A Modern Concept of Industrialism

MR. GIBSON: Gentlemen-In introducing our distinguished guest and speaker, we welcome him as President of the Celanese Corporation of America, and also because of the fact that he and those associated with him, by deeds have shown abiding faith in the Canada of today and its future.

Their vast enterprise outside Prince Rupert--which I have been privileged to witness from its beginning--and the Edmonton-Canadian Chemical Company Limited now under way-these two great ventures represent something like one hundred million dollars capital investment. Not many businesses in Canada approach this figure. It is the most striking evidence that the men associated with this great Company are persuaded that in our Canadian life we, the Canadian citizens, purpose safeguarding these great institutions, and will see to it that people who part with their private means for development and growth of business within this country will hold to the citadel of Trusteeship. This means No just right of invested capital shall ever be disturbed. Collective state socialism breaks down for the simple reason that its- promises are impossible of fulfillment, based on foundations washed away by disillusionment. This Canada of ours--three million, seven hundred thousand square miles--an area approximating all Europe in extent--accessible and productive beyond any prophet's vision, welcomes men of the spirit, courage and statesmanship of Mr. Harold Blancke, who will now address us.

MR. BLANCKE: The subject I have chosen for my remarks, "A Modern Concept of Industrialism," is actually an explanation of the thinking that induced Celanese Corporation of America to come to Canada as an industrial citizen. I could express a valid reason in one sentence by merely saying that we believe Canada is destined to become a very great industrial nation and that we desire to contribute to its development and share in its prosperity. I think, however, that a more accurate and slightly longer explanation is necessary. Moreover, I wish to set forth our basic business philosophies and policies in the hope that they will receive your sympathetic understanding.

I want you to know that we are grateful for the sincere and friendly welcome Canada has given us as a new neighbour in its industrial community. We are pleased that your public officials and business men invited us here in the first place and have since extended such extraordinary helpfulness. We intend to fulfill your expectations.

As you know, our affiliate, Columbia Cellulose Company, which started construction of its pulp mill near Prince Rupert in 1949, got into production this year and is already expanding its facilities. The mill produces high alpha cellulose for the manufacture of cellulose acetate and other cellulose products. We hope to increase its production about 50% to attain a rate of 300 tons per day by the middle of 1952..

Canadian Chemical Company started construction of its large plant at Edmonton last June and should get into production early next winter, in 1952, thanks to the help given us by the Government in obtaining construction materials. This completion date is about one year earlier than would normally be required to construct a plant of this type and size. It should form the base for a substantial Canadian chemical industry for it will produce a large number of critically needed industrial chemicals not now produced in Canada. It will also produce cellulose acetate for domestic use and export. A third unit of the plant will produce acetate filament yarn and staple fiber for Canadian weaving and knitting mills.

These two companies are a logical development of the experience of Celanese Corporation of America in planned integration. In the United States, Celanese Corporation of America started as a very small company in a new industry only 27 years ago. It pioneered the commercial development of cellulose acetate yarn and fiber. This entailed development of weaving and knitting techniques, invention and production of new dyestuffs, all on a commercial scale. As public response to the new acetate fabrics gradually grew into great markets, under the stimulus of persistent promotional efforts, the Company soon found its growth cramped by the limited availability of raw materials, all of which were produced by others.

For that reason an intensive research programme was initiated as long ago as 1928 to seek a plentiful and economical supply of acetate acid and other chemicals. This effort resulted in the first successful commercial production of these industrial chemicals by the partial oxidation of liquified petroleum hydrocarbons. By integrating back into production of raw materials the Company was thereby enabled to continue expanding to supply the growing markets it was creating.

The next step was to develop additional supplies of cellulose, the other basic raw material and most severely limiting factor in continued growth of our industry. Columbia Cellulose Company is one of the results of that necessity. We also have an affiliated company in Mexico which has just started production of purified cotton linters cellulose.

The existence of Columbia Cellulose Company makes it possible for the organization to enter the fields of other cellulose and wood products by means of full and economic utilization of the forest reserves in its licensed areas. It may very well prove desirable to erect facilities to pro= duce pulp products, such as kraft and newsprint in addition to high alpha and rayon grade pulp. It would seem logical to produce sawn lumber products as well as plywood and shingles. As a further integration, it may become desirable to supplement our production of viscose rayon in the United States and Mexico with a suitable facility in Canada, particularly for the production of viscose staple and tire yarn.

Canadian Chemical Company's production of acetate and other chemicals logically leads to production of plastics, film, wrapping materials, and similar products. The chemical facilities also make possible production of chemical fibers other than cellulosics. For many years Celanese Corporation of America has been conducting research in the newer types of chemical fibers. Some of the results, while not yet in the market on a large scale, look hopeful.

We are not disturbed by non-existence of markets, or by limited size of markets for any of our products because experience has taught us that markets can be created for products that contribute to the comfort and pleasure of living. When basic raw materials are readily available, it is possible to find their natural markets.

We are unable to develop these markets alone. Such a programme would be most undesirable. It might border on monopoly and we are completely opposed to monopoly Monopoly is harmful to everybody, including the business that practices it. We desire only to bring basic materials to the point where they can be further processed by large numbers of manufacturers rather than only one organization. It is far more desirable to enable and assist the excellent Canadian textile industry to exercise its highly developed skill in developing its own domestic and export markets.

I wish to emphasize that we do not consider ourselves a foreign organization. Since it is our purpose to preserve the Canadian character of our affiliates, Columbia Cellulose Company and Canadian Chemical Company, we are carefully building them wherever possible of Canadian-made machinery and materials, and staffing them almost completely with Canadian personnel. So far as we know, of the nearly one thousand people already working in the Columbia Cellulose Company operations, only four are not Canadian citizens. Only key technical personnel familiar with our processes and who cannot be found outside the United States are brought here. At present we' are training Canadians in our plants across the border to be brought back for future employment in the affiliated companies. The very complex production techniques of Canadian Chemical Company will be almost entirely carried on by Canadians. It is one of our fundamental policies to insist upon integrating completely into the economic and social systems of each country in which, upon invitation, we are conducting business ventures.

This point brings up another fundamental policy. We desire joint ownership with local citizens of these affiliated companies. It is part of our philosophy that modern industry, international in scope, should be composed of local units in each country where it has interests.

Although industrialization is growing, at different rates, in every country in the world, only a few countries have the natural resources to provide the basic materials for industry. Local people must participate in the exploitation of the natural resources which they own. They must participate in development of their own markets. And we are happy to share in the opportunities of the local people in each country where we are invited.

It is unsound to permit local industrial problems to become foreign problems. Such a situation is entirely unnecessary. It is logical for people to want to share directly in the prosperity of the local enterprises with which they are familiar and in which, on a local basis, they take pride.

Of course, Celanese Corporation of America is itself a publicly-owned company or, to use a phrase I prefer, a company privately owned by the public. Its common shares are held by more than 25,000 owners, of which many are large institutions, such as insurance companies, banks and trust companies, investment trusts, and pension funds, which in the aggregate by themselves represent literally millions of individuals. In fact, we know that over 40% of the outstanding common shares are institutionally held. According to our records, about 16% of our equity shares are held for Canadian and British owners by Canadian nominees. Considering the size of the populations of the two countries, Canadians already have a proportionate ownership in our Company. I believe it is inevitable that this ownership will be increased.

In Mexico, Colombia and Venezuela, in which there are six affiliated companies already operating or building plants, the ownership is divided between the parent organization and local capital. These companies are all engaged in supplying local markets. The situation in Canada is different. Here our affiliated companies are, or will be, engaged in the manufacture of basic raw materials into finished goods for export markets as well as Canadian industry. It is a long step toward developing a strong industrial economy in Canada, a step toward industrial self-sufficiency and the long-term prosperity of a new creditor nation.

On the one hand, we have companies primarily engaged in developing local markets to improve their domestic economies, and on the other, companies making efficient use of dormant or unused natural resources for vigorous industrial growth. Before inviting participation of Canadian venture capital in these new Canadian companies, however, it seemed to us that we should assume the major risk until we could give evidence of good faith and sincerity of purpose by building the new plants and placing them in successful operation. In my opinion we have nearly reached that point.

Having now covered our philosophy of joint ownership and operation, I wish to discuss my main theme-a modern concept of industrialism. It is quite clear to everyone engaged in trade, industry, finance and government that we are living, and will continue to live, during our time at least, under very different circumstances and conditions than existed in the nineteenth century. The pioneer development of Canada is following a different course from the pioneer development of the United States a half century earlier. Gone are such things as the buyers market for labour, the European system of laissez-faire industrialism with its restrictions upon production and trade, the gold standard, free trade, peace, and the idea that nothing can be done or need be done to prevent, unemployment.

We live in a time of highly inflationary international tendencies. I think we must learn to accommodate ourselves to them. A free economy, such as exists in the three great capitalist nations of North America--Canada, the United States and Mexico--requires continuous readjustments, even when fully prosperous. Freedom and individual liberty require that individuals be privileged to choose what and when they buy. The very exercise of individual choice depends upon personal psychology, the interplay of personal hope and fear. Therefore, there will be times when the demand for, and production of certain goods and services do not match exactly. "Individual preferences assure us of alertness and vitality in our economic life and of freedom in our personal life."

An alternative is the effect of socialist governments to dictate production and consumption of nearly everything. Socialism is merely making the same mistakes as laissez-faire capitalism, emphasizing economic controls which inevitably result in restricted production, high costs, of competitive position in world markets, lower real wages and loss of purchasing power. Business men, I think, will be faced with inflationary controls for many years, but they are not insurmountable obstacles. Some of them are desirable.

There is no logical reason why, in a capitalist society, prosperity must be followed by depression. This is an unwarranted and defeatist attitude. Canada is not becoming strong and great through addiction to any such theory. We may always have the possibility that a very serious maladjustment may cause a general economic decline, but the social and economic regulations with which our modern capitalism has buttressed itself to reduce both the degree and length of such a decline. The high volume of savings of the public was important in preventing the heralded depression which was supposed to follow World War II, and the current high rate of personal savings will facilitate, without serious dislocation, the conversion to normal trade conditions when the free world becomes militarily strong enough to prevent subjugation by Russia. While protecting our modern society by limited controls, we must exercise eternal vigilance and care lest the controls lose their flexibility and weaken the system of life they are intended to protect.

We are indebted to a recent writer in the London "Economist" who describes some of the symptoms and inflationary tendencies which lead him to believe that the trend of our world economy has irretrievably changed for a considerable time ahead and that a new industrial outlook is desirable. It is his central thesis that, due to inflationary policies which are not likely to be reversed, "prices will continue to rise as far as human vision can see ahead."

This is an interesting speculation. He does not expect an uninterrupted rise in price levels which are a symptom of inflation, but believes that the long-term historical trend,- interrupted only by the fiscal stability of the nineteenth century, is slowly upward and is normal. It does no harm, at least, to consider means of dealing with this problem in order to conduct business successfully in the event that our friend is correct.

He enumerates among other inflationary doctrines, the devotion of the free world to the ideal of full employment and cites the main implements for achieving it--budget deficits, low interest rates, and devaluation, all somewhat inflationary. While claiming that the historic nine-year trade cycle, "a feature of a certain type of economic organization," is now dead, he believes there will be occasional slumps in specific commodities and temporary unemployment in particular trades, caused by shortages of raw materials. He concludes that "maintaining full employment is no longer a problem of ensuring markets, but of ensuring raw materials."

Now, in my opinion, the markets are as important as the raw materials. Upon this premise we have developed our concept of modern industrialism, designed to make good use of the long-term inflationary tendencies of our changing economy. I believe that a modern industrial organization will seek to combine effectively the production of basic raw materials with development of their natural markets. For emphasis, I repeat "to combine effectively the production of basic raw materials with development of their natural markets."

To implement this program, we are pursuing a policy of establishing a group of affiliated companies jointly owned with local capital in countries where the political and economic climate is favorable to industrial growth. Some of these affiliates are, or will be engaged in converting raw materials into semi-finished and finished manufacturers' materials and some are, or will be producers of finished chemical fibres, plastics, industrial chemicals and cellulose products. The whole integrated group, together with the domestic plants in the United States, is mutually dependent, derives strength from each part and improves the prospect of long-term profitability.

From several points of view it is more practical to establish consumer goods industries in the respective countries which comprise natural markets than to try the less profitable method of climbing over artificial trade barriers and combating nationalistic sentiments. It is better to supply semi-manufactured raw materials for local processing in the country which needs the finished products but does not have the raw materials or convenient means of getting them.

Furthermore, diversification of products and markets strengthens an industrial company and all its parts, and offers special advantages when such a distribution of risk is carried out on a judiciously selected international scope. By combining abundant natural resources and their natural markets in all parts of the world, a unified management should contribute to all the component companies relative stability of earnings and employment. These are among the chief objectives of the governments in the free world,

Now, although several countries possess vast natural resources as well as a political and economic climate, as I have just mentioned, favourable to industrial growth, why should Canada attract a flow of international venture capital at present greater than that going into any other nation? From our company's point of view, of course, there is the fact that nowhere in the world is there in close juxtaposition such a huge endowment of timber and petroleum gas resources, our particular basic raw materials, as exists in British Columbia and Alberta. Even more important than this, however, is the fact of good government. This single factor should make it possible to develop our Canadian affiliated companies into the essential core of the entire world-wide organization.

A large market-reporting organization in the United States, just a month ago, in commenting on the international attention Canada is attracting, ascribed it in part to growing recognition of the wealth and favourable development possibilities of Canada's basic resources. I quote, "Canada has gone as far as the United States in social welfare plans, but her fiscal affairs have been handled more soundly than here. This background of conservative government, together with the well-publicized development of natural resources, may well continue to attract new capital."

In speaking of natural resources, I wish to emphasize what I said last June at the dedication of the Columbia Cellulose Company mill at Prince Rupert. I particularly admire the policies of conservation enacted by the present generation of Canadian public officials. The restrictions upon exportation of natural resources such as timber, minerals, natural gas and crude oil, in favour of processing these basic materials into more highly finished articles of commerce before they leave the country, provides a sound basis for an industrial economy truly in the best interests of the nation. These policies prevent waste of a priceless heritage, guarantee that the timber resources will forever provide a continuing source of wealth, and that the mineral deposits, so vast their extent will long remain unknown, will become the foundation of a very great industrial nation.

As Canada has grown in recent years, it was natural that her trade should undergo a gradual reorientation also. Here is Canada, already a first-rank world power, ranking fourth in total foreign trade among all nations, with a foreign commerce of $7,000,000,000, with a third of her net national income derived from the export of goods and services, with a standard of living so high that her per capita national income is the second highest in the world, and one of but two nations able to extend economic assistance to other countries.

This remarkable growth is in part due to the close proximity of the United States. Here, next door to a nation of nearly 15 million people, is a national market of 150 million people, a market which has a great growth potential limited only by certain domestic natural resources insufficient to maintain much longer the present rate of consumption. The commerce which has grown up between the two nations will most certainly increase beyond all foreseeable limits. Canada's foreign trade statistics already reflect the inevitable trend. Within the last five years Canadian merchandise exports going to the United States have increased from 38 % to 65 % of the total. At the time, due to trade and currency restrictions which militate against Canadian goods, exports to overseas countries shrank one-third in value and one-half in quantity.

A close co-ordination between the Canadian and American business communities is inevitable and desirable. They naturally complement each other and will mutually prosper. We believe that our concept of industrialism follows a sound pattern which should benefit Canada-the combination of basic raw materials production with development of their natural markets through a group of affiliated companies.

Canada presents an unparalled opportunity for growth. We expect to share in Canada's growth only to the extend that we contribute to it. We shall continue contributing in the form of capital, industrial experience and technical skills. If Canada continues to follow her tradition of good government, sound fiscal policies, and wise control of natural resources, I believe the nation will develop an industrial strength that can endure until the end of time.

THANKS OF THE MEETING were expressed by Rt. Hon. Arthur Meighen