Energy—a Sign of Future Tension

MR. ARMSTRONG:

Mr. Minister, Mr. Consul General, distinguished guests, ladies and gentlemen.

Our guest of honour has addressed this Club on at least two previous occasions, namely November 9, 1967 and March 19, 1970. We are pleased to welcome his third coming. He is always interesting and his utterances are rarely non-controversial.

At the time of his last communication to our members and guests Professor Eric Kierans was properly introduced as the Honourable Eric Kierans. He was then appropriately Canada's first Minister of Communications and as Postmaster General he was responsible for the evolvement of our present day modern, efficient postal system.

Professor Kierans is no less honourable a gentleman than he was in 1970, although he no longer espouses the title. Indeed he admits that he prefers to be called Professor rather than the Honourable and is not in the least reluctant to having these sentiments conveyed to the Right Honourable, the Prime Minister, with his compliments.

Professor Kierans, a native Montrealer, worked his way through Loyola College and McGill University and after achieving success in the business world returned to the academic consideration of business affairs as Professor of Commerce at McGill and later as Director of the School of Commerce in 1953. From 1960-63 he served as President of the Montreal and Canadian Stock Exchanges.

To borrow a metaphor from Allan Leal, Q.C., the Chairman, Ontario Law Reform Commission, former Dean and Professor of Osgoode Hall Law School and a Director of this Club, "Old professors never die, they only lose their faculties."

Our guest of honour only temporarily abandoned his faculties in 1963 and entered the political arena. He was elected to the Quebec Legislature as representative for the riding of Notre Dame de Grace and served as Minister of Revenue and later as Minister of Health in the Cabinet of Premier Jean Lesage.

In April 1968, our speaker was a candidate for the leadership of the National Liberal Party and as Member of Parliament for Duvernay joined the Trudeau cabinet in July of that year.

He is a well-known author and served in the last great war as an officer in the Victoria Rifles of Canada.

Having resigned his cabinet post and having departed the active political scene, he has as if by transmutation, again become Professor Kierans, and returns to us today in full possession of his faculties.

It is my great pleasure to welcome on your behalf Professor Eric Kierans who will address us on the subject, "Energy-a Sign of Future Tension".

Professor Kierans.

PROFESSOR KIERANS:

Political leadership in a democratic society has the responsibility of interpreting the needs, and the priorities assigned to those needs, of people. In a world as rapidly changing as our own, this is no easy task. Before governments can respond to changing values, meaning and relations, they must first recognize that these shifts are occurring, that they are real and that they are fundamental and enduring.

Recognition of a changing cultural environment is not enough. People expect their leaders to respond, not passively or automatically with half-hearted, ad hoc measures, but meaningfully. New values demand new directions which cannot be undertaken until there is a basic re-examination and reassessment of existing principles, objectives, policies and institutions.

In a political democracy, governments are elected for a short term. Accordingly, they like to get by and, until now, they have always believed that getting by meant that one did not ask too many questions, probe too deeply or respond to more than the most immediate and pressing stimuli. Even, then, the responses are likely to be symbolic rather than substantial as in the cases of tax reform and energy policy.

The measure in which a government may be held to be responsible can be gauged by the manner in which it responds to the needs of its people. Major changes in cultural values, as for example the repudiation of constantly accelerating material growth, imposes on governments the need to reassess not only the present but also the past, the original development and usefulness of our present policies and institutions. In other words, where these policies and institutions were once hailed as examples of prudence, wisdom and foresight, a contemporary view assesses them more critically and skeptically and focuses rather on the biases and prejudices of a bygone age that are inherent in them.

It is in this sense that I see energy, and the abuse of energy, as a sign of future tensions-unless we radically alter an ideology of material growth that cannot be sustained in a finite world and that can only turn human progress into collapse and decline.

Governments, today, are expected to find new points of departure. That means revamping, if not casting aside outright, old institutions. And this they do not appear able to do. As a result, we find one government after another, in the western democracies, unable to command a consensus or even persuade a small majority of their people to their views. It is not a crisis of democracy or of parliamentary institutions but of political leadership that makes uncertain, insecure and confused the people of Japan, Sweden, Germany, Canada, the United Kingdom, Italy, France, the United States, etc. If people are more important than institutions, then, why do governments not recognize this?

I have chosen just one institution to examine, the corporation. What is it'? How did it become so powerful? Is it beyond the reach of politics, of governments? Can it be brought under control?

The formal nature of the corporation was defined in 1819 by Chief Justice Marshall of the U.S. Supreme Court as "an artificial being, invisible, intangible, existing only in contemplation of the law,-possessing among its most important properties, immortality and individuality, properties by which a perpetual succession of many persons are considered as the same, and may act as a single individual."

Now, the law may confer "immortality" on an institution but self-perpetuation requires something more than legal definition. What is also required is immunity-protection from external affects, pressures or influence. A government can be affected by and overthrown by voters; a church by the skepticism of its adherents. Vulnerability, i.e. responsibility to someone or something, is the enemy of immortality. Therefore, to be immortal is to be, first of all, invulnerable and in the case of the corporation, incapable of being grieviously wounded by external economic or political pressures. Through all changing circumstances, the corporation must be capable of continuous renewal and, even better, growth.

Corporations were formed, centuries before they were defined by Chief Justice Marshall, by groups of people to form municipalities, build canals and bridges, to carry on activities, religious and secular, that could best be performed by communities acting in concert. Commercial corporations have a different history. Falling into disfavour in England as a result of the South Sea Bubble, they were banned until 1825 but did not really revive until 1855 with the coming of limited liability, a necessary condition to the amassing of large sums of capital from a multitude of sources.

As originally conceived, there can be no quarrel with this form of organization for doing business. The corporation, as we know it today, is a completely different institution. It is truly an "artificial being", self-determining and possessed of an identity and form that is completely distinct from any of its parts, i.e. the people who own it or work within it.

What happens to the corporation if a number of owners decide to leave? Nothing. Their places are taken by others. We provide markets to facilitate these exchanges. The corporation is undistrubed, even oblivious to the change. Its nature, form and identity are as before.

Managements come and managements go. There is a little ceremony, a wristwatch or television set. The form of the corporation, of which these men and women were a part, is undisturbed. The whole is not only greater than the sum of the parts, owners and management and workers, it is completely separate from any of them. If the corporation is linked to anything, it is not people. The corporation, obviously I am speaking of the great ones, has outgrown the need for people except as passing elements. It will continue, to paraphrase the Prime Minister, like the universe to unfold as it may. The immortality with which it is endowed-I hesitate to include the Liberal party here although there are some who would enable it to survive the shocks and fluctuations to which mortals succumb.

Chief Justice Marshall defined the corporation as an organization "by which a perpetual succession of many persons are considered as the same, and may act as a single individual". The essence of the corporation, then, is continuity, an identity that survives the inexorable changing of the guard. One mistakes the whole notion of the corporation if one equates it with the people who temporarily represent it and manage it. These people have a role, of course, or they would not be there. As they pass through, it is their duty to service this "artificial being" so that its form and strength will not only be preserved, but grow. Growth in assets and material strength is its only law.

This is what Chief Justice Marshall did not foresee. By endowing the corporation with immortality and with complete autonomy following as a necessary consequence, an institution has been created by law that can grow without limit through time. As it grows, its strength bursts national boundaries and it seeks, demands the right to conquer space as well and so to range across the world. Just as it cannot be constrained by the people who work for it-try it and see how long you last-or the people who own it, the corporation now seeks freedom from the constraints of national governments and people's priorities, from social control.

The giant corporation embodies two ideas only, and nothing else, continuity and growth. If we think that they are large today, pick your favourite multinational and project its growth in assets by the year 2000, at some annually compounded rate of six, or eight or ten percent.

In describing the real thing, The Economist, March 16, 1974, carried an advertisement by Barclays Bank Limited, containing the Chairman's statement. His name does not matter for there will be other statements annually by other Chairmen. "A Year of Record Growth. Provision for the Future" was the headline. First things, first. That is the Chairman's duty if he wishes to remain Chairman. The corporation must grow.

Let me quote three excerpts from this remarkable statement to the owners, remarkable only because it is more frank than most.

"From our gross profits of $199 million we have set aside $15 million as a special provision and of the balance tax takes $88 million and dividends less than $15 million." So much for the owners!

"On the basis that sooner or later the wheel turns, we should take the cautious view that after two years of high profits, changing conditions may well make banking more difficult and the fact that the Joint Stock Banks have clearly got sufficient wool on their backs to meet any situation that arises, will give the public the confidence they need, not least because the great majority of the profits earned has remained in the business. " Up the corporation!

"It is also worth recording that of the three parties who make up the bank, namely Stockholders, staff and customers, none has gained much from these profits. Customers do not need to be told how much interest rates have risen in the last year or two; the increase in the salaries of our staff has been limited to about 7% per annum and that of the Stockholders dividend to 5% per annum, all this at a time of inflation of some 10% per annum." Down with the people!

Neither the customers, the staff nor the owners can be allowed to impede the continuity, the progress and the accelerating growth of the corporation in time to come. The giant corporation asserts itself. That is what autonomy means. Its force and strength are derived from within, the internal flows that it generates from the control of resources, the direction of markets and consumers' needs along the lines that best fit, not real needs but its own capacities. As it grows, it affects people more and is less and less affected by external forces, i.e. by people or by market.

The corporation becomes, in effect, a vehicle for the perpetual accumulation and growth of wealth. This is a far cry from the basis of free enterprise or laissez-faire economics, which depended upon an endless succession of new men, large numbers and mortal forms of business organization, the partnership and proprietorship, and effective competition. While corporate forms and limited liability are great improvements in methods of organizing business, their inordinate size, concentration and conglomerate form led Henry Simons, the founder of the Chicago school of free enterprise and market economics, to write in 1945, "Having perhaps benefited briefly by corporate organization, America might now be better off if the corporate form had never been invented or never made available to free enterprise. " What would that ardent defender of free enterprise and the market say, if he were alive today? In 1934, he had written, in "A Positive Program for Laissez-Faire", that the case for a free enterprise system rested on the abolition of private monopoly and the huge corporate, autonomous structures. That was forty years ago.

Four years ago, I was a member of a government which turned down Simons' proposals, in their Carter version, to save the free enterprise system by making the corporation responsible at least to its owners through integrating corporate and personal incomes. You all know what happened. This is the last thing that managements want and they descended on Ottawa in hordes to defeat the White Paper on Tax Reform. And so they are operating today, massive but friendless, without a constituency of support from their owners, their workers or their customers. As wealth piles up in corporate forms, the disparities that appear to ordinary men and women become a source of discontent, frustration and anger. The energy crisis is merely one sign of the tensions that are building up against a corporate capitalism that has come to dominate not only our economic life but our social and political structures as well. When two hundred and fifty firms; 1.2% of the total, control 63% of the assets in Canadian manufacturing, one cannot speak of an entrepreneurial and competitive economy.

Now Canadian Gas Arctic Study Limited is not the type of corporation that I have been describing. Gas Arctic is nothing more than a pawn, a service tool to be discarded once the gas has been removed from the Canadian North. It means, in itself, nothing more to Exxon, Standard Oil of Ohio, Atlantic Richfield, Gulf, Shell, etc., than a temporary vehicle to be employed for transporting out the wealth that will enrich and ensure their continuity and growth. Like owners, managements, workers and customers, Gas Arctic too will disappear once the gas is gone, to be replaced by other transportation systems elsewhere in the world. Gas Arctic is but a moving part in a perpetual succession of moving parts that ensures the immortality of the real resource giants to which Canadians in their wisdom have handed over their natural wealth.

Why any Canadian would want to invest in the Gas Arctic project completely escapes me. By its very nature, it is destined to be nothing more than a cost-plus project with very little plus. The more that Canadians, as individuals, or through their pension trust and insurance funds, invest, the more will the Exxons, Imperials, Gulfs and Shells be determined to keep the costs and profits down, for such profits, dividends or capital gains could only be at the expense of their growth and continuity.

I am not saying that investors will not get their money back. I am saying that they will get very little more.

Gas Arctic is and has been nothing more than a straw man. While the debate is raging over a transportation system, the real issue is not the pipeline but what is being moved through it. Who owns the wealth at point A and when it comes out at point B? Where will that terminus for the Canadian gas be? These are the fundamental issues. On this they have nothing to say except wait.

Having been a member of a Cabinet that was misled once by the estimates and projections of many of these very same people who are underwriting the Gas Arctic project, I will believe nothing about their projections of reserves, deliverability, demand etc., until they are proved independently beyond all reasonable doubt. But, let me say this. On the basis of what appears to be known at the present time, this project is not, in my view, financially viable and certainly not in its present form. Perhaps that is also Gas Arctic's view, for how else can one explain their hesitancy in placing before the Canadian people the vital economic and financial data by which we will be able to assess the impact of this project on our economy and our future as a nation?

Many of you have dismissed the objections raised by economists and other members of the university community as ivory tower theorizing and impractical star-gazing. Before the hearings of the National Energy Board are over, you may have reason to revise your views. At least four Canadian Universities are vitally interested in this mammoth proposal, B.C., Alberta, Dalhousie and, of course, McGill. We expect to be there. And so vast are the implications and the ground to be covered, that we do not expect there will be duplication in our presentations. We intend to waste no one's time. Who knows? Perhaps we will even be able to provide that mirror in which Canadians can see themselves, their values and the tensions in their society-a mirror which we all desperately need.

The appreciation of the audience was expressed by Mr. Leland Ausman.