Window on Tomorrow

MR. KARN:

Reverend Sir, distinguished guests, ladies and gentlemen: Although Senator Forsey appears to have a physical constitution of iron, he is not immune to the viruses that have troubled many of us this spring, including myself. So you can understand my concern just two days ago in Edmonton, when I heard that Senator Forsey had come down with a severe case of laryngitis and had to cancel all appointments. I have today sent him a Telex on your behalf wishing him a speedy recovery and saying how much we look forward to his address, now scheduled for April 28th, 1977.

Then, after the initial shock sank in, we mobilized the many resources of The Empire Club of Canada and brought forward the date planned for our good friend Mr. Sinclair Stevens. We are most fortunate that he was able to rearrange his program to accommodate us and that he has that commendable ability of moving to front stage centre with a minimum of advance notice. We are most indebted to him for his faithful support today.

Just how much my thought processes were influenced toward the Federal P.C. Party because I happened to be in Alberta this week, I am unable to say. But that is a fertile region for inspiration--political as well as economic. Where else in North America today can you drive legally at 70 m.p.h.?

Our guest of honour today is a native of Milton, Ontario, where his Irish father was associated with the J. S. and George Henry families, moving with them to Kleinburg, where he grew up and attended the one room Purpleville Public School. As some of we old timers know, that was the true "open concept" system of education which worked well, with one teacher handling up to fifty students in about seven grades, as well as stoking the furnace and managing the property.

After obtaining his B.A. in Journalism from the University of Western Ontario, in 1950, he put himself through law school working as a reporter for the Toronto Star. This led to a period with Fraser and Beatty prior to establishing his own law firm near Aurora in 1957, into which he took as a partner his wife, Noreen.

Sinclair Stevens takes an active part in business and finance, being Chairman of B.I.F. Division, the New York Air Brake Co. of Canada Ltd. and of Comtech Group International Limited, as well as serving on the boards of several other companies. He represents in Parliament the federal riding of York-Simcoe, and he is now Progressive Conservative Caucus Chairman of the Finance Committee.

Ladies and gentlemen, I am delighted to give you Mr. Sinclair Stevens, Q.C., M.P., to speak on the subject "Window on Tomorrow".

MR. STEVENS:

Mr. Chairman, ladies and gentlemen: In speaking to you today, I am naturally sorry that my good friend Senator Forsey is unable to be with you due to ill health. The Senator was to speak to you on the patriation of the constitution and I know he would have presented an excellent discourse on that subject.

If I may, however, I would like to take this opportunity to discuss the state of our economy. With some one million out of work, inflation running in the double digit figures, historically high deficits at Ottawa, and little real growth in the country, I believe it is time we Canadians got concerned. It is time we became aroused to the fact this country is sick economically and nothing is going to be gained by continued rationalizations to the effect that we are not doing badly.

Ladies and gentlemen, a strange complacency has crept into Canadian thinking. It is eerie. We are disinclined to accept reality and more importantly to do something to better our present lot. An attitude has grown that we are caught up in a situation in which little can be done to correct our plight. Some state that it is an international phenomenon and that in relation to our main trading partners, we are doing fairly well. That is simply not true.

Others take the attitude that all that can be done is being done. Presumably in Ottawa. But how naive can you get? Ottawa is the problem. It is not the solution.

And if we wish to look for the single most important cause of our inflation, it is Ottawa to which we should be looking. Inflation has been manufactured in Ottawa by excess government spending and an unbelievable growth in our money supply to help finance that spending. Let there be no doubt about that. It is not the energy rich nations that have caused our problems. In fact, we are an energy rich nation--which we seem to forget.

It is not the husbanding of resources by others in the world that has caused our trouble. The hard, ugly truth is that we as a nation have lost our competitive position in the world and each of us suffers from that loss. Some more than others.

Ladies and gentlemen, if we wish to save this country, let us start first by saving our economy. If we do not save our economy, if we do not become more concerned and reverse the present trend, not only may we lose our country, we may lose our democratic way of life. An economic morass brings unrest and discontent which in turn is fertile ground for separatists and those who would dictate an answer rather than work within our democratic system.

When we speak of spending at the Ottawa level, it is difficult to relate to those billion dollar figures.

On budget night, March 31st, various statements were made by pundits and others. Some said it was a standpat budget. Others said it was a conservative budget--if you can imagine! But let me put it into perspective. The budget deficit that Mr. Macdonald proposes for the current fiscal year is $7.2 billion. Not only is that the highest such deficit in Canadian history, but that amount--$7.2 billion--is more than total federal government spending in 1964, the first year after the present line of Liberals took power in Ottawa.

Let me express it another way. If we add the deficits to be incurred this year and those which have been incurred in the two previous years, we have a total of $17.8 billion. That is, in three years, the present administration will have run up deficits two and a half times the aggregate Canadian government deficits in the previous thirty years.

Ladies and gentlemen, it is time to get aroused. It is time to ask: Can we not do better? Must we have such spending? What has it produced? Not only do we have high government deficits which contribute to high interest rates, but we have more people out of work than at any time in Canadian history and an inflation rate that runs on virtually unabated.

How many realize that in the last nine months of 1976, real growth in this country was virtually non-existent. Annualized, we had .4 of 1% growth compared to a projected level of 5%. That shortfall of 4.6% in this country should be compared to the United States which had a real growth of over 6% or 1% higher than their target.

Not only do we have national unemployment, but we have unemployment that is unevenly felt throughout the country. In the twelve months ended in March, there were 76,000 jobs created in Canada. Of that number, 3,000 were created in our five eastern provinces. Is it any wonder that we now have unemployment in Quebec of 10%, ranging up to 16% in Newfoundland. Surely the time has come when we must ask why our five eastern provinces are experiencing such high unemployment when all of the New England states that abut eastern Canada have significantly lower unemployment levels and better real growth. Why, for example, should the unemployment level in Quebec be higher than in any state south of the border?

The Prime Minister intends to make a speech in Winnipeg this Monday which is being billed as a major address on national unity. While he is making that speech, I hope that he stops talking in his vague, abstract, academic terms and comes down to earth, and starts explaining why regional disparities in this country have heightened during his term of office in Ottawa.

Perhaps he could explain how he intends to relieve unemployment more effectively in Quebec and the Atlantic Provinces. How he intends to get their real growth up to the national standards. And if he does that and his rhetoric is backed up with action, he will have made a significant contribution to national unity in this country, as opposed to his talking about national unity for nine years while the nation has steadily become more divided.

While we are considering such discrepancies within Canada perhaps we should ask how the United States is able--without controls--to get their inflation rate down to 5.1% last year while ours was 9.3%. Should we not ask why our real growth last year was one-third lower than theirs and our unemployment is higher?

One answer, I suggest, is that we have been sold too much government in this country. 43% of our economy is now devoted to government compared to 35% in the United States. This must be changed.

Since 1971 the government's take of our Gross National Product has risen from 38% to 43%, and of that 5% increase, 80% has taken place at the federal government level.

This puts a relatively non-productive load on our workers, those that are producing our wealth, which in turn contributes to their lack of competitiveness when we have to meet Americans or others in the international market place.

The Prime Minister knows that when he took power in 1968, our inflation rate was 3.3% compared to 9.3% last year. He knows that unemployment in Canada in March 1968, the month before he became Prime Minister, was 4.9% compared to 8.1% last month. In 1968 we had a real growth of 5.8%.

Most importantly, he knows that unemployment in Quebec has risen during his term from 6.7% to over 10% and that there are over 130,000 more jobless in Quebec today than in March 1968.

Much as the Prime Minister may wish to distract, he must be asked to account for his record.

We have never completely made up our mind in this country whether to follow the free enterprise system or a modified form of socialism. So a hybrid system has evolved in Canada. It is not fully free enterprise nor is it straight socialism. It is a socio-enterprise approach. One part state control to three parts private enterprise. This has led us into peculiar combinations.

We have a state-owned airline competing with private carriers, but Air Canada has the advantage of reporting to the same ministry that decides who gets what routes. Now it is proposed to increase the capital of Air Canada to three quarters of a billion dollars which will likely make it the most lavishly capitalized airline in the world.

Presumably looking to Great Britain and France, we have decided that we need a mini Concorde in this country. Accordingly, the government to date has invested or at least spent approximately $150 million in developing the Dehavilland Dash Seven. At last count they had sold one plane. They have to sell 250 to break even.

Our TV-Radio communications field is dominated by the CBC which of course competes with various private stations. The CBC however, for reasons never explained, has received a commitment from government that their subsidy will be increased for the next six years by 6% per year plus whatever is the inflation rate. Think what CTV could do with that deal.

And then we have the petroleum industry which was developed by private interests, that is before government stepped in. Then by systematic confusion, freezes, regulations and over-taxation, the industry was set back at least a decade so that now we have to scramble to restore our proven reserves. Here again, just when Great Britain is getting ready to sell off a portion of their holding in British Petroleum, Canada is plunging ahead with Petro Canada which has already received from the Treasury hundreds of millions of dollars. Asked why--the administration says they want to learn the business. That's costly education.

Then there is the Canada Development Corporation which has led us into the pop business. We could go on. In total, the government in response to an enquiry has found 1,200 federally owned concerns in this country and they are still counting.

It is time they stopped adding and started subtracting. It is time they stopped taxing the private concerns to pay for the deficits incurred by their state run competitors.

Speaking of government inconsistency, after having righteously practically ended speculative activity in the country, they reintroduced us to the 17th century notion of lotteries which of course were outlawed when they got out of control a century ago. But then we needed money for the Olympics and sure enough lotteries were back. Now, led by Loto Canada, government is actively and righteously promoting gambling where the odds are so loaded against the player that no gaming house in Las Vegas would have the heart to so fleece their clientele.

Before we accept the notion that somehow our lot is unavoidable, I believe it is interesting to look at the past. When Donald Macdonald and I graduated from Osgoode Hall in 1955, inflation that year was one-fifth of 1%. Unemployment was slightly over 4%. Federal government spending was $4,275,000,000--down $75,000,000 from the previous year. We had real growth that year of 10.1%. Government took 26% of the economy back then compared to 43 now.

What a pleasant prospect we had in our year of graduation when there was virtually full employment--or expressed another way--half the percentage unemployment we have today.

What a contrast twenty-two years later with our prime minister telling students at the University of Toronto last month that if there were no jobs for them in Canada, his heart didn't bleed--go to another country for work.

Nor was 1955 a vintage year.

In the six, mainly St. Laurent, years ending October 1958, real growth in Canada was almost 30%; federal government spending increased by 35%; monetary growth was 26%; while inflation for the entire six years was 8.6%. The Diefenbaker years were similar, with a little more real growth and a little less inflation.

Trouble began in the Pearson years when our six year inflation got up to 24%. But it is in the last six years that we have had the most sensational record of irresponsibility. In the six years ended last October, federal government spending jumped 151%; the money system was expanded by almost 100%; while real growth was 31.4%--approximately the same level as we experienced in the St. Laurent years, the Diefenbaker years and the Pearson years.

But with the money supply being increased during our last six years almost three times faster than the real growth in our economy, is it any wonder that we ended up with 55.3% inflation in that period?

The surprising thing is that we also ended up with the highest average unemployment of any of the four six-year periods I have reviewed with you.

Let us not be fooled. Some may talk about external forces causing inflation, such as Turner's favourite excuse that the anchovies off the coast of South America had disappeared. Others may blame it on the weather, such as our present minister of finance. But the fact is, without excessive money expansion triggered by government spending, Canada would not have experienced our high level of inflation. And that is the truth.

When a government spends they must tax, borrow or print more money to cover their outlay. In the final analysis, however, they must tax, be it to pay for current spending, the interest on debt, or to repay the debt itself, or they must inflict the cruelest tax of all--inflation--which results from printing excess money.

Governments often forget you do not tax corporations, you tax people, regardless of what they call the tax. Be it sales tax, corporate income tax, customs duties, or even Jacques Parizeau's new advertising tax in Quebec, it is the consumer that pays and that is why to lighten his load, government must spend less.

The Trudeau administration claim they have been restrained in their spending increases in the past two years, yet if they had abided by the guidelines they asked private industry to meet, federal spending this year would be $1.3 billion less. That extra amount once in place, regardless of who is in power, becomes difficult to reduce. That is why we must get a better handle on our run-away government spending increases.

Now we have the fallout from excessive government spending with its resultant inflation, slow real growth, high unemployment, and a current account trade deficit which in total for the last two years has been greater than the combined deficits of the United States, West Germany, France, Japan, Great Britain and Italy.

Last year our current account trade deficit was $4.3 billion. That is higher than the $3.3 billion of Great Britain, a nation we tended to pity. We even lent them money as if we were well off!

The hard fact is that this country can pretend no longer that we are prosperous. Our prosperity has been conceived essentially on the basis of our taking in each other's washing. This is what the government has fostered with its orientation to government and service-oriented work for Canadians. A larger part of our economy is devoted to services than any western country or any country of the Communist block or of the Third World. In 1967, 59% of our labour force was engaged in the service industry, with 6% in public administration. Producers of goods fell from 41% of our work force in 1967 with 24% in manufacturing, to 34.5% by 1976 with 20.3% in manufacturing.

This orientation to service activity resulted in Canada incurring a $10 billion deficit in end products world trade last year. It was $2 billion a few years ago. In short, we are becoming increasingly non-competitive in world markets. Our share of world trade is dropping. In the 1960's it was approximately 6% of world exports. Today it is 4%.

In the last three years our balance of payments deficit has averaged 2.7% of our G.N.P. Some forecast it will be 7.5% of G.N.P. by the mid 1980s, due partly to a fall off in oil and gas exports which have shoved us up in recent years. The administration may play with figures with respect to our domestic activity, but it is in the external trade area that their incompetence is most apparent. You cannot fool the international market. That is why our dollar, which has fallen by as much as 40% in relation to other currencies, has become known as the "Pierre Peso". To all this, the minister of finance states that there are no short-term solutions, no magic formulas for solving our economic woes. We agree. But where are the minister's long-term solutions? What does he see for the economy in 1980 or 1982? We do not know.

This country is uniquely situated both geographically and in regard to resources. Those resources and our geographical location should make us one of the most prosperous nations in the world. Rather than creating a hostile, often frustrating climate for business, we should make this a hospitable country for business activities. If we did that, those who are now routing business away from Canada, would then route business into Canada, not only to serve our own markets but for international trade purposes as well.

To achieve this relatively hospitable climate for business we must regulate business less. We must encourage, not discourage, entrepreneurs. We must give business a tax treatment that is relatively favourable compared to what they experience in other countries. But above all, we must restore confidence in the country. Our future is bright.

Speaking about less regulation, let me touch briefly on the questions of controls.

We in the Progressive Conservative party, when Parliament resumes next week, will be moving for an early termination of controls. We believe that there is no substantial evidence that controls have had a meaningful effect on inflation in this country. In fact, they may have created a floor for wage demands. When you suggest to workers that they are entitled to 8% for inflation, plus 2% for productivity plus 2% catchup, you are inviting an inflationary bargaining floor at 12%. Then the bargaining begins. The attitude is: How much more can be gained?

That may be the reason why the wage level for the last two years in Canada has averaged a 15% increase per year, while in the United States the level has been 9%.

But in any event, we feel whatever marginal effect controls have had on inflation, they have now become counterproductive and are contributing to our unsatisfactory economic condition. In ending the controls, hopefully by June 30th, we would suggest that the government should establish, in consultation with the provinces and its other major economic partners, guidelines or targets for the next two years for such major economic goals as real growth, new job creation, monetary growth, government spending restraint, and acceptable levels of price and wage increases.

During this next phase--at least for the first six months--while the economy readjusts to price and wage determination by market forces, price and wage increases should be monitored and reviewed. In order to allow time for proper monitoring, we would propose that, in the case of increases involving the top two hundred corporations and their unions, there be a thirty-day notice period before any change in prices or wages could take effect.

We would see publicity and moral suasion as major weapons available to the government in restraining excessive wage and price movements, but we would propose that the federal cabinet have "last resort" authority to roll back increases clearly in excess of the established guidelines and against the national interest.

Ladies and gentlemen, we have a great country in Canada. On a per capita basis we have more resources than any other country in the world; we have one-third of the world's fresh water; we have the second longest coastline in the world, and some of the richest agricultural land anywhere. In short, we have a country that could go on to new heights with effective leadership. A prosperous country, one where prosperity is shared from coast to coast, is not a country where separatism would live for long.

That is our challenge.

Currently the world bank lists us as number eight in the world in per capita income. If certain middle east countries are included, we are tenth or eleventh. We used to be number two. We can once again regain that stature if we commence now to work out a plan that will ensure that the drift we have experienced in the past five to ten years will not continue in the coming five years. That is why, ladies and gentlemen, my party is hosting the Window on Tomorrow Conference, to be held in this city on May 11. At that conference, we have invited William Simon, former U.S. Secretary of the Treasury to be our luncheon speaker, as we feel he will have some interesting insight into current international trends. Likewise, we have asked William Rees-Mogg, editor of the London Times to be a guest speaker. Hopefully, he can tell us how to avoid the British disease, if we have not already caught it. Our former premier, John Robarts, will also speak with particular emphasis on the Canada of today and the threat to our unity. My leader, Joe Clark, will be the feature speaker at the concluding dinner.

But above all, I would like to emphasize that the twenty-two speakers that will be in attendance as participants will be asked to focus on what we should be doing today in Canada to ensure that we will have the prosperity that should be ours in the 1980s.

The Governor of the state of New Hampshire, Meldrim Thompson, will be with us to explain how his government has achieved an unemployment level in the 4% range with vibrant business activity, while neighbouring Quebec has unemployment of over 10% and one of the lowest growth rates on the continent.

New Hampshire, last year, with a population one tenth the size of our five eastern provinces, created over 6,000 jobs--twice as many as were created for our eight million eastern Canadians.

We have labour union leaders joining us, such as Ron Lang of the C.L.C. and Neil Reimer of the International Union of Oil, Chemical and Atomic Workers. We have business leaders such as Jean de Grandpré of Bell and Alf Powis of Noranda Mines.

But to make the conference a success, we need not only these gentlemen, not only Simon Reisman or Bob McIntosh of the Bank of Nova Scotia, Andre Raynauld (now a member of the Quebec Legislature, formerly chairman of the Economic Council of Canada) who will all be there. We need your participation to ensure that a dialogue begins in this country that will help lead to the solutions that are needed to enable us to regain our momentum and prosperity.

Thank you.

The appreciation of the audience was expressed by Mr. Henry N. R. Jackman, a Past President of The Empire Club of Canada.