An Industrial Policy for Canada—Time for Fundamental Changes

MR. HERMANT:

Ladies and gentlemen: Canadian columnist, Peter MacArthur, quotes an epigram dating from the year 1904 which reads as follows, "Every successful enterprise requires three men--a dreamer, a businessman, and a son of a bitch."

Depending on your point of view, our guest of honour today, Mr. John Bulloch, would fit all three of these descriptions.

As a dreamer--which I translate to an innovator--he has created a tangible organization which began as the Canadian Council on Fair Taxation with a few concerned members and has ended up today as the Canadian Federation of Independent Business with a membership of just under 48,000.

In business, John Bulloch managed an independent fuel oil company, is a director and vice-president of his family clothing business, has lectured at Ryerson Polytechnical Institute, has served as director and chairman of Ryerson's Canadian Centre for Entrepreneurial Studies and is on the permanent steering committee of the International Symposium on Small Business.

As to the final qualification, John Bulloch has taken on, and continues to take on, all those he sees as adversaries of owner-managed businesses--government, labour or so-called big business.

For example, he organized the "Don't Skin the Beavers" campaign against the payroll tax increase in 1974 and said at that time, "Our protest is against any government social policy which destroys the incentive to work, taxes Canadians unfairly and increases the cost of the bureaucracy already created by our complex system of taxation and social security."

So much for government. But he has also been critical of the banking community and in commenting on the proposal that perhaps more local banks with provincial financing would improve business financing he said, "Competition is always a welcome force in a healthy economy. However, unless more banks result in more venturesome financing for new and small growing business, they will not be filling the financing gap that has been demonstrated by our own studies. It would seem more fruitful to have existing chartered banks direct larger portions of their savings into the financing of new and growing ventures."

Bulloch is not overly fond of the traditional voices of larger business either--particularly the Canadian Chamber of Commerce and the Canadian Manufacturing Association--claiming that their policies are largely dictated by their major contributors.

When the Business Council on National Issues was formed, Bulloch's reaction was, "Now the big boys won't be able to hide behind small business's skirts. Finally, we're getting a dual approach to business representation."

So, according to MacArthur's epigram, John Bulloch definitely is successful. But then he comes by his evangelical zeal naturally, having been brought up in a fundamentalist environment, and what really motivates him is his conviction that there should be a closer liaison between business and social responsibility.

"What I think we should push for," he says, "is free society--not free enterprise. What's the difference between state socialism and corporate socialism? The unhampered growth of power is the father and the mother of the welfare state."

And John Bulloch's voice is beginning to be heard. In his capacity as the president of the CFIB, he serves as a member of various advisory boards reporting to Prime Minister Trudeau and to Premier Davis. In addition, regular submissions, supervised by him, are sent to all provincial governments.

Peter Brimelow, writing in The Financial Post, has said of John Bulloch, "He's in favour of entrepreneurs but not too wild about government help for them. What he really wants are more good Canadian success stories."

I think all of us in this room would say amen to that wish. It is, therefore, a pleasure for me to introduce to you the president of the Canadian Federation of Independent Business, Mr. John F. Bulloch, who will address us under the title, "An Industrial Policy for Canada--Time for Fundamental Changes". Mr. Bulloch.

MR. BULLOCH:

Mr. Chairman, members of the head table, ladies and gentlemen: The Empire Club of Canada is the most prestigious platform in the country and there fore it is an honour for me to be here today. I'm so excited, I'm planning to talk for three or four hours! I'm only kidding. As Henry VIII said to his wives, "I won't keep you long."

My remarks today are concerned with the need for fundamental change in Canadian society. Every democratic society in the western world reaches a point in its history when so-called band-aid solutions are no longer effective in reducing social tension and when traditional monetary and fiscal policies are not capable of providing stable prices or the jobs we need. Band-aids have been an effective tool for twenty years in most of the democratic societies in the west and certainly Canada is no exception. It is a way of dealing with pressures as they develop, without really disturbing the underlying power structure. It is a way of dealing with the tensions created by regional and rural disparities, a way of dealing with the tensions created by growing nationalism, specifically in the province of Quebec. It's the way you deal with consumer pressures, environmental pressures, foreign control of the economy, working conditions of the labour force, and so on.

But all we have done essentially in the last twenty years is pass a lot of legislation, build a lot of buildings, fill those buildings with all kinds of interesting people, pass out money left and right, until we have reached the point where the productive sector of our society is slowed right down with this heavy burden of non-productive spending on its back. Our governments have brought under their control everything but their deficits.

Most of the problems that we have created for ourselves are the product of a period of affluence. We are dealing with the age-old problem of democratic societies trying to survive affluence. What our governments have been doing in the past five years is trying to preserve that period of affluence by extensive foreign borrowing, and of course they can't do that forever.

It is encouraging, from the First Ministers' meeting in Ottawa, to see that there is a collective voice now, that there is consensus from our major political leaders that the time has come to get a better balance between private endeavour and public endeavour and to make a serious attempt to roll back the burden of bureaucracy and red tape that is strangling this country.

It reminds me of a story from Britain, a story of a public servant whose job was created in 1803. This public servant had the job of standing on the white cliffs of Dover and looking out over the sea, with spyglass in hand, watching for Napoleon. If he saw Napoleon, his job was to ring a bell. The sun set on that job in 1945. Let's not wait 142 years to sunset about one third of the bureaucracy in this country.

But beyond that, I think the majority of Canadians, certainly a majority of the business community, sense that even if we get a more responsible public sector, even if we improve public attitudes towards the profit system, that alone will not deal with some of our fundamental problems: the decline in our manufacturing sector, public alienation against our institutions, the dual problem of inflation and unemployment, the movement of population out of Quebec and the growing regionalism in the country.

My thesis is that if we want to restore, in this country, social and economic stability and a sense of nationhood, we are going to have to make fundamental change. In my judgement, this requires the establishment of new national goals, of which two are of the greatest importance.

The first one is the establishment of strong regions, of a greater degree of self-sufficiency in the regions of Canada: I mean the West, Ontario, Quebec, Atlantic Canada and the North. The second national goal should be the development of stronger people. By that I mean Canadian citizens doing more for themselves and relying less on the state, the development of skills and self-discipline in our work force.

I am going to outline four of the major forces at work in western society, and in Canada in particular, that will make the achievement of these goals essential, and you will see that they are not motivated by political philosophy, but motivated instead by political reality. In the order of priority, number one is the industrialization of the less-developed countries (the LDCs); number two, the impact on western society of expensive energy; number three, a decade of relatively slow growth and what that implies; and number four, the Quebec nationalist movement.

There is a lot of misunderstanding about what is happening in the Third World, what we call the less-developed countries. Most people see some problems in terms of very tough competition for standardized goods, for apparel, for footwear, for women's accessories, for electronic toys and a number of other products, but in reality the threat to the western world from the LDC's is in all forms of light manufacturing. The imposition of quotas on these countries is directing them left and right into a wide range of diversified products, and they are entering into joint ventures with western firms and into relationships with subcontractors. And the force at work in the world which is going to make it possible for the LDCs to become increasingly sophisticated in their manufactures is the twenty-year source of highly educated young people who are coming into the work force in all the nations of the Far East, in all the nations of Southeast Asia, in all the nations of South America.

We haven't yet felt the impact of the transfer of capital, technology and jobs that is taking place today, and which will accelerate.

Peter Drucker, who is a world-renowned management consultant and adviser to governments, was a guest speaker at the world conference on small business which was held last October in South Korea. There were sixty nations represented there and we were examining the growing development of enterprise in all of the Third World countries. He estimated that today 20% of world trade is what you would call production-sharing, where the leather for your shoes comes from the United States and the soles are made in one Third World country, the uppers in another, and they are assembled in yet another. And he predicted that within two decades, 50% of world trade would be production-sharing and that most light manufacturing in the western world would slip away gradually to the less-developed countries.

This implies a significant dilemma for the United States and indirectly for Canada. Because, if the United States does not assist in the development of these countries through the transfer of capital and technology, they are facing communist revolutionary movements and a threat to their own national security. The development of the Third World countries for the United States is a foreign policy issue.

This places tremendous pressure on their trading partners, and especially on Canada. The United States has a serious deficit in oil, and also in low-technology goods and they are hoping to balance that by increasing their exports of higher-technology goods to Europe, Japan and especially to Canada. There is going to be substantial pressure over the next ten years to bring the branch plants back home. It has already begun.

The upcoming GATT round of negotiations in Geneva is also going to bring the impact of the Third World to the west three to five years sooner than it would come otherwise. It is going to be very difficult for Canada to get reciprocity in these negotiations. Everybody thinks we can just put the pressure on Japan and on Germany and get a large increase of our exports into their home market to help balance their own export surpluses. But the fact is that these economies have too many domestic problems to handle massive imports. We should stop fooling ourselves that we can greatly increase our exports to our traditional trading partners when they themselves are losing jobs to Third World countries.

What GATT is going to do, I would say, is three things. It will speed up the reality of what is going on in the new "Japans" among the less-developed countries. It will speed up the international rationalization of production of multinational corporations. And most significant of all, especially for the people of this province, is that it will speed up the realization that the old national policy of tariffs, transportation and the use of cheap resources from the outlying regions of Canada will no longer protect the economic power base of central Canada.

There is a bright spot, however. The rapid development of all these Third World countries is going to open up very substantial new markets in resources and agricultural products.

The second force at work is expensive energy. This country is moving from a period in which energy shortages were induced by a cartel to a period, perhaps ten years from now, in which energy shortages will be real on a world scale. For Canada, the problem is really one of price. We have natural advantages that most Canadians have not properly understood.

But in my judgement, the longer we isolate ourselves from world prices the more difficult our eventual adjustment will be. It is not popular to say this in Ontario, but I believe this country made a disastrous mistake in not moving to world prices immediately. You must curtail demand if you are looking at alternative sources that require substantial investments of capital and manpower. As a priority, we must try to bring our growth in energy demands to 1 % a year, which is a very tough assignment.

High energy prices will bring in new technology. The trouble with rationing is that it just curtails demand. The price mechanism not only curtails demand but it sends out all the signals to get people working on alternative technology and alternative energy sources. When we let our prices lag behind world prices and our trading partners are at world prices, they are getting another leap ahead of this country in developing new technologies, and that's where we are weak traditionally. We will never be strong until we undertake leadership in particular fields of technology.

I also believe that if we do not give a very high priority to conservation and renewable energy technologies, the soft technologies, we are going to create so much division in our society that we won't be able to get on with the job of putting in place some of the capital-intensive projects, such as nuclear and tar sands plants and pipelines, that we are going to need, regardless of philosophy, in the next ten years. If we don't bring our energy demand down, the squeeze on capital and resources will make it impossible for us to develop the new industries and the new opportunities that we are going to need in the future.

We can be very grateful for the fact that we do live in a country that has the potential of being self-sufficient in energy. There are exciting opportunities in the future for the people in the fields of solar, wood and wind technology. There are great opportunities for people in light metals and plastics and the transportation industry, in microcomputer technology and in all forms of communications that are designed to reduce automobile and airplane travel. When you let those prices move up, you accelerate the development of these alternatives. If you hold them back, you let your competitors get ahead of you.

The third point is slower economic growth. This is also a political no-no. We don't want to face the reality that something fundamental is happening to all the western nations. The idea that you can grow at 5 % forever is a joke. It has never happened in the history of the world. If everybody in this room hadn't stopped growing at the age of eighteen or twenty, you'd be eighty feet tall! Periods of fast growth and slow growth are natural in all types of society.

The basis for rapid economic growth in the western world has been twofold: cheap energy and a rapidly-growing work force. None of the nations of the western world can look ahead to either cheap energy or a rapidly-growing work force. The growth-rate of all the labour forces in the western world will slow down dramatically over the next seven years. We are looking at 2 to 4% growth in the western nations during the next decade, and 4 to 10% in the less developed countries.

In Canada, we are becoming a society of older people, and that certainly has a slowing effect on our economy. Governments are the most threatened by slow growth because their money is drying up. They can't buy their way into power anymore. They can't bribe us with our own money. They are all bankrupt. Now that they have spent us into bankruptcy, they have all embraced the free enterprise system. Regardless of their political philosophy, Canadians will have to do more for themselves and rely less on the state.

The era of heavy social expenditures is over. We will find some way of actually cutting back our commitments in a number of areas.

In the education system, our emphasis is going to have to be on skills, on self-discipline, remembering that we are competing in a world where people work seven days a week, sixteen hours a day. To take a trip to the Far East nations, as I have, is like visiting one ant hill after another. People work for 25 or 50 cents an hour, seven days a week, in two shifts. They never stop. They don't even take holidays for fear someone else will take their job. We will have to concentrate on skills, not on the philosophy of doing your own thing.

This country is incapable of working its way out of its unemployment problem in the short term, until the labour force stops growing, about 1983-85, or until the participation rate of married women drops back. Those are the two major factors that government cannot control.

The fourth force at work, especially in Canada, is the nationalist movement in Quebec. If you have studied the history of that province you would have to conclude that what is happening is a very natural evolution. It is not going to disappear with the referendum, even if they lose it, which I expect they will, or even if the PQ is defeated in the next election. The nationalist forces are not going to go away.

The national policy of bilingualism and biculturalism is basically fair, basically decent, but it is not a unifying concept or a unifying force. Those of us who live in Ontario must remember that the concept of two founding nations goes back to the history of Upper and Lower Canada, a concept of Canada that is almost foreign when you get out west.

The province of Quebec is facing a very difficult period. We should be concerned with the welfare of our fellow Canadians in Quebec--the small businessmen who are the typical Quebecers. There are no political leaders in this country from French Canada who are really typical French Canadians. These people face great difficulty in adjusting to the economic reality that is hitting Quebec harder than any other part of North America. The competition of the Third World will devastate that province and they will have to adjust to it, if not now, then later; whether they are part of Canada or outside of it.

In my judgement, the option of separation for Quebec is absolute insanity and sovereignty-association is not politically practical. The great problem for Quebec and all of Canada is trying to deal with the question of sovereignty-association between Canada and the United States. The pressures of the world are going to create a new alignment, north and south, regardless of your nationalist or continentalist position. Quebec cannot avoid the forces that are going to bring about this new alignment.

We could do a lot in this country to reduce the tensions in Quebec as we work towards a new federalism. Much of the tension in this country has been created by the interference of the federal government into the jurisdictions of the provinces. This country is suffering from a disease which I call "overlapping jurisdictionalitis". And the provinces are just as guilty as the federal government. They are down the backs of all the municipalities. Every political leader wants to get his finger into an area where there are votes to be had. We are being strangled by overlapping jurisdictionalitis and that has created a lot of the tension and regionalism in this country.

The decline of the branch-plant manufacturing sector, the growing power of the west, Quebec nationalism, the threat to Atlantic Canada that Quebec nationalism imposes, the new role of government in an era of declining revenues call for new economic goals. And these goals are going to,, have to be supported by new policy thrusts in the areas of transportation, industrial and commercial policy, and in agriculture. The most critical area that requires immediate action in Canada is a new national industrial policy.

We have been examining this issue and agonizing over it for a number of years. There is one thing that you cannot escape as you analyze the productivity, the exports and the performance of a nation, and that is that the key ingredient in all successful nations is technological innovation. More capital investment can be important, but it is not the key factor. More large-scale plants can have value, but that's not the key factor. Rationalizing our production north and south has some opportunities, but that is not the answer.

Most of us don't understand the innovative process. We all think that you get innovation somehow as the result of a light bulb turning on in somebody's head. We think innovation comes from giving people incentives. It doesn't come from either of those things. Innovation comes from the marketplace. Necessity is the mother of invention. That expression describes innovation. Problem solving in the marketplace creates most innovation. You cannot have an innovative economy when you have a branch-plant economy. They just don't go together.

But we can't take every area in which we have branch operations and turn them into Canadian-owned operations. It is not practical or possible.

What we are going to have to do is develop excellence in a limited number of areas. We are going to have to develop industries with a strong balance of small, medium and large companies, where there is a strong Canadian-ownership presence, where there are more joint-ventures and licensing arrangements, and less branch operations. We are going to have to concentrate on industries that are natural to Canada, where special measures to support those industries create the least tension with our trading partners. These will be industries related to our weather, industries related to our geography and industries related to our resources.

We suggest a two-tier set of strategies. At one level, where you are dealing with the major players, the large corporations, the government, the unions and the trade associations, we suggest the use of central committees which Ottawa is already starting to establish to look for the growth areas of the future. We are going to have to have selective measures, such as are employed by every other nation of the world, for procurement policies, selected tariffs, quotas, manpower training programs, and new criteria for the Foreign Investment Review Act, which today is nothing more than a strategy without a goal. We must have a fairly selective strategy for the major players and a different across-the-board set of strategies for the small and medium enterprise sector of the nation.

Despite the high degree of interdependence in manufacturing between large, medium and small enterprises, we require separate policy approaches to strengthen them. In the small firm sector, we are going to have to free up equity capital through tax incentives to individuals and institutions; we are going to have to use trade associations as a vehicle for improving management skills--not governments, not universities--but governments and universities working through trade associations. We are going to have to institutionalize the concept of consortia, where small firms can band together where there is an advantage to be gained in importing or in promotion or in export sales or in purchasing. We are going to have to develop policies to encourage subcontracting, which is the major policy vehicle for building small business in any nation, whether it is government subcontracting or large corporation subcontracting. That means coming up against the labour movement in Canada which has many restrictive policies to prevent subcontracting from governments and business.

In conclusion, this country is undergoing a period of fundamental change. In the short term, it is going to be a period of belt tightening, regardless of what you are reading in your newspapers, and a period of political instability. Canada as a nation is basically strong, stronger even in many ways than the United States, but they are so optimistic by nature, and we are so pessimistic by nature. We have far more going for us than they have south of the border. They just don't know about their own problems!

This country has a very diversified resource base, greater than any nation in the world. We have a highly educated work force. We have a high level of personal saving. We have the ability to be self-sufficient in energy. Look at any of our trading partners and ask, "Who has all four of those?"

Our problem is one of political consensus and political will. We need a vision of Canada that makes sense to the people. Our people are far ahead of our political leaders. We want a vision that makes sense. We must have major new policies enunciated by our major political parties if we don't want to create a proliferation of new parties.

We must remember that national unity does not require national uniformity. I believe that new national goals of stronger more self-sufficient regions, stronger, more self-reliant individuals and a new national industrial policy can excite and unite this great nation.

The appreciation of the audience was expressed by Col. S. F. Andrunyk, O.M.M., C.D., a Director of The Empire Club of Canada.