Canada in the Eighties

MR. MACNAUGHTON:

As many in this room today will recall, on May 11 of last year, our guest of honour, Ed Broadbent, was welcomed to the Empire Club podium as the first speaker of our 1979-1980 season. By his return this afternoon he has entered into a very small and select group that is comprised of himself, John Robarts, Mitchell Sharp and C. D. Howe--the four individuals who have addressed our organization twice in the same season.

We are hosting today what might be described as Ed Broadbent's second coming. His earlier visit was a successful launching of our 76th year and his willingness to attend twice in the same season has assisted the Empire Club in its determination to reaffirm our reputation as a forum that is open to the leaders of all major political parties, particularly so during the course of a general election campaign. The only concern that I have is that many years from now a bookworm, reviewing the index of speakers in our 1979-1980 yearbook and seeing Mr. Broadbent's name twice, will conclude that I, as President, violated the non-partisan spirit of our organization by manipulating the rostrum to give advantage to the New Democrats. The circumstantial evidence is incriminating, but I plead not guilty.

The election campaign in which Mr. Broadbent is presently engaged is an unusual one. The issues that catch the attention of the voters seem to be as unpredictable as the weather. In the early stage of the election the question of who was responsible for it being called was hotly debated, then energy policy moved to centre stage and in the last few days, because of international developments, we have seen a switch to the topic of foreign policy. Mr. Broadbent has remained steady throughout and has moved confidently from one topic to the next with the poise that has won him a strong personal following during his years as New Democratic Party leader; support so strong that public opinion polls indicate that he is the one leader who is running ahead of his party, a fine compliment to his style of campaigning.

When I was speaking to Mr. Broadbent's office in Ottawa regarding this meeting I made a suggestion. It was that, since as I mentioned earlier today's address would appear in the same yearbook as his 1979 speech, he should say something different on this visit. His appointments officer replied, quite correctly you will no doubt agree, ladies and gentlemen, that this might be difficult because Mr. Broadbent's current views and policies were largely the same as those he proposed eight months ago.

With his personal following high and with his positions well developed in the last campaign and, therefore, better known this time around, Mr. Broadbent's current campaign has two of the key elements of a possible breakthrough. A third, and probably more promising, ingredient of electoral successes for Mr. Broadbent and his party is that in this campaign they are out from underneath the most feared curse in Canadian politics--editorial support from The Toronto Star.

Ladies and gentlemen, it is our privilege to host a dedicated parliamentarian. Please welcome the Leader of the New Democratic Party, Ed Broadbent, who will speak to us on the topic "Canada in the Eighties."

MR. BROADBENT:

Thank you very much for that warm and thoughtful introduction. I was particularly delighted to see one person here, and that is a man to whom I owe very much in terms of my own intellectual and political thinking, the very distinguished Professor Brough Macpherson, an outstanding Canadian.

I have said a number of times in this campaign about my opponents, the Liberals and the Conservatives, that for me and my colleagues there is a certain problem of credibility when we think about them. But being here today has caused me to reflect upon a different kind of credibility and I regret to say it pertains to my own party. Just a couple of years ago, the then Prime Minister appointed Ed Schreyer Governor General, and just a few months ago the present Prime Minister put Stanley Knowles in the Privy Council. Now for the second time within a year I'm back speaking at the Empire Club! We are in deep trouble. There will be a leadership challenge without question at the next convention of the N.D.P.

Speaking of the establishment, I looked through the book that your guest speakers are asked to sign and I found John Crosbie's name there. A number of times in this election campaign, John Crosbie and I have been mentioned in the same breath--sometimes with different emphasis, given the context -but it has been noted that both he and I attended the London School of Economics. Now, I want to make a couple of points clear: first, that he was there a number of years ahead of me, but secondly, I want to deny the rumour that he was actually a classmate of Adam Smith. There's nothing to that.

Last May, when I was here, I said that Canada's shortrun problems--inflation, unemployment and regional tensions--are based on economic discontent and linked to a serious error that was made in economic judgment following World War II. I referred to the decision at that time to sell off our resources to be manufactured elsewhere, instead of establishing a topflight manufacturing sector here at home, as one of our central problems. Things have not changed much from last May to January of this year. That decision, I want to stress again, has meant not enough domestic research and development. Short production runs have not been aimed at export markets. It explains, more than anything else, why our manufacturing sector is running at only eighty-seven per cent capacity now, and why, just two years ago, Japan, almost devoid of natural resources and thousands of miles away, replaced Canada as the principal supplier of manufactured goods to the United States of America.

That post-war decision to export our resources did indeed have short-run benefits. My generation was particularly fortunate because there were plenty of jobs, made available by the rapid selling off of our resources after World War II. We graduated from high school and university with lots of job opportunitie8 in the mid and late fifties. There were four jobs for each of my classmates. Today, that ratio has been turned around completely. For every job out there, there are four or five university graduates.

But today, Third World countries with nickel, copper and zinc are prepared to sell at prices that undercut ours. That means, as you know, that our traditional share of the raw materials export market has been declining at a disturbing rate. In both human and economic terms, it also means that the level of unemployment in northern Ontario is some thirty-four per cent higher than it is here in southern Ontario. And at the same time that we have been having difficulty selling our resources in semi-processed and raw form, our deficit in manufactured goods has increased more than four hundred per cent in the last seven years. It has gone from three billion dollars annually to over sixteen billion last year.

Reflecting this downturn in the manufacturing sector, our labour statistics have some importance. As a proportion of the labour force, manufacturing has dropped some six points in recent years, and today represents only 21.6 per cent of our working population. This is a dangerous situation for an industrial nation that wants to grow.

I regret to say that unless something is done soon, the future is no brighter. Just two days ago the Conference Board predicted that Canadian manufacturing output would register a three per cent decline in real dollars this year. In Ontario, the industrial heartland, the forecast was even worse--it was for a four per cent decline.

With statistics like these, federal governments should have been saying, and saying some time ago, that we have a problem. It would be wise to take economic advantage of some of our resources. It would be smart, for example, to keep domestic energy costs low so that our industries could have a competitive advantage on world markets. Instead, the Liberals, at least before May 22 last, established the cartel-rigged world price for oil as the target, and the Conservatives introduced a budget which uses the same price as a bench mark. They have imposed in addition, however, an eighteen cent per gallon excise tax, a per-barrel increase of four dollars in the price of oil this year and $4.50 in each of the next three years, as they tried to play the let's-catch-up-with-OPEC game.

The result of such a policy should be clear for a country like Canada. On the one hand, almost no conservation would result because urban transit systems in Canada are not now able to substitute for the use of the automobile. On the other hand, massive increases in unemployment--the loss of 20,000 jobs in Ontario and many potential jobs in western Canada which could emerge if we used our energy as a cost-benefit resource in competition with other industrial nations.

The breakdown of these oil prices is of equal importance. The federal government would have received only about seventeen billion dollars. But Alberta would have received thirty-five billion and the multi-national oil companies would have received some thirty-three billion--thirty-three billion dollars in four years to the oil industry which has recorded enormous profits in the past six years. The profit figures for 1979 were released just last week. Gulf was up fifty-four per cent, Imperial fifty-seven, Texaco seventy-one and Shell seventy-four per cent.

r The point I want to make in listing these figures is 'that price increases of this magnitude and profit increases of this magnitude cannot be justified either socially or on economic grounds. The multi-national companies simply do not need these additional profits, and as every businessman and economist knows, the Alberta Heritage Fund represents a totally disproportionate concentration of wealth within one province on the one hand and is being used simply for safe investments rather than for serious economic growth on the other.

The two old-line parties simply will not intervene in a tough industrial-planning way. In my serious judgment, they have returned to a pre-World War II way of thinking about our economic system. But our future is too important and this sector is too crucial to all of us to be left solely to the whims of the world market place. In our party, we would intervene by establishing a commission on oil prices and profits, and not simply to buy time which is one of the quaint traditions of royal commissions in the country. The purpose of this commission, in our view, would be to recommend a price for oil which would give a reasonable return to the industry, but which would also take seriously into account energy-price impact on existing and future manufacturing industry.

The mechanics of allowing oil prices to almost double in just four years, together with the monetarist and high interest rate policy espoused by Mr. Bouey at the Bank of Canada, ensures that we will have both high inflation and high unemployment for the foreseeable future. By the fiscal projections of the Department of Finance, inflation was expected to be a full eleven per cent this year and to continue unabated at the same rate right up to 1985. Unemployment figures forecasted for 1980 levels would rise to over eight per cent, and they would still be, by the most optimistic estimate, some seven and a half per cent five years from now. The Conservatives have simply opted for the same approach as the Liberals, which leads to both high inflation and high unemployment.

Central to this continuing mistake in economic policy is the continuation of high interest rates. You and I both know that with inflation in the United States running at a good three per cent higher than in Canada, the argument that we would lose investment by dropping our rate by two points, to put it bluntly, is bogus. The real rate of return on investment is higher in Canada and we should drop the interest rate now to aid businessmen in attempts to expand. As Mr. Miller in this province has pointed out a number of times, in such a circumstance not only would businesses be more likely to expand, but the value of the Canadian dollar almost certainly would remain unchanged.

If we don't make these changes soon, social tensions will almost certainly be aggravated in the eighties. People cannot plan for a decent retirement in the environment of what I call, pejoratively or not, the Crosbie-Bouey-Chretien program. For all practical purposes, private pensions for people in their early forties will have become nearly worthless. Saving for old age will have to be started all over again. The monetarists who boasted that they would stop inflation in Canada have now guaranteed its perpetuation at unprecedented levels. Our balance of payments deficit is expected to reach eight billion dollars this year, up one and a half billion from last year. This has to be paid by borrowing at record interest rates, once again perpetuating the vicious circle.

I repeat today what I have said before in this campaign. We not only need lower interest rates but we also should have tax cuts to stimulate growth which will produce jobs, goods and services. People and business would grow and would generate more taxes. Men and women would be contributing to the economy, not collecting unemployment insurance. We would not increase inflation now by having a tax cut when we are operating at only eighty-seven per cent capacity.

We have estimated from Statistics Canada figures that last year our balance of payments deficit on interest and dividends alone was about $4.4 billion, plus another $2.4 billion in consulting fees and research and development to head offices which reside outside our country. This is $6.8 billion going out of the country which, in our view, should be kept in Canada for investment. It is no longer good enough to sit back and do nothing. The time surely has come when we have to take some different approaches. The longer we delay, the more we yield to others outside Canada the power to impose their economic priorities upon us.

There are, as I have already suggested, some shortrun approaches like lower interest rates and tax cuts that will help. However, if Canadians want sustained', lower unemployment, if they want more economic growth and lower levels of inflation, then this country needs a government that is prepared to step in and show some long-run economic leadership. Instead of twiddling our thumbs, let's develop the serious potential that we have in our resource sector. That requires what we have called, for many months now, an industrial strategy, with the national government playing a significant leadership role.

I may say parenthetically in this context that I have not been a man who has admired without qualification the consequences of the work that C.D. Howe did in this country when he was playing such a leading role. But, in my judgment, he was the last man we had at the national level who saw that the purpose of having a role for government was to have effective government, not just big government. My central criticism of the Liberals and the Tories for many years is that since C. D. Howe they have no one with a sense of drive and overall sense of leadership. His priorities were different from mine, but that kind of activist role is certainly what I am calling for.

We must be one of the most fortunate peoples on earth. It's a cliché, but it's true. We have reserves of natural gas, oil, heavy oil, tar sands, coal, wood, hydroelectric power, uranium, zinc, copper, potash, nickel, gold and asbestos, to name only a few. We have educated, bright people--one of the best educated labour forces in the world. All the political parties agree that we have the capability to be energy self-sufficient if not within ten years, at least within fifteen. We should be working to develop some of these different energy sources and to start substituting them as quickly as possible for our use of oil and gas.

Earlier in this campaign, I talked about planning specifics that have worked well in other industrial countries. I am not going to elaborate on them again today. I will simply list them.

We should be first establishing planning agreements with leading industrial corporations. We should have a Canadian investment fund that could be active in levelling out the boom and bust nature of our market economy. We should have a restructured FIRA that has control of the outflow of capital, to ensure that there is a long-range benefit to Canada, as well as checking inflows of capital. We should have a small-business assistance program of the kind that has worked very well in the United States, which among other things ensures that a certain share of business comes from the government to the small business sector.

Having stated these programs, I want now to list some of the concrete specifics which for us make sense. We should maintain the two-price system for oil and natural gas, which the New Democratic Party first suggested to the Liberals back in the early 1970s. Other countries that are or are about to become self-sufficient in oil and gas have it. With a lagging manufacturing sector, this is precisely what is required now for Ontario and Quebec, but I also want to stress that with the potential for industrial growth in western Canada, it is also required to get that growth underway. We should not export any more fossil fuels. We should instead be using our gas to substitute as quickly as possible for the imported oil that we use in Atlantic Canada and Quebec, and using some of it to develop a petro-chemical industry in western Canada.

We can reduce diesel fuel consumption by beginning to electrify railways in those provinces, like Manitoba and Quebec, where we have a surplus of electricity. We should be moving with speed and determination to see that more Canadian grain gets to market on schedule by expanding west coast facilities and providing the hopper cars that are needed. The Canadian Wheat Board says that we have the capacity to increase grain exports by a full fifty per cent by 1985. That is how, in my view, to reduce our serious balance of payments situation.

We should ensure that Petro-Canada, and provincial crown corporations and agencies, have a major control in future tar sands projects, so that we can bring in that energy at cost, saving the national economy literally billions of dollars and simultaneously reducing the level of foreign control in that sector. Those familiar with the Conservative government's establishment of Hydro as a monopoly in this province should not find it too radical for me to propose that Petro-Canada should have virtually the same role in the future development of the tar sands.

We should insist that those companies doing resource business here in Canada do more of the finishing processing in Canada. We should sign new letters of agreement with the big three automobile makers so that Canada derives its fair share in the auto pact. We did it once, from 1965 to 1968, and during that period we got our fair share of investment, but subsequent Liberal governments have ignored that effective instrument.

In addition, in this decade, the government in cooperation with the private sector must ensure that investment goes into sectors that will be winners in world markets. I notice a top executive of the Royal Bank saying that the banks do strategic planning, so why not governments? Why not indeed? Why shouldn't Canadians be doing what the Germans, the Swedes, the Japanese have been doing for a long, long time.

But governments in Canada are opposed, in my view, to an industrial strategy. History bears this out. They only get involved when a corporation is in trouble. For example, the C.N.R. and de Havilland. Then after the company is restored to health, they sell it back to the private sector, or in some cases simply give it away. But we want to get involved in and maintain successful joint ventures that will work well and keep on working.

Let me conclude by saying that this is not pie in the sky stuff. It is practical. It works in other countries. Indeed, it is working well in the province of Saskatchewan which has had a remarkable industrial advance. (And I can say in passing, it has the lowest number of civil servants per capita in Canada.) It could work well at the national level. What is not working is the old approach.

This means that Canadians have a real choice on February 18. They can choose either the Conservatives or the Liberal parties, and in so doing they will perpetuate the kinds of problems that I have just talked about. Or they can choose a new approach, which is being offered by the New Democratic Party, which says that it is no longer good enough for our people to be hewers of wood and drawers of water. We want to be a first-rate industrial nation. We want this country to begin to fulfill, at long last, the bright future that Sir Wilfrid Laurier predicted so long ago for all of us.

The thanks of the club were expressed to Mr. Broadbent by Harold V. Cranfield, a Past President of The Empire Club of Canada.