries, but we shall be better placed to do so. We shall have become part of a bigger domestic market, and we shall have sharpened our own competitive edge.

Simultaneously with the opening of negotiations with the United States, if the United States government gives the goahead, as I believe it will, we shall also probably be starting towards the next round of multinational trade negotiations under the GATT. Successful progress in Canada-United States trade negotiations will be a tremendous catalyst for multinational trade negotiations. It will also put Canada in a stronger and more competitive position to meet and take advantage of the changes that the next round of GATT changes to tariffs and non-tariff barriers will bring.

Let me add two other comments. We have an important and growing trade relationship with Japan. Japan is Canada's second-largest national trading partner after the United States, and is the United States' second-largest trading partner after Canada. It is natural that Japan should feel some concern about the effect on its trading relationships with both countries, of an enhanced trade agreement between them. I am convinced that it has nothing to fear on this score.

On the contrary, a Canada strengthened by such an agreement has more, not less, to offer Japan, both on issues of trade and investment. It also has the opportunity of offering a friendly and concerned hand in the resolving of problems in the very important United States-Japanese trade relationship.

Secondly, a comment about political independence. We need a wider range of responses than the knee-jerk reactions apparent in recent years. I suggest it is time to realize that the political independence of this country is neither an entitlement nor a God-given right. It has to be earned on a continuing basis, and, once again, the primary requirement is economic strength. A Canadian economy uncompetitive in costs and rife with underemployment and unemployment is a far greater risk to our political independence than is a comprehensive trade agreement with the United States. Huge and growing deficits and a weak currency, both at a time of record export surpluses, are danger signals of an economic sickness that, in the long run, truly threatens our political independence.

Canada is a small country in terms of population, but it is a large and critically placed part of spaceship Earth. This calls for new thinking and new responses from Canadians. The old reactions of the 1950s and 1960s are no longer useful. The National Energy Program and FIRA as it operated in the early 1980s are both good examples of what happens when we apply old responses to new situations.

Our geography and our values commit us to world citizenship, and our trading needs make us part of a one-world economy. To make ourselves ready for that future, far more ready than we are today, the first step is a comprehensive trade deal with the United States. No question about it.

This should be accompanied, and preferably preceded, by a phased program to stabilize and then progressively reduce the budget deficit. A successful initiative in these two areas will give us the trade access, the competitive edge, and the economic health, that are vital to our future.

The next step will be the evidence that we can indeed hack it. From the confidence that will engender will come success as a nation on the world stage. In world terms, Canada probably counted for more in the early to mid-Fifties than at any other time since. It may not be a coincidence that this was also a time of trading success and of financial and fiscal responsibility as a nation.

I am convinced that we must, we can and we shall succeed in this venture. It will call for diplomatic leadership and political courage. It will call for recognition and acceptance at all levels and in all branches of our society of the changes that are necessary and that will come. If we fail to rise to this challenge, we are in danger of condemning Canada to a future that holds little but dwindling isolation. If we grasp it for the opportunity that it is, we are laying the foundation of a strong world-class nation that has really come into its own.

Let me end with what I hope will be accepted for what it is: a sincere non-partisan appeal. We are fortunate in Canada to have a very high calibre of men and women represented in our elected political bodies. They want to do what we want them to do.

Let's be brave and adventuresome. Let's show that we Canadians do indeed want the freer trade, the restored economic health, and the pride and independence I have talked about. Let's make it clear that we see the challenge and the opportunity and we welcome both. If we do that, they will do the rest.

The appreciation of the audience was expressed by John A. MacNaughton, a distinguished Past President of The Club.