Construction and the Canadian Economy

MR. STARK: Construction has now become Canada's largest industry. It is known that the 1960 volume will exceed $7,000,000,000. In addition to the tremendous extent of this industry in Canada, Canadian contractors have become known all around the world by reason of their activities under the Colombo Plan.

Our guest today is this year's President of the Canadian Construction Association, Mr. Jack M. Soules. Our guest was born in Oshawa in 1917 and was educated in the Toronto Public Schools, then at Ridley College, St. Catharines, and later at the School of Practical Science, University of Toronto. He gained his experience in the construction field in his father's business--Soules Construction Limited--of which he became President in 1950. He is also President of Bay-Grosvenor Limited, of Harry Janes Limited, and of High Park Properties Limited. He is Chairman of the Board and Director of many other companies. He is a Past-President of the Toronto Builders' Exchange, whose members are meeting with us today.

Mr. Soules has an extremely wide knowledge of industrial conditions and of construction development; and, indeed, he has been described as "the spokesman for con struction" in Canada. On several occasions, he has attended conferences in Geneva, Switzerland, as an employer advisor to the Canadian Delegation to the International Labour Organization.

Mr. Soules makes his home in Port Credit, where he has found time to interest himself in community work, including chairmanship of the local School Board. His hobbies are golfing and yachting. When he is not indulging in these activities and when he is not travelling in Canada or abroad on construction business, he may be found at home with his wife, his one son, and his two daughters.

It is my pleasure to now present to you Mr. Jack M. Soules, who will address us on the subject, "Construction and the Canadian Economy".

NM. SOULES: Of prime concern to every Canadian today is the economic outlook and the consideration of the various factors contributing to present conditions and those necessary to effect desirable improvements.

It is my intention in the next twenty or so minutes to outline for you the size and the condition of the construction industry in Canada, its effect on the general economy now and in the future, and the parallels that can be drawn with other industries. Those of you who stay to the end will qualify as "sidewalk superintendants emeritus" and may pick up your diplomas from your local Canadian Construction Association representative in your own community.

There are 1,300 member firms in this national association, with fifty-three affiliates representing some 7,000 companies in total. The membership includes all facets of the industry, including general contractors, heavy construction firms, road builders, trade contractors, manufacturers, suppliers, and professional and allied services. Our affiliates, in the main, are provincial and municipal associations, such as locally, the Ontario General Contractors Association, the Ontario Road Builders Association, and the Toronto Builders' Exchange, to name only three of the twenty-six in Ontario alone.

These people and their associates administer and execute the $7,000,000,000 of current annual volume which makes this Canada's largest industry by a very substantial margin. Should I at this point show a modicum of pride as the national representative of my industry, it is because we have been called upon in the post-war period to perform virtual miracles of expansion. To reach that volume of $2,600,000,000, we accomplished an average annual increase of 11 per cent until we reached a peak in 1958 of $7,100,000,000. During this time, percentage-wise, the construction industry rose from representing 13 per cent of the gross national product to over 21 percent, so that today one in every five dollars spent on fixed assets, is a construction dollar. This is a potent influence on the general economy.

We did, indeed, perform this expansion miracle all too well, for, during the past two years when the volume of work available levelled off at the $7,000,000,000 level, the impetus of our expansion carried on so that today the industry is capable of, and has a capacity for, a substantially larger volume than is available. As a result of this competitive situation, our industry has a record number of failures, and even in the peak year of 1957, taxation statistics indicate that nearly 32 percent of construction proprietors had no taxable income. Here a parallel may be drawn with most other industries in Canada, though possibly to a lesser degree: the rapid post-war expansion of capacity, the levelling off of demand, and consequent unemployment.

Why did this happen? Why has business generally levelled off in this country when many countries of the world, particularly in Europe and the Far East, are building new records of business and employment. Some of the experts call it cyclical, others say it is structural, and there are those who attribute it to being a combination of the two. I am not prepared to argue the point, particularly since I am not too sure that I understand the real meaning of the terms, "cyclical" and "structural".

If I were to attempt to describe them in words and situations familiar to my own industry, I would say that if a properly designed high-level suspension bridge vibrated and swayed when a force 7 wind was blowing and settled down when the wind died, that could be considered cyclical and should not concern or alarm us. However, should the bridge start to vibrate under a force 7 wind and continue to do so when the wind decreased or changed direction, we should suspect a structural deficiency, and this could be a cause for alarm, demanding prompt remedial action and strengthening of the structure.

The business structure in Canada today is vibrating under a force 7 pressure which has been caused, in my opinion, by complacency and neglect on the part of Canadian businessmen in the face of increased competition from abroad.

The complacency, born of a period of post-war expansion when our own domestic demands were so high that we had all the business we needed to produce worthwhile profits-with not too much concern for prices, wage levels, and even in some cases, quality. The neglect, born of the complacency, was that of salesmanship and cost and quality control essential to the development of broader markets.

Canada, unlike our neighbour to the south, is essentially an export economy. We do not have the huge population to absorb our production as does the United States, which consumes 95 per cent of its own products. A spiral of cost increases is not nearly so serious in a consumer economy where wages increase accordingly. But even today in the United States, concern is being shown for export markets. In Canada, where we are dependant on exporting 20 per cent of our production, we are much more susceptible, of course, to cost increases within our own business structure, and competition from abroad. It is therefore imperative that Canadian businessmen today, with the essential help of labour, take prompt remedial action before the force 7 pressure weakens our structure dangerously.

What can we do? It will be many years before our population increase will permit us to become a consumer nation. All that remains for us, then, is to increase our exports.

I would like to tell you what is being done to expand our construction markets, and you may draw your own parallels for other industries.

An upsurge of interest in off-shore contracts has been shown by Canadian firms in recent years. Not so long ago, only a few large firms could truthfully be classified as national in their operations. This no longer applies, as many firms, medium-sized as well as large, operate from coast to coast, wherever job opportunities exist. Many others are active in more than two provinces. This is a far cry from the days when a firm only bid jobs in its own city and the surrounding area. Trade contractors have followed the lead of the general contractors. An Ottawa electrical firm bids now in Nova Scotia and in Manitoba; a Montreal roofing firm, in Newfoundland; and so on. As Canadian firms have expanded their operations in this country, they now are looking abroad for an even larger market.

We now possess an inventory of skills and knowledge built up over the years that is exerting pressure for its effective use. Building abroad can widen the markets for our services while at the same time utilizing our capacities to a fuller extent.

The Colombo Plan has been responsible to date for the largest part of the work done by Canadian contractors overseas. In Pakistan, Canadians have built the Khulna Newsprint Plant, a power station near Lahore, the Maple Leaf Cement Plant at Daud Khel, and the massive Warsak Dam and Power Station in the Khyber Pass. This last project will increase Pakistan's food production by nearly 60,000 tons annually by irrigation of 100,000 acres of farmland. In India, the joint Canada-India atomic reactor near Bombay and a power station at Madras, built by Canadians, will make an important contribution to Indian progress. In Ceylon, transmission lines are now being completed by Canadians. Throughout the West Indian Federation, Canadian contractors are busy on work for private owners, particularly in Jamaica and Trinidad, as well as in the Bahamas and Bermuda. The reaction of many companies which were or are involved in these projects is, "Why weren't we here ten years ago?" The efficiency of the work of this advance guard has created a fine impression of Canadian skills and abilities, which can only help other Canadian firms who bid for contracts in these countries. Construction activities in other nations have been limited, although Venezuela and the Dominican Republic have used Canadian firms for certain projects.

There is a great demand for construction in the world markets, waiting for those who will go out and explore them. Truly there are great possibilities in this fast-changing world for the industry which I represent. Many areas are striving to improve the standard of living of their peoples. Independence has come to many new nations in Asia and Africa, and the majority of these states can be termed "under-developed". On those two continents and in Latin America, the West Indies, and the Middle East, nations are planning or actively engaging in developing their basic resources. They all share the great need, the strong desire, and the determination to secure both primary and secondary industries for their respective lands. The needs of these economically undeveloped countries are being met to some extent through vast international and bi-lateral programmes. Some of these are managed by the United Nations and the World Bank, others through the Colombo Plan, and--it should be remembered--through its Russian equivalent.

Canada's relationships with its sister nations of the Commonwealth are warm and friendly, and we possess an entree with them not enjoyed by states outside this unique organization. In Africa, Ghana and Nigeria are pro-Canadian, but want to know more about us. In Asia, Ceylon, India, Pakistan, and Malaya accord a warm welcome to our people; and in the West Indies, Canadians feel very much at home. However, contracts will not be won by friendship alone. We must compete. The Canadian contractor cannot rely entirely on letter contact but must go to these countries, present himself personally, and make himself and his company known. He has to sell himself and his product. This is true in Commonwealth and foreign countries, for he is in competition with salesmen from all over the world. Canadian firms are beginning to be conscious of the co-operative or group approach in the export effort, and we can learn much from the established cooperative organizations in Europe. As salesmen, Canadians are woefully inadequate, but are learning and are learning rapidly. The results could be exciting. At the present time, Canadians have been invited to bid on the large earth-fill Mangla Dam in India--the estimated cost of which is $220,000,000. This is part of a proposed $1,000,000,000 expenditure for power and flood control on the Indus River System, involving Pakistan as well as India. Not only the Dam itself, but this whole damn project could be built by Canadians.

One important market, and a natural one, which has been neglected and almost let go by default, is that of the Islands of the West Indian Federation. Our closest Commonwealth partner has historic trading and cultural links with Canada. Although we speak the same language and share many things in common, we have not cultivated and expanded this market as we could and should have. These beautiful islands require assistance to provide the accommodation for their booming tourist trade. Each island needs industrialization to round out its economy and can offer tariff preferences, tax incentives, well-established Canadian banking services, and low labour rates. These together with the welcoming hand of the kindly, friendly people that many Canadian tourists have met, make this a most attractive market for any Canadian endeavour. However, their needs will be met by others if we do not take advantage of the opportunities which are offered at the invitation of their governments. Increased efforts and salesmanship in the Federation, British Guiana, and British Honduras, could bring about the same situation now existing in Bermuda and the Bahamas, where Canadian firms do the largest part of the local volumes of construction.

A market that cannot be overlooked lies to the south in our friendly neighbour, the United States of America. There is the world's largest market, and it is significant that Canada is closest to it. Our balance of trade is favourable with every country except the United States. There are two ways to overcome this. Canada must either sell more, or buy less. As buying less would lower the Canadian standard of living, this approach is unacceptable to most. I would like, therefore, to discuss how we can sell more. There are two ways to up sales to the U.S. One is to go out and "give it all you've got". This has been termed the "hard sell", aptly named, I believe, for it is not easy by any means. Unfortunately, Canadians have been too complacent. In the post-war period, hard selling was not necessary. There was enough work to go around. No one tried too hard. But things are different today. Competition and an excess capacity require markets abroad and good salesmanship to secure them. The second way is to lower the trade barriers between the U.S. and Canada. Suppose there were no such barriers. Would Canadians suffer, or would this open a vast market to Canadian manufacturers and industry? If this market did open up, certainly Canadians could compete in it. Our companies are just as capable as their foreign counterparts. If there is anything Canadians lack, it is capital in the quantities that the Americans have it. The Canadian is more conservative and, thus, is not prepared to readily put out risk capital.

The question also could be posed: "Would lowering of trade barriers affect Canadian sovereignty?" Since Canada was founded, it has always had substantial foreign investment. It could not have reached its present state of development without French capital during the French regime or British capital in the British regime-nor without British and American investments since we achieved our independence. The U.S. itself was built by foreign capital-mainly British. It will be interesting to see, if in the future when private Canadian investments are aiding the economic development of other nations, they will be considered a menace to local sovereignty.

However, while these questions are being seriously considered today by many Canadians, to date no satisfactory answers have been arrived at, no agreement has been reached. At this time, then, we must cross our southern border and sell like we have never sold before.

A valuable asset to those of us with eyes on foreign markets, is the Department of Trade and Commerce at Ottawa. Through its news service, available to any interested firm, we can learn of a wide range of foreign projects. A recent list gave details on tenders for a new international airport in Iraq; a lengthy railroad in Australia; and for large bridges in Turkey and Egypt. The increasing number of invitations to bid received by Canadians is, I believe, proof of increasing respect abroad for Canadian contractors. In addition to this news service, Trade and Commerce will give assistance on customs and tax regulations in foreign countries. The Canadian Trade Commissioners on the spot will give help on wage scales, union regulations, and countless other subjects.

Financing, of course, is extremely important. The financing of a large part of the volume of work for which Canadians are free to bid in competition with the rest of the world, is handled by the World Bank, although some comes from the International Finance Corporation. The funds largely come from Western countries, including Canada. Management by the World Bank assures Canadian contractors of fair bidding practices and prompt payment in Canadian currency. Financing is not a problem with these projects, nor with those included in the Colombo Plan. It is in the private field that Canadian firms experience financing difficulties. Here they need better credit facilities. The lack of long-term finance has deterred many Canadian contractors from taking on foreign projects. This lack will have to be met by the Federal Government, either directly or by influence. Some assistance is given by the Export Credits Insurance Corporation, which insures a bank for the money it loans to contractors for overseas work. This Crown corporation was not set up for the construction industry, however, and, as a result, its help is not comprehensive enough. Our industry needs larger insurance coverage, longer terms, and cheaper rates. The prime need is for the Federal Government to tell the Trade and Commerce or Export Credits Insurance Corporation exactly what is available in the way of financing to the construction industry. A step in the right direction would be for the Government to give adequate insurance for one foreign project to each of a number of Canadian-owned construction firms. This should encourage them to continue working abroad.

I think it would be fair to say that many of the problems the industry faces in Canada are also present abroad. Although some of these problems are intensified, others are lessened.

Ordinary construction materials are often in short supply locally-quite often it is timber and cement that present problems. Steel has to be imported, and local types of bricks sometimes produce difficulties. Materials have to be bought on the world market. There must be answers found to questions such as: "Do the British have cheaper turbines than the Americans?" "How much is German steel, delivered, vs. Canadian steel?" Extensive and international purchasing information is necessary.

Living conditions for workers and staff in a new country do pose problems. Climatic and dietary changes have to be taken into consideration. Local food supplies are sometimes inadequate, and so, up to one-half of the diet of Canadian personnel may have to be imported. This is not a new problem for Canadian contractors, for those who have built in the far North and in Labrador, know that all the food has to be brought in. In some countries, air conditioning is an absolute necessity for Canadians to work there. But, again, in the far North, heat is essential and no less difficult to maintain.

It is surprising, but in many of the under-developed countries, labour is not necessarily cheaper than in Canada. More people are required on the job to operate machines, at least, until the local labour force is adequately trained. Many technicians, foremen, and, sometimes, tradesmen, are brought from Canada. A distressing discovery in some countries is the under-nourishment of the people. They are unable to do a standard Canadian day's work even though they try their best. Many are physically smaller than the North American, although this may be a poor comparison considering our present outcry about poor productivity in Canada. (This doesn't mean that Canadians are undernourished because they are not as productive as their American cousins.) There are other problems that come up, such as wide-spread pilfering, which requires the hiring of armed guards. However, no Canadian firm leaves its job-sites or construction yards without a night watchman, and still pilfering goes on in Canada. This could be offered up as more evidence that the peoples of the world are in truth "brothers under the skin".

While admittedly there are problems, no contractor worth his salt is put off by them. An integral part of construction work is meeting problems, tackling them, and solving them. We have been doing it for generations, and it is all part of the fascination and excitement of our industry. Construction men are risk-takers who love a challenge-a fact clearly shown by our record. Canadian contractors and designers rank with the world's finest, for we have built successfully in spite of our climate and topography, which are among the toughest on earth. We built a railway across Canada back in 1885 to unify the British colonies on this continent when there were only some 4,000,000 Canadians. We built in 40° below zero weather, and in 110°F. We build in the Arctic and in the banana belt of the Niagara Peninsula. We have built projects like Kitimat and the St. Lawrence Seaway, and we will build more like them in the future. I have every confidence that we can overcome problems encountered in other lands.

The main purpose of the Canadian construction man abroad, as at home, is to build efficiently and economically, and on time. He is a professional man doing his job. In another country, however, the Canadian, whatever his occupation, has another great responsibility. He is in effect an ambassador from Canada, and whether he desires this position or not, he has it. The Canadian serviceman overseas during the last war created respect for Canada. We should be proud and want to maintain this in the eyes and minds of non-Canadians. For example, the people of north-western Pakistan may never have the opportunity to know Canadians and their families as they had during the erection of the Warsak Dam. Their impressions of Canada must stem largely from what they saw, learned, and felt about the Canadians who were on that particular project. Canadian prestige can rise or fall as a direct result of the attitudes and activities of our people abroad. That Canada, for example, is no longer to be considered an English or a French country, is shown by all-Canadian construction crews abroad whose names testify to not only French and British origin, but to Scandinavian, Mediterranean, and Central European origins as well.

Each Canadian should consider local customs, and endeavour not to offend local religious or political beliefs. A Canadian company in a Moslem land might well consider working on Sundays and not working on Fridays--a holy day. These things are important because Canadian prestige is high in the world. No nation nurses a violent hatred for us nor bears an ancient grudge. We are a country that has never subjugated another people nor sought an empire, and people are aware that Canada itself was once a colony. We are desirable, politically and for our skills. We want to keep it that way. Today national prestige cannot be created and maintained by diplomats and missionaries alone. This responsibility rests on every citizen. In today's world, I believe we all realize there are important issues at stake which surpass profits and use of industrial capacity.

Gentlemen, in summary, if the need for salesmanship can be met, and the problems of financing solved, then I believe we can look to a great expansion in foreign operations by Canadian construction firms. Their efforts could well help to bring about better understanding between the races of mankind as well as a higher standard of living for much of the world's population.

This, then, is what the construction industry of Canada is doing abroad and what it could do. This potential can only be realized through the construction industry, and all Canadian industries increasing their exports.

To close, I should like to quote the Honourable George H. Hees, Canada's dynamic Minister of Trade and Commerce, who said earlier this week, "In Canada, some are convinced that the world owes us a living and that people will pay more for Canadian goods because we are a fine people. People will only buy our goods if they are either of better quality at the same price or of equal quality at a lower price."

Management and labour must co-operate in producing better designs, better quality and lower costs.

THANKS OF THE MEETING were expressed by Mr. J. A. Rhind.