The Significant Four Years Ahead

MR. JUPP: Distinguished guests and members of the Empire Club of Canada.

Our speaker today is a young man who has already reached a degree of responsibility and influence that most men work a lifetime to achieve. At the age of 31, Mr. Eugene Miller is Associate Managing Editor of Business Week Magazine which has a circulation of 300,000 comprised almost entirely of Business Executives. There is no doubt about the excellence of the magazine and the wide circulation in an excessive field says a great deal for its influence.

Eugene Miller was born in Chicago, Illinois and holds degrees from Georgia School of Technology, from Bethany College and from the Graduate School of Journalism at Columbia University. He also received a diploma for graduate work in economics at Oxford University.

World War II cut into Mr. Miller's career without apparently making any long term change in his plans, but it is interesting to note that he served in the U.S. Navy during the war and has continued ever since as a Senior Lieutenant in the U.S. Naval Reserve.

Before going to magazine Business Week, Mr. Miller served as Assistant City Editor of the Greensboro North Carolina Daily News, and it was not until 1952 that he became Southwest Bureau Chief for Business Week with headquarters in Houston, Texas. He was promoted to his present position of Associate Managing Editor in the same year, 1952.

As a Journalist Mr. Miller has been a frequent contributor to National Magazines, including Coronet, Rotarian, American and Popular Science. Moreover, he frequently appears on the N.B.C. and C.B.S. networks as a Business News Commentator. He has chosen as the title of his commentary today, "The Significant Four Years Ahead".

MR. MILLER: First I want to thank you for inviting me as your guest here today to speak upon a subject that is so much in the news today.

It would seem that the logical place to start off is with President Eisenhower's startling landslide of three weeks ago, for the election made history of its own. You are all aware of the results. By a landslide of 457 electoral votes to 74, the American voters gave President Eisenhower a second term in the greatest personal vote of confidence since Franklin Delano Roosevelt's victory in 1936.

The President's second term starts at a time of peak prosperity. And he is well aware that the fact of prosperity in his first term and the promise of it in his second was crucial in his victory. That fact too will help shape the Administration's economic program over the next four years.

During this period, the population of the United States will increase by at least 11-million. And simply just to maintain those people at their present standard of living, the United States' gross national product will have to rise to $437-billion.

But that's only a beginning. For the American labor force will be rising even faster than population. By 1960, at least 73-million people will be wanting jobs. And because nowadays, anything worse than about 4% unemployment scares some people, a prosperous economy in 1960 will have to be big enough to provide at least 70 million jobs.

And these 70-million workers will be more productive than today's workers. For 50 years, productivity has risen 2 % a year, and for the last 10 years it has risen better than 3.5 % a year. That means if it rises no more than 2.5 % a year for the coming four years, it will take an economy of some $480-billion to make the U.S. look even comfortably prosperous.

But even that's not enough to satisfy Eisenhower. Administration leaders are aiming for a gross national product of close to $500-billion by 1960, $600-billion in 1966.

The Administration's program for the next four years, then, is more than a program of prosperity. It is a program of economic growth. Beyond that, it has to be a program of economic flexibility. To keep American business growing is going to have to make some major shifts over the next four years.

In the past two strong forces behind the growth of our economy have been capital spending and housing. Housing has already begun to sag, and there's little likelihood of vigorous expansion before the early 1960s. And though business spending for capital goods shows no signs of dropping--it doesn't seem likely it will rise much above 1956 $35-billion a year clip. So in a fast-growing economy, the push will come from other forces--most notably a new surge in consumption goods.

The Eisenhower Administration has made clear--through its first term and in the campaign--how it proposes to do the job. It intends to give the fullest possible scope to the enterprise and productive talents of the American people. And it intends to keep the economy free enough to make the internal shifts essential to continued growth. This means a minimum both of direct controls and of spoon feeding for industries in trouble.

What can one expect in government spending? While giving primary emphasis to private expansion in the next four years, the Administration recognizes that increased government spending will be necessary, if the country is to achieve adequate defence and social objectives. Many f those increases are already in the works. For example, Defence Department officials expect military spending to rise at least $1-billion annually over the next three years. As it shapes up now, the Eisenhower program will call for military spending close to $38-billion in fiscal 1958-a 5% boost over the current level. The biggest rise will be in guided missile production and electronics. In addition, non-military spending is moving up.

State and local spending is also expected to rise and this uptrend will continue. There are bound to be more increases in dollars allotted for highways, education, and welfare and health. State outlays on conservation and developments--such as water, sewage, and other utilities--will also climb.

Total government spending for goods and services--federal, state, and local--may rise from its present $80billion to $100-billion in 1960.

And what of the balanced budget? During the campaign, the Administration made great political hay of the fact that this year the government showed a budget surplus of almost $3-billion. It is counting on another, although smaller, surplus next year; publicly, it is estimated at about $1-billion, though some Washington experts guess it might go as high as $3-billion.

A balanced budget has long been one of the Administration's most cherished goals. And it expects to continue achieving it next year despite an increase in the federal budget beyond 1956's $66-billion mark. Unless there is international strife, the Administration is set against a return to deficit spending.

This year, a major portion of budget surplus was funnelled into debt reduction. If the economy keeps to its present high levels, Eisenhower is expected to do the same next year. His top economic advisers have long preached that a budget surplus, in prosperous times, should be used primarily for reducing debt.

Tax cuts will apparently play second fiddle to debt reduction next year. Many in the Administration feel that cutting taxes in boom times is not wise. A cut in the tax rates, however, is still a long-term government goal, and if the budget surplus exceeds $3-billion in 1957, there may be some reduction in taxes--primarily to middle and lower income families and small business.

Cost of living--The fact that the cost of living index has gone up less than 3 % during Eisenhower's first term is a subject of passionate pride with Administration officials. As a result, they are disturbed that the index hit a new high last month.

The government has no specific legislative program to keep living costs down. But it's banking on a series of measures to stem an upward movement of living costs including, money and credit controls to curb inflationary price rises, increased productivity of industry to offset increases in labor costs, and an increased business competition, which will cause many companies to absorb increased costs without automatically passing them along to customers.

As for wages, if the economy keeps rolling along, wages will go in only one direction--and that is up. Today's average factory worker earns a record $80 a week. But it is a mark that will soon be shattered.

The government itself will put some new upward pressure on wages by expanding the $1-an-hour minimum wage law to cover new groups of workers. But the big pressure will come from long-term union contracts, providing for automatic annual wage increases. Long-term contracts in the steel industry, for example, call for an automatic 71/z c an hour increase next year and a similar amount in 1958.

And what about the squeeze on credit American businessmen have had to cope with for the past year and a half? Indications are that money will continue tight into early 1957--in line with the Administration's policy of relying on general monetary controls as long as runaway inflation is a threat. Thus, interest rates will generally remain high. However, some sources in Washington feel money may loosen up somewhat by mid-1957.

The farmer will come in for even greater attention, for the President is well aware that the current American general prosperity has not included the farmer, and the Administration has a key program to give farm income a shot in the arm. Its program will be centered around the soil bank and flexible support plans, both just beginning.

There will be continued emphasis on firm antitrust law enforcement such as characterized Eisenhower's first term. Many more of our leading blue-chip corporations will be brought to court by our Justice Department for monopolistic practices. The next four years should see a decision on one of the most important issues since enactment of the Sherman Antitrust Act--the exact meaning and application of the 1950 anti-merger law.

The meaning will be spelled out by the anti-merger cases now filed or still to come from the Eisenhower Administration. Only one such action had been filed when it took over in 1953. Since then, the Justice Department and Federal Trade Commission have brought more than two dozen cases challenging business management's right to merge with or acquire other concerns. The Administration is also expected to tighten antitrust statutes with new legislation.

The partnership power program enunciated by the President four years ago will continue. Already in the works is the new Upper Colorado River Water Project, to revitalize agriculture and provide new water for industry and municipalities in a five-state area. The $10billion to $12-billion Missouri River Basin job will be pushed ahead. These will be major landmarks of Eisenhower's presidency. And so will be the $45-billion federal highway construction program, the most costly construction program ever tackled by any government, and designed to provide the U.S. with a 41,000 ml. network of super highways. Under this 13-year plan, the government will pay 90% of the cost of interstate roads, 50% of the cost of state and town roads. It means a new boom for the construction industry and road equipment manufacturers.

The U.S.'s private atomic power program will likewise move into high gear in the next four years. Already under construction or planned are eight power reactors, all under private auspices--some with government aid, some without. And the outlook is for more vigorous expansion of this program--including building reactors by cooperatives, other public power agencies, or even the government itself. It's known already that the Atomic Energy Commission budget for civilian activities in the year to come will be substantially greater--mainly to promote atomic power.

There will be some important programs in the social welfare field also. Although no spectacular new social security program is in the offing, legislation is expected to be introduced to expand voluntary health insurance--primarily to lower income groups and older persons. Special government housing assistance will be provided for our lower income families and for the aged.

And in the educational field, President Eisenhower will is exert a major effort to push through Congress the $5E. billion federal school aid bill which was defeated this year--mainly because of the segregation controversy. This program calls for $1-billion in federal matching grants k to states and local communities for new schools, and the rest to be available in the form of loans.

There will also be new programs for our depressed cities and areas. New proposals due in Congress next year will include measures to render technical assistance to local groups planning economic rehabilitation, to join with the state or locality to extend loans for industrial ~, projects that promise to improve the community's long-range economic outlook, and to contribute to the cost of rebuilding blighted commercial or industrial sections of f depressed communities.

Those are the outlines of domestic policy.

Now what do the next four years hold for American foreign policy? When Eisenhower won the election in;: 1952, it was the Korean conflict--the final stage of Stalin's cold war--that dominated the world scene. Then U.S. foreign relations revolved almost entirely around two centers: (1) the East-West struggle and (2) U.S. efforts to strengthen the Western Alliance, to meet the threat of a monolithic Soviet empire--then at its most aggressive, if !` not its most brutal.

The world looked dark and dangerous, but its polarization around the two super powers gave it a stark, and misleading, simplicity. The United Nations, saved by its prompt action in Korea, still bridged East and West. But the U.N. was about the only thing that did.

Today, Eisenhower squares away for a second term with two crises to face--one in the Middle East and one in Eastern Europe. The first has erupted from the clash of nations that all seemed, in 1952, to be securely within the Western world and willing to take their lead from the U.S. The second erupted from 'explosive forces within the Soviet empire, which was shaken in a way that no one either in Moscow or Washington could have imagined possible a few months ago.

The 1952 illusion of two single forces dominating the world has disappeared. Eisenhower faces foreign problems that look, and are, vastly more complex than the ones he faced four years ago. Yet in one way it is a simpler world. The U.S. has thrown its weight behind the United Nations as never before. In our push for peace, and for a world order based on law, Eisenhower will now lean primarily on two things--on the U.N. and on U.S. air atomic power. But he won't forget the Atlantic Alliance.

Eisenhower's basic problem is still the same--to deal with Soviet imperialism and the hard Communist core in the U.S.S.R. from which come it's strength. It was Moscow's penetration into Egypt, with encouragement to dictator Nasser, that precipitated the punitive action of Israel, Britain, and France. It was Communism's ruthless policy of exploitation that led Hungary to revolt and then drowned her freedom in a blood bath. To the people of the Western Hemisphere and Western Europe--and to at least some in Asia--the Communist visage is again what it was in 1952. The Kremlin has buried the Geneva spirit in Hungary. It can hardly revive until an entirely new regime, aiming at the transformation rather than the defence of Communism, comes to power in Moscow.

Even so, Eisenhower will be dealing with a different Soviet empire than the one of 1952. Its power in the world today rests entirely on its ability to use the kind of brutal force it did in Hungary--and on its possession of the H-bomb and the world's second-ranking air force.

In all other terms, it stands exposed--economically overextended and politically bankrupt. Communism's economic efficiency and social progress have been made a myth in Eastern Europe by the combined effect of the polish and Hungarian revolutions. Though the Stalinites may be back in control at the Kremlin, they can never find their way back to Stalinism, either in Eastern Europe or at home.

If the Soviet empire has changed in the past four years, so has the non-Communist world. Anti-Western nationalism has been growing by leaps and bounds in the vast area that stretches from Morocco to Indonesia.

It has been fanned by old and legitimate grievances against colonialism, by India's peculiar brand of neutralism, and finally by Nasserism. This last is a product of all the others, plus Soviet intrigue and the failure of leading western powers to cooperate in the Middle East.

When the flames finally go out around Suez, little will remain for the West to be happy over. Russian prestige--despite news of the Hungarian savagery--has never been higher among the Moslem peoples. Egyptian dictator Nasser, whose dream of an Arab empire had set off the explosive chain of events in the Middle East, had vaulted to even greater stature. The Suez Canal had been blocked and the world's shipping has been forced to ply the long route around the Cape of Good Hope. Delivery to badly needed oil from the rich fields of the Middle East has been cut off or delayed and severe shortages are only days away. Europe faces a winter of real hardship.

The one thing that can save Western influence in the area, in the long run, is the U.S. weight that Eisenhower displayed in two instances: (1) his support for U.N. moves to stop the fighting in Egypt and (2) the effort he made to show American understanding of peoples only recently freed from colonialism. There's no blinking away the fact that, in taking such a position, Eisenhower was also trying to prevent any Soviet military intervention in the Middle East. But in reacting as he did to the violence in the Middle East and Eastern Europe, Eisenhower staked out entirely new ground for American foreign policy. And he put a new complexion on (l) the U.S. role in the Middle East and (2) U.S. diplomatic dependence on the U.N.

The Middle East clearly has become our baby. The maintenance of peace and Western influence in the Middle East will increasingly depend on the U.S. It will depend on the push we give to the new U.N. police force, and to U.N. efforts to settle the Suez Canal question and the Arab-Israel border problem. And equally it will depend on the economic aid programs we develop for the area. It's evident that the U.S. will have to revamp its entire foreign aid program to meet the new situation in the Middle East and the whole uncommitted area. There is a chance, too, that much of our foreign aid will have to go through the U.N. despite all the technical problems involved and the domestic political obstacles.

Past and future divergences between U.S. and British-French policies in the Middle East will not prevent a revival of the North Atlantic Alliance. Of course, Eisenhower may not feel the same confidence in London and Paris, and vice versa. But the Russians have forced NATO together again in a hurry by their double-dealing brutality in Hungary.

However, the U.S. may soon be dealing with a different Western Europe--one that's committed as never before to early economic integration and ultimate political unity. A strong movement toward a United Europe, with British backing, was already under way before the Hungarian and Egyptian crises hit. This movement is almost sure to get renewed strength now, not least from the fact that Chancellor Adenauer's policies have been given a new lease on life by the resurgence of the Stalinites in Moscow.

Out the window now is the gradual but spasmodic development of Western contacts with the Russians since the Geneva summit meeting. There will be few Europeans, and not even a sprinkling of Americans, who will consider such exchanges while the present regime rules the Soviet Union. Trade may not entirely cut off, but it is sure to shrink back to the cold war level.

What Eisenhower faces in fact, is a new cold war period--more complex and probably more dangerous than the period he has helped bring to an end. But it is one that starts with a new hope that the U.N. can gradually enforce a rule of law in the world.

So far I've discussed the significant next four years in terms of United States economic and foreign policy. The next question is what does this mean as far as Canada is concerned?

A high level of prosperity in the United States, with new records being set in capital expansion, production, and employment is bound to be reflected in Canada. American demand for materials and minerals as oil and gas, iron ore, and nickel, and titanium is soaring. And the United States does not have the resources to serve these demands. The Pale. Commission in our country stated the case clearly when it said: "The United States has crossed the great divide, and from being a nation with a surplus of raw materials, has become a deficit nation."

That means we will be more and more dependent on :Canada as a source of raw materials, and we can expect the development of Canada's resources will go on at a breath-taking pace. Trade between our two countries will increase. However, there are still many obstacles in the way of the free flow of commerce over our borders. The Administration, I feel, will press wherever possible to get rid of the red tape and other obstacles that hinder trade between our countries. But just how successful the President will be is still not clear. For a sizable number of Republicans and a growing number of Southern Democrats are protectionist-minded.

The President will also push hard for our country's adherence to GATT, the General Agreement on Tariffs and Trade. This too will have a hard time winning Congressional approval.

In terms of investing in branch plants and subsidiary companies in Canada you can expect American investment to continue high. Canadian investments will become more and more attractive as investment opportunities in areas like the Middle East look less attractive.

I feel you can look forward to United States firms having a more enlightened view point in planning their Canadian operations, a subject of which there has been sizable criticism recently. Many of our companies are learning it is bad business and makes for poor relations with our neighbours across the border to operate their plants in Canada as if Canada is just another state in the union.

It would seem evident that in the years ahead, more and more American companies doing business in Canada will provide increased opportunities for Canadians to invest in their enterprises, as well as encourage Canadians to take an increasing part in the management of such operations.

In the foreign affairs field, we can expect Canada and the United States to continue to work closely together. This doesn't mean Washington will buy every idea Canada has to sell it, nor will Canada agree with every program the President and our Secretary of State come up with.

In the past, there has been a difference of opinion on foreign affairs issue and we can expect this to continue in the next four years.

The one thing clear, however, is that the United States has taken an increasing role in world affairs, and so has Canada. In the last several weeks the roles of both our countries have assumed a new and striking importance. By working together, wherever possible we may develop collectively and individually, policies that will make us outstanding bulwarks of Democracy and strength in the Western Hemisphere--and throughout the world. This consideration alone should be the magnet that will make the next four years a significant four years--a landmark in United States-Canadian relations.

THANKS OF THE MEETING was expressed by Mr. H. R. Jackman, Q.C.