Our Present Discontents

John A. MacNaughton

MR.MACNAUGHTON:

Ladies and gentlemen of The Empire Club of Canada: I have frequently been asked during my term as President of the Empire Club how our speakers are selected, how the ideas for the program are developed and how our guests of honour are successfully recruited. The answers are as numerous as the speakers but, as an example, a review of a portion of the file for this luncheon may be of interest to members of the club. It is also a method of beginning an introduction of today's guest of honour.

The arrangements for this meeting began on February 15, 1979 when I sent the following telex to an associate in London:

Am about to become President of The Empire Club of Canada. Hope to include a prominent individual from the merchant banking community in program for 1979-1980. Would appreciate your suggestion of best choice and advice on recruiting him.

Six days later an envelope arrived from London which enclosed a memorandum with attachment. The memorandum, in part, read as follows:

After consulting with several people in the City I strongly recommend the Rt. Hon. Lord Roll of Ipsden, K.C.M.G., C.B., the Chairman of S. G. Warburg & Co. Ltd. All agreed that he is one of the best public speakers they have heard and, as you will see in the attached copy of his lengthy and impressive curriculum vitae from Who's Who, he is a broadly accomplished man. He is respected here and in Europe and I am sure he would be an ideal speaker for your club.

At that point, My Lord, I must confess to you that the memorandum continued with two pieces of recognizance which are essential to the conspiracy involved in assembling a program of speakers. It continued:

I have learned confidentially from one of Lord Roll's colleagues that his schedule is very busy until March or April of 1980. However, he suggests that if you invite him for one of those two months he will encourage him to accept.

With all that helpful information gathered and with a secret agent on the inside, a letter of invitation was prepared and sent to Lord Roll on March 6, 1979 (suggesting, of course, March or April of this year). Fourteen days later, exactly one year ago today, an acceptance was received.

And very fortunate it is for us that it was accepted because we now have the privilege of hosting one of the distinguished men of European economics, government and finance.

Let me share with you some of the highlights of Lord Roll's curriculum vitae. As a scholar and academic he got off to a fast start earning his Bachelor of Commerce degree from the University of Birmingham at age twenty-one and his doctorate in 1930 at the age of twenty-three. He continued in the academic world until 1946, serving as Professor of Economics and Commerce at the then University College of Hull.

Our guest has also been active in government. He has served his country in leadership positions in such missions, ministries and organizations as the British Food Mission to North America, the Ministry of Food, His Majesty's Treasury, the delegation to the Organization of European Economic Co-operation, the delegation to NATO, the Ministry of Agriculture, Fisheries and Food, the International Sugar Council, the delegation for negotiations with the European Economic Community, the International Monetary Fund, the International Bank for Reconstruction and Development and the Department of Economic Affairs.

In addition he has been or is presently Chancellor of the University of Southampton, Governor of the London School of Economics, Chairman and Honorary Chairman of the Book Development Council, Director of Times Newspapers Ltd, and Director of the Bank of England.

Throughout his lifetime of intense public involvement Lord Roll has also been a prolific writer. Amongst his long list of publications are the titles A History of Economic Thought, The World After Keynes and The Uses and Abuses of Economics.

Obviously, Lord Roll is both a man of action and a man of reflection, an economic practitioner and an economic philosopher. With regard to the latter he must have been guided by the view of the French novelist and biographer, Stendahl, who wrote that "a good philosopher can always become a good banker." Lord Roll left academia for government and he moved on from government to banking when he joined S. G. Warburg & Co. Ltd., where he quickly became Deputy Chairman and then Chairman.

It is in the context of merchant banker that Lord Roll is with us today, but the insights he brings come from an amalgam of participation in many of the important economic institutions and events of the twentieth century. It is our privilege to have him with us today and it is my pleasure to present him to you now.

Ladies and gentlemen, please welcome the Right Honourable Lord Roll of Ipsden, K.C.M.G., C.B., Chairman of S. G. Warburg & Co. Ltd., who will address us on the topic "Our Present Discontents."

LORD ROLL:

Mr. Chairman, ladies and gentlemen, I feel greatly honoured and privileged to be addressing this distinguished gathering. I must say though, Mr. President, that when you invited me to speak here, my sense of pleasure was tempered with a good deal of trepidation since I soon became aware of the many eminent people who have stood in this place before me. That sense of trepidation was by no means diminished when you very kindly sent me that charming book, The Best Talk in Town, with its many pearls of wit and wisdom of past speakers.

I had said that I would speak to you today about "Our Present Discontents." Let me say at once that I do not intend to dilate upon the many troublesome, indeed menacing, political aspects of the current world situation. I want to talk about a number of economic problems. But let me say, as someone who has spent about half a century in the often--perhaps usually--vain pursuit of enlightenment in economics, that though the science may be dismal as Carlyle called it, it is by no means exact. I suppose most, if not all of you, have heard the definition of an economist, which was first given to me by the American Ambassador in London, namely-as a man who, if you have forgotten your telephone number, will estimate it for you. That about sums up the analytical precision of the science.

As for its ability to offer practical guidance for the many practical problems of the world, here too I fear the record is not splendid. The late Fritz Schumacher, author of that remarkable book Small is Beautiful, used to say that the trouble with the economist is that when his left ear itches, he does not do this, but that! (He scratches his right ear.) Still, we cannot shut our eyes to the many practical economic problems in the world today. Man may not live by bread alone but he certainly cannot live without it.

I believe that there are a number of tendencies at work in the world today that already present us with very serious problems and that may, in the relatively near future, cause us even greater difficulties.

Take first of all the question of the industrial and economic consequences of new technologies. I know that for the last two hundred years mankind has often been faced with the development of new inventions, their applications to industry, and the great, sometimes very painful and difficult, adaptations in terms of employment and the migration of industries from one country to another which this has posed. But I do believe that today this problem is once again with us in a particularly acute form. You only have to look at the ease with which new technology has now spread across the world. Take, for example, countries in Asia. The development of Japan is of course now a well established one, not only in the astonishing growth of industries, such as electronics, watches, radios, cameras, but also in shipbuilding and automobiles. Not many years, certainly less than two decades, ago, the number of motor vehicles annually produced in Japan was a few hundred thousand, whereas today it runs into many millions. But more striking perhaps even is the progress in countries like Taiwan and Korea, where industries like steel, construction, shipbuilding and so on, as well as the more refined technological industries, are growing up very fast and this is presenting the old industrialized countries of the Western World with very serious competition.

It is perhaps significant that in Singapore the government considers that many highly developed industries that are already established there are not yet of a sufficiently high technological content. The government is trying, by such means as making labour more expensive, quite deliberately to encourage the growth of more capital-intensive, more highly developed, technological industries. There can be little doubt that the problems which this trend creates in the older industrialized countries and which is superimposed upon other problems to which I shall refer in a moment, may well produce--and the signs are already visible--strong pressure for protection. This, as we all know, can certainly in the medium and long term do nothing but diminish world trade and create problems which are worse than the ones which it was designed to cure.

Another feature of the present world scene, to which I want to refer, is one which is perhaps particularly marked within the highly advanced industrialized countries: this is summed up in the phrase that we are living in the "era of rising expectations." It is quite true that the endemic pressure for increased current consumption, current enjoyment, and all that that implies in terms of wage claims, often in excess of the rate of economic growth let alone of productivity, is a marked feature of Western societies. It brings with it recurrent difficulties of financing new investment, including investment to take advantage of new technology. Although the pattern of distribution of the national income in our countries has not changed very markedly over many decades, there is some evidence that it is beginning to change in favour of current consumption, public or private, as against the part that goes to investment. This means an ever-present danger of inflationary pressures which materializes from time to time acutely, particularly when there are additional external causes that go in the same direction.

And this brings me to another and perhaps at present the most important problem with which we are faced: one which has become evident only in the last five or six years. That is the changed relationship between the raw material producing countries of the world and the raw material consuming countries. This change was heralded by what happened in regard to oil. The quadrupling of the price of crude oil in 1973, shortly thereafter its quintupling, the steady rises ever since and the prospect of more to come, and the consequential search for alternative sources of energy all over the world, is probably the single most important economic force in the world today. It has produced an extraordinary imbalance in international payments. The surpluses of the oil-producing and exporting countries have been growing and have produced a pyramid of international banking credit, running into hundreds of billions of dollars. The prospect is that, with the latest increases, this year will see a further marked upsurge of the surpluses of the OPEC countries, with the current estimates running to well over a hundred billion dollars. We must remember that the mirror image of these surpluses is to be found in the deficits of the oil-consuming and importing countries.

It is estimated that perhaps seventy or eighty billion of these deficits will be on account of the developing countries of the world, that is to say very often the poorest and many of them at the same time the most populous countries in the world. Many of them have no indigenous sources of energy, they are in the process of building up slowly and painfully the beginnings of modern industry and, as a result of developments in the last thirty years, they already have a very considerable burden of international debt to carry.

It is true that in the last five years or so the international banking system, the capital and money markets of the world, have managed to cope in a most effective way with this totally new situation which so suddenly affected the flow of international payments. The so-called recycling of the great surpluses which developed in the OPEC countries and matching those against the deficits, the finding of sources of investment, of creating new credit instruments to further this process of recycling have been done more smoothly than one had a right to expect.

But the question must arise whether the international banking system is capable of carrying the additional burdens that are certain to emerge in the next few years with equal efficacy and without any serious strains. Already there are signs of greater selectivity in the granting of international credits, of attempts to discriminate more carefully as far as terms of credits are concerned between borrowers of different standing. Already in some countries the burden of servicing the debt is at a level which threatens to absorb whatever new credits or aid funds that they can reasonably expect to receive from international organizations such as the World Bank and the International Monetary Fund, leaving nothing whatever to cover new deficits arising either from the need to import energy or from the investment requirements of further industrialization.

Unhappily, when we look at the history of the last few years, we find many examples of missed opportunities, of failure to apply the degree of vision and imagination which the new situation required, of failure to mount the necessary effort of international cooperation. Some years ago, when the oil problem first arose, a number of us on both sides of the Atlantic tried very hard to induce our governments to see this problem in its true proportions, to summon up enough resolution and enough vision to work together and to join with the oil-producing countries in an attempt to produce a coherent, joint program of development. This would, at one and the same time, have created new opportunities for the industries of the industrialized West through the export of capital goods to the oil-producing countries, have given those countries a more systematic and coherent prospect for industrialization and have provided a less precarious way of balancing the financial consequences of the new oil situation. Alas, the necessary will to work together was lacking and we are now faced with the consequences of that situation without there being as yet much evidence of any attempt to work more closely together.

Mr. President, in outlining to you what I conceive to be some of the major economic problems facing our world today, I have laid stress on the changed relationship between the raw-material-producing countries and those industrialized countries which are consumers of raw materials. Within this problem I have distinguished as particularly acute the plight of those countries which do not produce or produce only very few raw materials and certainly have very few sources of energy of their own and which are in the process of development. This problem of the relationship between the developing world and the developed world is particularly menacing for the peace and stability, let alone the prosperity, of our world.

Some fifteen years ago, at a meeting of the American Bankers Association, I took the liberty of paraphrasing some words of Abraham Lincoln and said that I did not believe that our world could permanently endure half-rich and half-poor. Well, it has managed to survive for fifteen years and I dare say it could be argued that it will survive many years more. But who can be sure?

Just the other day the attention of all thinking people was once again focused on this problem by the report of the so-called Bra ndt Commission, a body composed of eminent men from very many countries, industrialized as well as developing, under the Chairmanship of Willy Brandt, the German statesman. That report has perhaps awakened the interest in this problem of much wider circles than merely those directly engaged in political or economic public affairs. But, Mr. Chairman, the Brandt Commission Report just published is by no means the first diagnosis of the seriousness of this matter. Some ten years ago, in 1969, a similar report was published, a report by a commission of eminent men, presided over by a great Canadian, a man whom I had the privilege to call a friend and with whom I worked during and after the war, Mike Pearson. The Pearson Report was a great clarion call which, alas, was not sufficiently heeded at the time. Mr. Chairman, in drawing attention to the work which bears the name of a Canadian, I should add that this carries an important lesson. I believe that in resolving this problem, your country, Sir, occupies a special position. I say this not in any spirit of flattery. It is a fact that in this difficult configuration of the industrialized and the ex-colonial developing world, Canada has a very important part to play. Mike Pearson proved by his report and by his work in the United Nations and elsewhere that it is possible to bridge not only the conflicts within the developed world but also the actual as well as potential conflicts between the developed and developing world. Because of your special position as a highly industrialized country but at the same time one which is an important raw material producer, you are in a position to understand the problems of both groups of countries. Yours is also a very stable society--certainly a country which can manage, perhaps even enjoy, frequent general elections must be a stable society!

What is perhaps most important, Canada is not affected by the still-surviving suspicion to which, I am afraid, many of us in Europe are subject as ex-colonial powers and which even your great neighbour to the south has acquired. You are not, so to speak, tainted; indeed, in this relationship between the ex-colonial powers and the colonies, Canada stood, admittedly a very long time ago, at the other end of the spectrum. I am, Mr. Chairman, therefore, convinced that Canada will continue to play in this, as in many other problems that beset our world, a very important, perhaps even a vital, part.

The thanks of the club were expressed to Lord Roll by Major General Bruce J. Legge, President of The Empire Club Foundation and a Past President of The Empire Club of Canada.