Canada: Opportunity for Renewal

The directors and officers of the Canadian and Empire Clubs are pleased that Jack Masterman, Chairman and CEO of The Mutual Life Insurance Company and Chairman of the Canadian Life and Health Insurance Association, accepted our invitation to address this special joint meeting today.

To begin, let's tug at a thread and see if it unravels a theory. The thread is a single observation from the building political crescendo in the U.S. in this election year.

The Republican primary in New Hampshire has recently concluded. From the media reports, you may have learned about President Bush's emergence from 11 years in Washington's choicest executive mansions to confront the modern supermarket.

The American commander-in-chief, whose arsenal includes bombs so smart they can dive down chimneys and warplanes so stealthy they can sneak up on foes, was stunned beyond belief by his latest high-tech discovery. The press picked up on the expression of genuine wonderment on President Bush's face while campaigning as he encountered--for the first time, apparently--a supermarket checkout scanner. (This is the same George Bush who, just a few days earlier, had assured New Hampshire voters he really understood the economic misery that gripped their daily lives!)

One learns something new every day! North American supermarkets, however, have been using scanning technology since 1976 and the devices have been in general use for a decade. (Martin Fitzwater, the White House spokesman, was quick to assure reporters that he had seen the President in a grocery store. A year or so ago! In Kennebunkport!)

Could you imagine the look of disbelief or horror on the President's face had he visited a financial institution? Banks, trust companies, insurance companies, and brokerage houses are now employing technologies that were not available just a few years ago. And would not have been thought possible just a few decades ago.

The invention and development of the micro-chip is changing the world in the 20th century as much as the invention of the printing press did in the 15th.

It used to be said that the sun never sets on the British Empire. Nowadays, the sun never sets on financial markets. Facilitated by sophisticated technology and communications, the trading of financial instruments is transacted around the clock in financial markets physically located in disparate time zones.

The technological revolution is not universally loved and appreciated. As Marshall McLuhan warned a dozen years ago: "In the 1980s, there will be a general awareness that the technology game is out of control, and that perhaps man was not intended to live at the speed of light."

Proponents of the technological revolution, on the other hand, echo the wise words of the late Maurice Chevalier which he used to describe old age: "It's not bad, when you consider the alternative."

Technological advances have contributed to the heightened interest in the deregulation movement. The force of technology is speeding forward institutional changes, and igniting the drive to deregulation.

In Canada, in response to changes in the financial services field, both federal and provincial governments are changing the rules. As Canadians, we stand a fair chance of mounting this horse and riding off in all directions! What else can we reasonably expect, if regulatory authorities try to get the measure of the beast with only a firm grip on nose or tail?

With some notable exceptions, different types of financial institutions in Canada can now compete for the same business. Barriers to entry for foreign competitors are being lowered or eliminated. And, in its drive to improve customer service, the industry is growing out of its suit of government regulation. The distinctions between the four pillars are blurring.

The driving force for regulatory changes is the classic "push-pull" of the marketplace--where customers are pulling for new services, financial institutions are pushing to get ahead of these and anticipate their needs.

Questions arising from financial services deregulation include: Cui bono? Who profits by it? Who benefits? And, how will the future of the financial services industry in Canada be affected by the outcome of the current national-unity debate? Will constitutional changes impair or enhance the Federal Government's capacity to introduce uniform changes across provincial boundaries? Will corporate strategies in the Canadian financial services field emerge more cohesive or more fragmented? And if it came down to it, would a fully sovereign Quebec be willing and able to work in harmony with a reconstituted Canada?

Our speaker today, Jack Masterman, is well qualified to offer a perspective on these issues. Mr. Masterman has been described as the perfect Prospero for a modern production of The Tempest. In addition to being Chairman and CEO of The Mutual Life Insurance Company and a director of several companies in the Mutual Group, he is active in insurance industry associations, as the Chairman of the Canadian Life and Health Insurance Association, and a Director of the American Council of Life Insurance.

At Mutual Life, Mr. Masterman has transformed it into a diversified organization to take advantage of the broad products offered to insurers by deregulation. Mutual was the first insurance company in Canada to launch a mutual fund. Then, it bought Mutual Trust Co., a brokerage firm and a family of financial services companies that includes eight mutual funds at Mu-Cana Investment Counselling Ltd. Mutual's new corporate slogan is "Facing tomorrow together!"

Ladies and gentlemen, please welcome Jack Masterman.

Jack Masterman:

Let me start by thanking you for the privilege of addressing both the Canadian and The Empire Clubs today. I am deeply honoured. I want to talk to you about two issues that, at first glance, may seem unrelated--financial services reform and the constitutional question.

The financial services industries have just emerged from a prolonged and arduous process of legislative reform; I think all would agree it was long overdue. With its passage, we are now faced with a changing and challenging future.

Similarly, Canada is in the midst of a long and arduous process. The constitutional debate has been ongoing for an extended period of time and it is still very much a question in search of an answer. As in financial services reform, there are several opposing views that must be taken into consideration. As well, the constitutional framework has seen little change for decades and the outcome will be pivotal to our future.

I believe that an exploration of these parallels just might produce some keys to a more successful resolution of Canada's future.

The life insurance industry has been an important part of the Canadian economy since before Confederation. In those days, it consisted mainly of small branch operations of foreign companies. Today, we have a large number of dynamic Canadian companies that more than hold their own at home and in international markets. Through the decades, change and evolution have been pervasive.

For years, the financial services industries were characterized by unyielding pillars demarking each sector's sphere of operations. Institutions served their clients very well within fairly clearly defined boundaries.

However, with all pillars, the sands of time slowly erode foundations; bit by bit, the pillars begin to crack and crumble. This is a natural and inevitable process, which begins the moment a pillar is erected.

In our industry, the erosion resulted from rapidly advancing technology, intense competition and changing needs of consumers. With the passage of time, the pillars had become constraining boundaries instead of comfortable, protective borders.

Companies in all sectors of financial services were continually testing the limitations of their corporate powers as they explored new markets. These activities did not reflect simply a desire for change for change's sake. They were responses to competition, to changing needs of customers and to developing technology.

At Mutual Life, we recognized years ago that customers had come to expect more from our agents than life insurance policies. A strong demand had developed for a wider array of products and services, utilizing more of the company's and the agent's combined skills and expertise.

The passage of the recent legislative package finally reflected this crumbling of the pillars. The reform process was not an easy or short path. It had been close to 60 years since federal legislation for insurers and trust companies had been given a systematic overall review. Also, although both the industry and the regulators recognized the need for change, the specific direction was subject to great debate.

A unified front was required for the life insurance industry. Given that all within the industry were pursuing somewhat similar goals, one might think that this would be a simple task, even with over 100 life insurance companies involved. But remember, we are all competitors, operating with different concepts of distribution, products and services, so developing an industry consensus was not easy.

From the outset, it was obvious that no one sector of the financial services industries would get everything it wanted. All the players--banks, trust companies and insurers--had to identify what were the crucial issues where they would draw the battle line, and those where they would be willing to compromise, if necessary. Until the end of the debate, each sector was continually faced with decisions to defend strongly or to concede specific points.

I won't go into the details of the issues on which the sectors differed; the important point is that reform was achieved -through a tough process of negotiation, debate and compromise. The end result is a package of legislation with which we can all live. Each gained some new powers, but each had to forgo a few that were truly wanted.

It is natural to think that this new regulatory environment marks the starting point for the restructuring of financial services. This is simply not the case! In many respects, legislation is just catching up to developments that have already taken place. In most instances it has followed market forces, not led them.

Evolution will continue. Financial institutions will activate the powers granted by this round of legislation and test the newly established limits. Markets will continue to change and companies, if they are to remain relevant, will continue to transform.

There is a parallel here to our national debate. Canada's history has been characterized by change. In 1867, the nation's founders recognized the need for a framework for the country's development. The new nation had outgrown the limitations of colonial rule; the recognition of this fact gave birth to Confederation. I suspect that our constitutional debate began the day after that birth.

Over the years, the dynamics of change in Canada have been enormous. But, just as the life insurance legislation remained unchanged for so long, so did the constitution stay largely untouched until 1982. At that time, the primary purpose was a transferral to Canada of the ability to change our own constitution. It was not the intention to reconcile the differing visions of the country's future.

The current situation is much different We are now being invited to redefine our future through constitutional change. It is distressing that this process is being greeted in many quarters with cynicism, whereas we should all be welcoming it as an unprecedented opportunity!

In the midst of the current recession, many Canadians are calling upon the government to set the constitutional debate aside and focus on our economic well-being. Remarkably, others would support the abandonment of the debate since, in their minds, the breakup of the country is virtually a fait accompli in any event

It is easy to understand why our economic ills are first and foremost in the minds of most Canadians. We should not expect otherwise with 1.4 million unemployed and an astonishing 75,000 bankruptcies occurring in 1991.

There is a danger that we lose sight of the long term if we divert our minds to our short-term problems. We can take some solace in the thought that even this damaging recession will pass. Wealth does abound in Canada; we are very rich in natural resources. Despite the increasingly competitive environment, we continue to be a much-desired international partner.

Overcoming both our difficult and vast geography and our unforgiving climate, our diverse population has generated one of the highest standards of living in the world. Observers come to Canada from all over, to learn about a social system based on genuine concern and care for all segments of the population, to learn about cities that work, to learn about electoral systems that are fair and about legal systems that are just. We can take comfort in our underlying wealth and pride in our democratic approach.

The growth and prosperity achieved by Canadians has been truly remarkable. Even more so when we realize that it has taken place in a constitutional framework that no longer meets the needs of modem society.

I alluded earlier to the slow erosion of pillars in the financial services field. The country has experienced a similar phenomenon. Our rapid growth and changing face have continually raised difficult issues.

Canadians have not always waited for federal authority to dictate the time for change. Growth and evolution are natural for any young nation. I don't believe that any Canadian wants to see that momentum halted by constitutional grid-lock or any other obstacle.

A renewed constitution will not be the harbinger of radical change for Canada; it will simply allow our evolution to continue. A constitution should provide a framework to meet future needs, not raise impediments to growth. Just as in the financial services marketplaces, people, not legislative reform, initiate change.

So, how have we arrived at this apparent impasse? Why have we been unable to come to an acceptable and workable resolution of this issue?

Generally, Canadians are proud that there are two founding cultures in this country. Despite this, much of the divisive argument has related to questions of language, culture and the concept of a Distinct Society. These are fundamental characteristics.

There is no reason why they should be the nucleus of disagreement. In reality Quebec has always existed as a Distinct Society within our borders. If we now choose to label and formally acknowledge this, why should it be viewed as reason to dismantle our country? It can't possibly pose a threat to the rest of Canada. Linguistic and cultural differences don't create barriers to our advancement and prosperity. They should not be reasons to go our separate ways.

To advance the debate, we must move beyond those differences that should be acceptable to most and that are not "deal breakers" in any event. We need to identify issues that could pose threats to our place among the nations of the world and see if we can find common ground.

In so vast and diverse a country, one might wonder if common ground exists; perhaps we are already on it and don't recognize it.

As one example of common ground, there seems to be a broadly held desire to build and maintain a prosperous country. We have a record of very impressive growth in the decades since Confederation. The initiative and drive that have fuelled this growth continue to be exhibited in all parts of this country.

Unfortunately, this will to prosper is sometimes hampered by an inconsistent application of powers by various governments. A major shift in powers from the Federal Government to the provinces has recently taken place. Ottawa has not necessarily lost control of its areas of responsibility; rather, the importance of provincial jurisdictions has risen.

The provinces and municipalities together now account for the lion's share of public spending. This new financial clout has contributed to the larger leadership roles that many provinces now claim. One positive feature of this is greater recognition of the different needs of Canada's diverse regions.

On the other hand, those of us who conduct business in several jurisdictions see a serious negative aspect. As a federally chartered life insurance company, Mutual Life is subject to both federal and provincial regulation, so we come under, 11 separate regulating bodies. The complications that arise from the web of regulations imposed by different jurisdictions are frustrating and unproductive. I know there are other industries that encounter problems more severe than ours.

With the shift of power to the provinces, harmonization becomes even more crucial than in the past. As political leaders wrangle with other unity questions, the prospect of attaining a workable degree of harmony becomes dimmer and creates a very real barrier to growth.

Effective management of the economy must be seen as a central issue in the constitutional debate. We are not just neighbours in this country, we are also business partners and each other's customers.

A strong and healthy domestic environment is critical to our success. We now compete with countries and blocks of countries that have unified their strategies to enhance their competitive strength. If plans come to fruition in Europe, financial services companies there will have their business and supervisory powers harmonized among all members of the European community.

How will we compete in international markets if our companies have to spend so much unproductive time and energy coping in the domestic market? The process is completely inconsistent with our common desire to prosper as a country.

Just as all Canadians wish to see the country thrive, they also show a genuine commitment to sharing that wealth. Time and again, we distinguish ourselves from our southem neighbours by our strong belief in social safety nets. Most Canadians accept a universal health care system as an essential part of Canada's social fabric; it forms part of the glue that holds us together.

Granted, our present system is not without its problems. But no one would suggest we scrap it. Instead, we join in common purpose to search for ways to improve what we see as an essential aspect of our way of life. Witness the recent meeting of provincial health ministers. Despite the fact that each province has its own way of dealing with health care, the problems were approached collectively and some common resolution resulted.

When the President of the United States recently dismissed the Canadian health care model as a "cure worse than the disease," Canadian political leaders of all stripes rose up to defend fiercely our system.

If Canadians can feel so passionate about our health care system, then we should feel equal passion for our future as a united country. I believe we have the capacity to rise above our regional differences and interests when the issues before us affect our shared goals.

It has often been said that Canada was founded on the principles of peace, order and good government. These principles are broadly shared and worth preserving. Canadians believe in the right of peaceful co-existence, undisturbed by violence and upheaval. When someone publicly suggested a few weeks ago that the separation of Quebec would likely produce armed conflict, Canadians expressed their disbelief and indignation. That is just not our way!

We continue also to be joined as a nation by a common respect for law and order. We cherish laws that protect the collective good and believe strongly in consensus as the preferred, if not the only way, to solve our problems. And as far as good government goes well, two out of three is not so bad.

Seriously, stable and responsible governments have been a strength on which we have come to rely.

Some of our outdated notions of what Canada is are crumbling and eroding with the passage of time. We can't allow the country to crumble along with them. As the various regions have grown and matured, relationships between them have changed as well. It would be fatal to dwell on our differences now, rather than search for workable and flexible relationships that respect each other's point of view.

Many of us have had occasion to petition or to lobby government for change. We pursue it aggressively and with conviction. It is difficult and costly, but it's a necessary process to go through. It forces us to question the status quo and our own motives. We stand back, pause and decide what is really important to us and our organization, what we need to keep and what we can let go. In the end, we usually have some accommodation that allows us to pursue our goals. The changes might not match our vision perfectly, but through compromise, they are usually workable.

Can we not approach our constitutional crisis with the same diligence and flexibility? Now more than ever, Canadians are speaking of the things that are important to them. There are even several encouraging signs of compromise; something that was conspicuously absent in earlier debates. The Distinct Society clause, so vehemently rejected during Meech Lake, is now seen as a possible viable solution. We need more of this kind of acceptance from all sides, if we are to reach a successful conclusion.

As a businessman who is more inclined to action than to talk, I anxiously await the end of the debate. Too much time and energy have been spent trying to determine which has priority--the constitution or the economy. The arguments mirror each other. The constitution can't be settled until the economy is stable; the economy will never be stable until we have an effective constitution. Others debate differences that are not critical to achieving our goals.

These discussions will be as productive as debating whether the chicken or the egg came first. They may be interesting intellectual exercises, but they produce no solution. We don't have the luxury of engaging in them any longer.

The recent constitutional conferences have shown a fresh willingness to resolve the issues. Hardline views are softening. That national characteristic of which we are so proud--tolerance--is showing itself more frequently. Perhaps, the obstacles and pillars separating us are truly crumbling. If so, we really do have a unique opportunity now to redefine our nation and to ensure its continued prosperity.

I hope, for the sake of all Canadians, that we grasp it firmly this time.

The appreciation of the meeting was expressed by Roland Lutes, President, The Canadian Club of Toronto.