An Amateur Looks at the Canadian Economy

HONOURED GUESTS AND MEMBERS OF THE EMPIRE CLUB

It gives me a great deal of pleasure to welcome to our Club Mr. Arthur Le Roy Smith, K.C., M.P.

Mr. Smith is senior partner in the legal firm of Smith, Egbert and Smith and is the present Progressive-Conservative Member for Calgary West in the House of Commons.

Our guest of honour was born in Regina and received his education there and at the University of Manitoba and Osgoode Hall and was called to the Saskatchewan Bar, practicing law in Regina and later in Calgary. Our guest is recognized in the House as a keen debater and, in fact, has suggested that the Government provide some course of research studies to prepare and improve the Members in their activities in the House of Commons.

Our guest is a keen sportsman and is particularly fond of shooting, fishing, hunting and golf.

I extend a very warm welcome today to Mr. Arthur Le Roy Smith, K.C., M.P., on this his first visit to the Empire Club of Canada, and although no subject for the address had been announced, I have no fears whatever in this respect as I noticed his subject in the House of Commons the day before yesterday was "Pigs Bristles".

Mr.Smith:

MR. PRESIDENT, Gentlemen of The Empire Club of Canada: I have a subject and in signing your guest book a moment ago I had to give it a name, so I may as well give you the same one. Perhaps you will say that is the only consistent thing in what I am saying to you today. I call it "An Amateur Looks at the Canadian Economy".

Everybody who speaks in Toronto, I am told, must tell a story. This one is appropro of nothing at all, but a week ago Sunday I was listening to a preacher away out in Calgary and I was able to say "Ladies and Gentlemen", so since I got it from the preacher it should get by with the rest of you people here. It was a story about Toronto. I know there are many of them but I hadn't heard this one.

A man came to Toronto who had never been here before, and he stayed at this hotel. The next day was Sunday and he asked the clerk where the centre of Toronto was. He said, "King and Yonge Streets". So that morning, getting directions, he went over there and he saw no one. There were no people, no motor cars, nobody in the centre of Toronto. So he found a policeman finally and he said, "IS this the centre of Toronto?" The policeman said, "It is." He said, "Where are all the people?" The policeman replied, "Well, this is Sunday. There are only three major religious groups here. The Roman Catholics are at church, the Protestants are in bed, and the Jews are in Florida."

Now, I am going to say something about what has come to be known as the Geneva Trade Agreements. May I assure you, Sir, that I will express no opinions, because I would not offend against your hospitality, as I know this is a non-political organization. I say, however, that I am going to say something about that because I know of nothing of such vital interest to business people which you are and which is before you at the present time or has been before you in a great many years.

As you know, twenty odd nations--twenty-six, I think it was--met in Geneva and finally emerged with an Agreement. It is an amazing thing to me that twenty-six nations could ever emerge with any agreement, and in its favour, may I say I think that was a great accomplishment, namely that they accomplished anything at all.

The Agreement itself is broadly based on this, that there shall be no discriminations in trade between those twenty-six countries. In other words, it begins in Paragraph 1 and says that so distinctly-I won't read very much to you, but it says this: The products of the territory of any contracting party imported into the territory of any other contracting party shall be exempt from internal taxes and other internal charges of any kind in excess of those applied directly or indirectly to like products of national origin.

I don't think I need read any more of this paragraph. There is quite a lot of it. It goes on to Section 2: The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal economy, purposes, transportation, disposition or use, or use.

Then they go on to something of considerable importance and they say: In applying the principles of Paragraph 2 of this article to internal quantitative regulations relating to the mixture, processing or use of products in specified amounts or proportions, the contracting parties shall observe the following provisions, and without reading them they provide that it shall be in breach of the agreement if anyone fixes the proportion of the machines to be made at a greater percentage than that allowed to any country from which those goods are imported.

Now, I don't want you all to jump up and say that immediately destroys our control of our own internal economy because in this document there are many clauses which are really escape clauses and which permit deviations from those hard and fast rules.

In other words, the basis is this, that if it were not for the escape clauses it would mean we could not say, for example, to the Ford Company in Windsor, who now under rules have 51 per cent. I think of Canadian-made production in their cars, we would not be able to say that from now on that will be 60 per cent. We will not be able to say, for example, to you people in Ontario or to the salmon fishermen of B.C., "You shall not place any bar on the export, we will say, of raw pulp down here or of canned salmon," or something like that out there.

In other words, if these three major things which I have read you meant exactly what they say in such plain language, it would mean that we had forever bereft ourselves of control of our own economy.

Then this is a further clause and in this I think there is no escape clause, that there would be no way within ourselves whereby we could assist the transfer of Alberta coal down to this Province of Ontario which has no coal.

Now, remember these nations are again meeting in Havana right now, after this agreement has gone back to the various Legislatures, and it is true that changes will probably be made but there is one other clause which I think is of very great importance and on which you people will have to make up your minds, and it is there that this Agreement practically throws British preferences out the window. In itself it eliminates the great majority of those articles where we have been trading in the Empire on a preferential basis.

The basis of the Ottawa Agreements which were passed in 1932, many of them are now gone, and there is a clause in here saying that the balance must be negotiated but there is no negotiation upward. The only negotiations allowed in this document are negotiations downward.

As I said to you, I express no opinion to you and although I must say with respect to that latter I am very sorely tempted to express an opinion but I won't.

Then the next thing that we are dealing with and I think I can express an opinion on that-I express no opinion on the matters I have touched on because this is presently being debated in the House of Commons in Ottawa--the next major step which was taken on that fateful 17th day of November, was that we completely barred a great many imports from the United States. We put others on quotas. The quotas have not yet been established and we have created an excise tax both on imported articles and on articles made right in this country.

You people with Fords and Pontiacs, you know the excise tax went up from 10 per cent to 25 percent on other articles they received, in some cases a boost of one third.

Just before I left horse I think I had the saddest example of the working out of that thing. A man who I did not know until I spoke to him a few days ago, came to see me. He had a small capitalization and he and his brother had a little business. They were small manufacturers of castings for refrigeration production. They brought their refrigeration elsewhere, in this case from Los Angeles in the State of California. They had a capitalization which was small but he used all his capital and what he could borrow and brought in from Los Angeles $9,000 worth of this equipment. It landed in the C.P.R. station and was in the freight shed in Calgary at a quarter past three on the 17th, at which time he was notified by the railway. He got in touch with the Customs Brokers and they told him, which was quite right, that at that hour it would be impossible to get the Customs people there and clear his stuff.

That night Mr. Abbott made his announcement. He went the next day to get his $9,000 worth of goods. There was a tax on it of over $3,000 on the man's own goods lying in the C.P.R. freight shed, and if it had been taken out the day before there would have been no tax.

There is a man who is broke. His customers to whom he had the stuff largely sold say, "Why should we buy? The Government have announced this is only a temporary arrangement. We can do without the refrigeration for a little while." The man can't send it back. He can't pay for it and he can't sell it, and there he sits. That is how stringent the rule is.

I immediately telegraphed the Minister of National Revenue and he wired me back that no exceptions could be made, and I am going to say this: This excise tax I have discussed in the East with some people, but at home with many people, and I say to you, that I have not yet heard from anyone any justification of that tax. Nor have I heard while we are barring American motor cars in our dollar situation, nor have I heard any reason given why when we did that we should bar British motor cars when we are trying so hard to help Britain by way of trade, by way of purchases and gifts and in many other ways.

I must say I look forward with very great interest to some one attempting to justify that in the House of Commons.

Now, I have mentioned these things briefly, really with something in mind. That is what are we in Canada to do to remedy this situation?

You will remember that you in the Province of Ontario last year were threatened with the discomfort and inconvenience of freezing to death on account of a strike of the Great Lakes seamen. You couldn't get your coal across. We did get box cars taken away from the wheat business and put them in on an all-rail haul to bring coal into your City of Toronto, in order that you people might keep warm.

The point I make is this, Mr. President, that this country of Canada, in a thing as essential as coal--I am going to talk to you a bit about oil in a moment, too--in a thing as essential as coal should not be at the whim or mercy of any other country in the world.

The only way that can be accomplished is for us to cease being sectional, to regard coal as a national coal policy, as a national proposition.

You will say didn't you have a Commission sit for two years? We did. We brought out a great volume. Two of the Members of the Commission were close personal friends of mine, but I am saying this: It never was regarded as a national problem.

Supposing we can supply you in Ontario with Alberta coal. Think of all the people and railways and others who would get employment. That has never been taken into consideration in any investigation of this problem that has been made, so far as my knowledge goes.

I want to say a word about Alberta coal. I like it. Somebody else says, "Oh, Alberta coal is no good." You may as well speak of horses where you have thoroughbreds--Clydes and Percherons and Shetlands, and so on. They are all horses but you have entirely different kinds. That is the situation with your Alberta coal.

I noticed in your newspapers only a few weeks ago where the District Superintendent of the C.N.R., I think in Windsor, or maybe Sarnia--I think it was a border town--said that the Alberta coal was no good to burn in engines, that it didn't go so far. They had been using Alberta bituminous coal in the C.P.R. and in the old Grand Trunk, long before it became the C.N.R., long before this man was born, and it gave the utmost satisfaction.

It is loose statements like that that upset us as a nation. Because we are far-flung is no reason why we shouldn't be able to play with you. You buy the things we grow, we buy the things you make. Let us not have statements of this kind bandied about around this country. Let me make this statement: We have coal in Alberta for all uses that is just as good as anything you buy in any coal dealer's in the City of Toronto. I admit a great deal is not developed.

When it comes to quantity--I see the fellows who really know are here out there we have two rivers, and in between the two a mountain range. I have been at both ends. I have seen a seam of coal forty feet thick on the one property. There are seams, five of them, running all the way from eight feet to forty feet. I imagine the distance I spoke of is probably thirty or thirty-five miles or something like that.

Let us have no worries about quantity. The coal is there. It is still uncontradicted that Alberta has 14 per cent of the known coal products of the world. So here you are down here, paying high prices, it is true, sometimes worrying about your supply, and in this Dominion of Canada of ours we have it there and not a finger has been raised to move it except a subvention for certain periods of the year of $2.00 per ton.

I mention coal and then I am going to discuss oil for a moment, for this reason. The only way to meet this continuous shortage, shall I say, of American dollars, is to develop something ourselves to replace them. Bars and prohibitions may be all right for a matter of weeks or months or perhaps a year. They may be necessary. I think they are. Some bars are necessary now because we would shortly be in the position where our economy would be wrecked because we had run out of American exchange. But remember this: I don't care whether it is a mink coat you buy, or a double boiler that your wife uses in your kitchen, every time you have a bar on trade you reduce your standard of living. There isn't any question at all that the present bars which have been put on, necessary as I think some of them are, are going to reduce the standards of labour in this country.

One word about the excise tax. Now, this motor car with the Indian's head--the Pontiac--the rise in price is $195.00. With us two things happen. If people buy those cars at that price that is inflation. If they don't buy at that price people lose their jobs and that is depression. You can't do anything else with that proposition than that. It is going to go one way or the other. Certainly we don't need the money. We have $700 millions now in taxes collected over and above the estimates given at last year's Parliament.

Now, let us turn to a question of oil. You will think I have come to your Empire Club to brag about Alberta. Perhaps I had better admit it. Now, take oil. I have forgotten the amount of money but it is well in excess of a hundred millions that we import in here. In this Province of Alberta of which I am so proud we can now speak of oil fields, using the plural. There was a time when it was only an oil field, and that was Turner Valley which we admit is on the clown grade. Oil does not reconstitute itself. It is just the same as when you buy a barrel of beer. Just the minute you pull the bung the barrel begins to die. It is just the same in an oil field--it is in exactly the same position.

But now in Leduc we have another oil field. A Canadian oil company prior to that time had invested $23 million dollars in exploration without a dollar in return. Not bad for private enterprise, Mr. Chairman. They did that. I said in the House of Commons last June, and I was criticized by the people to my immediate left, that I hoped they made a hundred million. I hope so. Unless people are making money business stagnates. This remarkable thing has happened. They have drilled about 29 wells at Leduc. They have 25 successes. It is estimated now by people who should know that that field contains a reserve of a hundred million barrels of oil.

I know you can't see this map but I am going to hold it up because it will help me if it doesn't help you. There is Calgary down there and Leduc up there. There they are, 198 miles apart. It is 139 miles to Lloydminster. We have Turner Valley and the big field at Leduc. That is a big oil field. It is low grade-fuel oil and that sort of thing, although they have a refinery there and they are refining it, but it is what we call low gravity. But the C.N.R. are burning it in their engines. It is a big discovery. It is 139 miles east of Leduc radiating to Calgary, and in the southeasterly direction we have four of five producing fields. It is a very pleasing prospect indeed.

Now, this oil is found in what they call the Devonian limestone, and it is our first production from Devonian.

Now, Mr. Chairman, why should not the situation which prevails in Texas prevail here? These fields are on the plains, with the exception of Turner Valley. They go from Texas up through Oklahoma. Why are they going to stop at the 49th Parallel? Go north and there are good oil fields at Fort Norman. See the tremendous amount of money spent on exploration--a million a month now. All the American companies that are in there--why should that not become a really great area, not an oil field but an oil province?

I admit there is not much doing in the Province of Saskatchewan because the companies think if they find something the Government will take it away from them so most of the exploration is being done at the present time in Alberta.

Now, what are we asking from the Government? Subventions, bonuses and so on? No, not a nickel. All we are asking from government is this. We pay 17.5 percent gross royalty to the Provincial Government. There has been $166 millions go in the ground for oil and only $156 millions back--$10 millions in the hole at the moment. Yet private enterprise is going on and risking capital. What do we want? We want only one thing. We want relief from income tax when we have no income. That is a strange thing to say.

Now, say we group at the head table here form a company. I look around and I see Mr. Weston. We would make him President. He is such a gambler, you know. Supposing we form a corporation and get some money and we drill a hole. It is a good hole. Then we go out and drill one that is a duster. That means it is a dud-we don't get anything but dust. Then a little more and we drill another one. Then in 1943 they permitted us, not until 1943, to write off against profit from the Number 1, which was producing, to write that off against income tax. Now, my point is that the oil business doesn't object to paying taxes on profits, called income taxes, when they are taking it from their capital. That is all the oil industry asks of any government. And I ask you here just to cast your mind forward a little bit. You know we use far more coarse grain per capita out there than you do here because your farms are mechanized. That is the simple answer to the whole thing. But oil is something you can carry. You don't need freight cars. You need a pipeline. Your first cost is probably your last one. I admit there is upkeep needed, probably stations along the line. You need men walking the lines to see that there are no leaks but it is a comparatively small expense once that is done. I don't know if the companies there are able to do it. If they are not we might ask someone, not to give us anything, but to lend us some capital and charge it to them until they get their money back. There never could be a better proposition.

I mention one more thing. That is our cattle situation. We have more good quality cattle on the hoof today in Alberta than at any time during our history. Yet we have an embargo placed by the Dominion Government against this cattle and we cannot sell one in the United States. The price per pound in the United States is at least ten cents per pound higher than it is in the Dominion of Canada under our meat agreements with Britain, and so on.

Before I say anything more I want to pause and say this, I don't want anybody to think that I am standing here suggesting that we should not help Britain. Our view is this: Help Britain with food as we are doing, yes--give it to her, if necessary. We owe it to her. But let the nation pay it and don't have the poor farmer pay the whole shot as he is doing in cattle, hogs, eggs, chickens, wheat and everything else we are shipping over there today. That is the situation today. I know you men would say, because it is the only fair way to treat the matter, that there is no reason why they should bear the whole burden. The United States is the natural market for our cattle. You ask why. Britain's natural purchasing place is the Argentine because she can buy beef cheaper in the Argentine. They have a climate where the cattle run out for twelve months of the year. In Canada cattle have to be fed in the winter months and we just can't compete with the Argentine.

I am not going to be one of those persons who say to Britain because we help you now we are going to ask you to pay us more money when the Argentine market comes back. We will never pay our debt to Britain during the lifetime of any man in this room. There is no question about that. I believe so firmly that they should let us get at least a few cattle into the United States. The stock growers came down to Ottawa last year and I went with them to see the Minister. They made their offer. They wanted token shipments to go there. They wanted to keep the ditches wide. They felt unless the markets are kept open something will finish them. This is our natural market and there we will get American dollars. The cattle men didn't want the extra price. They made the offer to the Government: You keep the extra price and put it in some fund for the good of the cattle industry generally. They are just as patriotic as anybody else and I know, personally, that they made that offer.

Now, I have tried to say this in my stumbling way. I come back to it. Money, as the very famous man in Alberta, the late Mr. Aberhart, once said, is only a token. Production is what we need and must have in this country. Take your gold down here--$200 million dollars a few years ago, and $86 millions now. Go up to Northern Quebec and look at those towns where their quarries are low grade and you have dying communities on your hands. Yet gold is the thing that helped carry us through the war. Somebody says it is no good. They put it in Fort Knox. That may be but it has a market, Ladies and Gentlemen, it has a good market and it should have a better one.

Now, I have put these things before you, for another reason. Let us compare these things which we may do with our population position. Canada in the last fifty years has brought in about 4,500,000 immigrants. We have emigrated from Canada all of those except about 300,000. In other words our growth has been pretty much our natural increase and nothing else. In the year 1946, 30,000 Canadians left Canada. One in every ten was a graduate of a university or of a technical school. They have gone, or practically all have gone to the United States and we are replacing then with what? Persons from displaced persons camps in Europe. Why are they going? Because opportunity is not here. And it seems to me some group like you, some business people should get this thoroughly into our heads, that the business of government is not to provide security from the cradle to the grave but to provide opportunity for its people so they may create their own security.

Recently I have had occasion to make a study of pension plans in three or four business institutions as contributory pension plans. The experience is this, that everybody over forty wants to join the pension plan. Those from 25 to 40 don't. They don't want to pay. They think they can look after themselves. It is a credit to the young people of Canada that they do think so. But they can't do it unless there are developments here that will permit them to make a stake. So here we are, occupying fifteen per cent of our territory, a little strip along the 49th parallel. We know that in Canada we have the greatest formation of mineralized rock in the world, the PreCambrian Shield. You have it in Ontario and Quebec and it runs clear across Northern Alberta and up to the Yellowknife, Indian Lake and those regions. And uranium--we must not mention that. Walter Winchell did that and then he didn't go north. Certainly we have minerals in the mineralized area. The clay is gone when the idea prevailed that when you were at the North Pole you froze all the time. Steffanson exploded that idea years ago. It is not nearly so cold at the Arctic Circle as in some places in Montana which had all the records until last winter. I did see the photographs of 81 at White Horse and around there. So it seems to me if we are going to be realistic we realize we have had the dollar deficits every year. There has never been a year even in the war years when we were selling so much munitions in the United States that we haven't had a dollar deficit. It is surprising some of the things we were buying. I commend your getting for your evening reading a brochure published by the Department of Trade and Commerce. It lists what they call miscellaneous articles. It is an amazing thing to me in a country like this that we were importing from the United States telephone poles and railway ties. Here is a country absolutely covered by railway ties and telephone poles from one end to the other. Yet we were importing them. We were importing live turtles. There were I think three or four hundred items. We imported $600,000 worth of ice from the United States. Here we are living next door to the North Pole. Those things will happen.

The message I want to leave with you is this, that we must be doing, we must be producing, and this above all. People have short memories. My experience teaches me that the public memory on public questions is only about six months. But in 1940, Gentlemen, a little Island stood alone. Today, let's not forget her.