A Positive Approach to the Problem of Inflation

COLONEL ROYCE:

It is now my pleasant duty to introduce our distinguished speaker; fortunately in this case, I can say in all truth that he is so well known to us that a lengthy preamble would be entirely superfluous. Our guest speaker was educated at the Royal Military College, the University of Toronto and Cambridge University where his exceptional athletic ability earned him a triple blue. He played with the Toronto Argonauts in 1938 when they won the Grey Cup few of us can even remember when this last occurred and to have with us a man who actually participated in the event is of great historic importance, I feel. Perhaps our speaker could render one more tremendous service to Toronto by putting on a uniform again!

For four years he served in the Canadian Army overseas and was wounded in action in Holland in November, 1945, while serving as Brigade Major of the 5th Infantry Brigade. He was invalided home and in 1950 elected to Parliament. In 1954 he was elected President of the Conservative Party and in 1957 he became Minister of Transport and in 1960 Minister of Trade and Commerce; he proved one of the most able and energetic ministers we have ever had. In 1963 he became Director of Expo '67 and in 1964 President of the Montreal Stock Exchange and Canadian Stock Exchange and in 1965 was re-elected to parliament.

Ladies and gentlemen--as you know, this is the last meeting of the Empire Club which I shall chair as President and it gives me the greatest pleasure therefore to introduce our present speaker, a man in whom energy, ability and a sense of humour combine in a most happy fashion with those sterner qualities, courage and loyalty. Ladies and gentlemen-the Honourable George Hees, a Member of the House of Commons.

MR. HEES:

According to the Minister's presentation, the Budget presented to Parliament on March 29th last is designed to reduce the inflationary pressures which have caused the wholesale price index to increase by 3.2% during the past year, and to rise by another 4% during the present year, according to the Minister's forecast.

As we all know, inflationary pressures are caused by too much money chasing too few goods. These pressures can be reduced either by the negative method of decreasing the amount of money available to buy the goods, or the positive method of increasing the volume of goods available for sale. The Budget makes it clear that the former method has been chosen, and the money supply is to be restricted by the tight money policy which has been imposed upon the country, and by the special refundable tax of 5%. Not only does the Budget fail to introduce measures to encourage expanded production, but, by the introduction of the special refundable tax of 5%, industry is actually limited in its ability to carry out its normal expansion programmes.

Now, why is the Government limiting the ability of industry to expand production, and thereby relieve the inflationary pressure, and increase prosperity? It is because there are not enough skilled workers in the country to carry out expanded production. Why should this be so? It has been clear that unemployment has been decreasing steadily during the past few years, and skilled workers have been in increasingly short supply during that period. Each year, it has been more and more obvious that the programme to train additional skilled workers is inadequate to meet the growing demand.

What has been sorely needed is an immigration programme with sufficiently attractive inducements to attract the required number of skilled workers from other industrial countries. The absence of such a programme has allowed an increasingly critical situation to get steadily worse.

It is really incredible that in a young and strong country such as Canada we should be forcing industry to slow down on normal expansion programmes. We should be introducing policies to increase industry's capacity to produce, and thereby keep pace with the growing demand for goods, both at home and abroad. As a result of our negative and short-sighted policy, we are losing sales which should be ours, and which may be difficult or impossible to regain later on.

If this country is to meet foreign competition, both at home and in the export market, we must make our prices increasingly competitive. Lower costs are made possible by the economies of scale, and those economies are made possible by increased production, not the reduced production which is being forced on industry today.

One of the strongest inflationary pressures results from low productivity, which forces up costs and thereby, selling prices. During the five-year period between 1960 to 1964, productivity in Canada increased at an average annual rate of 2.9% per year. Last year, it increased by only 2%, or two-thirds of the average annual rate of increase for the previous five years. This is one of the principal reasons why the wholesale price index in Canada increased last year by 3.2% over 1964, and was 50% higher than the increase in the United States during the same twelve months. This year, a rise of 4% is forecast by the Minister.

We need financial incentives to induce increased productivity so that our wholesale price index will rise at a reasonable rather than an excessive rate, as it is doing today.

Another reason why incentives to encourage greater productivity should have been introduced in the Budget is because high prices are slowing down the annual rate of increase of our export trade.

The industrial trade crusade which was introduced at the end of 1960 produced, during the first year of operation in 1961, a 10% increase in exports over the previous year, and our first positive commodity trade balance in nine years. Since then, our exports increased at a higher rate each year, and our sales abroad in 1964 were 19% greater than 1963.

However, during 1965, exports increased over 1964 by only 4.6%, or one-quarter of the rate of increase during the previous year. Higher prices of Canadian goods made them less competitive abroad, and our sales drive slowed down accordingly. It is obvious that incentives to increase productivity are urgently needed to make possible a satisfactory yearly increase in our export trade.

I think it is obvious that to keep our economy healthy, we must have--

1. A greatly accelerated and expanded programme to train the skilled workers this country needs to carry out its normal industrial expansion.

2. An immigration policy which will attract the skilled workers our training programme is unable to provide.

3. Incentives to promote increased productivity, and thereby enable Canadian industry to successfully compete in the home and export markets.

4. A policy which will provide industrial loans at reasonable rates of interest, so that Canadian industry can expand to keep pace with world demand, and enable this country to reach it's full economic potential.

And now I would like to deal with another matter which is necessary to keep our industrial expansion moving forward, namely the attraction of foreign capital to this country.

Let there be no doubt about the fact that this country is going to need all the foreign capital we can possibly attract, for many years to come. We simply do not have anything like the capital we need to provide the economic expansion of which our country is capable, and which is needed to keep our people employed and our economy healthy.

We must always keep in mind, when considering legislation to deal with the operation of foreign capital in this country, that that capital can and will go to other parts of the world for employment if those who control its operations believe that it cannot make an equally satisfactory return in Canada.

When that sort of thing happens, the factories, mills, transportation facilities, etc. which would have been built by the use of this foreign capital in Canada, are built in other countries, with the resultant lost employment and prosperity in this country.

We must make it very clear in the countries which have capital to export that their capital is very welcome in Canada.

Now, what has been our experience with foreign-owned companies? Are they really the big, bad wolves that many of our politicians would like us to believe? When I was in Transport, and Trade and Commerce, I came into contact with many of those who direct the operations of such companies. I found that their policies were aimed at conducting their affairs as good corporate citizens should. I always found them to be reasonable and willing to accept reasonable suggestions in keeping with the economic welfare of the country. I do not believe that they ever need to be threatened. I feel sure that they will always co-operate if approached in a reasonable and sensible manner.

A good example of the co-operation which the Canadian Government receives from the heads of Canadian corporations owned and controlled outside of Canada, was at the time when the national oil policy was in preparation in late 1960. In order for that policy to be a success, it was necessary to have the complete co-operation of our major oil and gas companies. I am glad to say that I received 100% co-operation from the heads of all of these companies, and I continued to receive it at all times when I was a Member of the Government. I know that the two Ministers who have followed me have received the same kind of co-operation ever since.

The importance of the oil and gas industry to Canada has been recognized for a long time, but many people do not realize just how much of this great industry owes its existence to the investment of foreign capital in this country.

Since 1947, seven and a half billion dollars have been invested in Canadian oil and gas exploration and development. Of this, $4.6 billion, or 60%, came from outside Canada. If this $4.6 billion had not been made available by investors from other countries, 18,000 of the 30,000 Canadians who are employed directly in the exploration, production, and transportation of oil and gas would not have a job, and our oil and gas production would be only 40% of what it is today.

Now, why is so much of our development owned and controlled outside of Canada?

The situation came about for two reasons. The first is that a great deal of the technical knowledge needed for starting many of our industries was possessed only by people in other countries. The second is that we Canadians do not seem to have the same willingness to back development projects with hard cash as do people in other parts of the world, particularly in the United States. Quite naturally, if they are the ones willing to take the risks inherent in any development project, we must expect them to own the enterprises which have been made possible by their financial courage.

What can be done about winning back more ownership and control of our own development? The logical answer is that we must be more courageous in backing our development with our dollars.

If we will do so, we will not only participate far more fully in the development of our country, but also build up our own personal nest eggs far faster than most Canadians are doing today. It is, I believe, a line of approach which all of us would do well to follow.

Thanks of this meeting were expressed by Rt. Rev. E. M. House.