CAN THESE MEN RUN CANADA BETTER?

KEN LEFOLII October 6 1962

CAN THESE MEN RUN CANADA BETTER?

KEN LEFOLII October 6 1962

CAN THESE MEN RUN CANADA BETTER?

Their actions can make us all richer or poorer

MR. OUTSIDE

The best political salesman in the cabinet is now, as minister of finance, charged with selling Canada’s finances to Canadians and to the world

MR. INSIDE

One of the shrewdest businessmen on Bay Street is now, as minister without portfolio but with great behind-the-scenes power, charged with making those finances work

KEN LEFOLII

WHILE THE 25TH PARLIAMENT

lasts, the three most powerful men in Canada are John Diefenbaker; his new finance minister, George Nowlan; and a new senator and minister without portfolio whose name is Wallace McCutcheon. Until late this summer Nowlan and McCutcheon were little known outside their own professions, which are, respectively, federal politics and big business. This makes the order of their importance all the more interesting. In any showdown over how to deal with matters like unemployment and industrial stagnation — problems that now come under their jurisdiction and are the gravest the government and the country face — the two strangers to the public eye have the means, if they have the will, to take charge. The order of pow'er in Canada in that event might well read McCutchcon, Nowlan, Diefenbaker.

"Whether the prime minister has realized it yet or not, Wally McCutcheon's threat to resign is all he needs to win an argument with anybody in the cabinet, including the prime minister himself.” These are the words of a man close to the cabinet who has worked with both McCutcheon and Nowlan. His opinion is the same one held by many other men in the upper ranks of government and business.

"John Diefenbaker has to satisfy Wally McCutcheon or wreck the Conservative Party with every businessman in Canada, once and for all.” the same man says. "McCutcheon is smart enough to know' he’s got the lever, and lough enough to pull it."

In George Now Ian's case, the power lever is more conventional. Rightly or wrongly, large numbers of

voters now believe that Donald Fleming's ministry ran the nation's finances into the ground. Nowdan is regarded in Ottaw'a as the only minister in the Diefenbaker government who is gifted enough in the opaque arts of political salesmanship to persuade the electorate that, financially speaking, things are looking up. It's unlikely that even Nowlan can make the finance ministry popular at a time when most of the alternatives open to it are unpalatable to one group of voters or another, but if he can he will be the indispensable man in John Diefenbakcr’s next campaign for election.

McCutcheon is the fourth minister without portfolio appointed by John Diefenbaker, but the first of any weight. Perhaps deliberately, the prime minister has not defined McCutcheon’s authority; he is simply the cabinet’s expert on industry. He is one of a long line of businessmen who have been drafted into earlier cabinets the easy way, through the Senate, but his predecessors made no mark. McCutcheon’s former business, the Argus Corporation, is one of the most powerful in Canada, and his cast of mind is dramatically unlike George Nowlan's. "McCutcheon is a balance-sheet man,” one businessman says. "He has the keenest eye in Canada for an unrealized profit. Can you imagine how he’ll react to the books of an outfit like Finance, that's been losing billions?”

Nowlan is a politician’s politician, fluent, easygoing, likable; he is said to be the most popular man in the House among the Liberals. “George is a political expansionist,” a close friend says. “By that, I mean his automatic impulse is to invest in the vote.” As political associates, Nowlan and McCutcheon are a striking match for a metaphor that has stayed

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CAN THEY RUN CANADA BETTER?

continued from page 15

Firing Fleming may have pleased some voters—but not Bay Street

in the language since sportswriters coined it a few years ago to describe a pair of football players: Nowlan is Mr. Outside, McCutcheon is Mr. Inside.

If the government these men are to speak for lasts a month after the opening of Parliament on September 27— it could last a year or more—the decisions they make, and the way they go about trying to make them stick, will have something to do with whether all of us get a little richer or a little poorer. This is reason enough to be curious about how Nowlan and McC utcheon have handled power in the past and how they came into the broader power they have now. There is a further reason, less important but more intriguing. Ottawa has always tended to dehumanize politics: the rumble of a pipeline debate only rarely interrupts the monotone of one prime minister after the next reporting decisions made at his order by obedient cabinets in council. With Diefenbaker, Nowlan and McCutcheon. we now have something closer to the contradictory mix of character and purpose that frequently raises the legislative dust of less hidebound capitals. Maybe it can happen here.

JOHN DIEFENBAKER stepped out of character to appoint both Nowlan and McCutcheon. Much of the prime minister's success at the polls has been due to his cultivation of the notion that he is the little man’s champion against the moneyed interests. As long ago as 1953 he said in a public speech that businessmen found guilty of unlawfully combining to restrain competition are let off too lightly with fines; they should be jailed. The first telegram that reached him in Ottawa after he won the party leadership read

CONGRATULATIONS AND MUD IN THE EYE OF BAY STREET.

Well, everything changes. In 1962 it is a far more urgent matter for the prime minister to salve the eye of Bay Street than it ever was to rub mud in it. Investment dealers and businessmen in all parts of the country are angry and upset by the flight of capital from Canada and the emergency measures that followed. Most of them are probably in no mood to finance a Conservative campaign; 1 have recently spoken to several who voted Tory in the last election and intend to fight the Tories in the next.

Firing Donald Fleming was a peace offering to voters who know little about money in bulk, but it did nothing to endear the prime minister to Bay Street. Most professional investors, unlike less sophisticated voters, appear to believe that Fleming stood as staunchly as he could against the huge government deficits run up during his ministry, hut that he was overruled consistently by the prime minister.

"1 like Fleming.’’ one of Canada’s largest dealers in investments said a few weeks after the former finance

minister was fired. "So do most of my friends." The prime minister may be surprised to learn that the same men do not invariably like the ambassador to Bay Street he appointed to replace Fleming. To be sure, they do admire and respect him: if the best minds on Bay Street have a fault to find with McCutcheon. as many of them do, it is that he is a little too good at their game.

Malcolm Wallace McCutcheon. at fifty-six. is a gray-haired but ruddyfleshed man of middle height. The dark double-breasted suits he wears by habit help give him a portly and commanding cut. (Since the early Fifties. any man in a double-breasted suit can be assumed to belong to one of two classes. He is either an indigent clothed by a welfare agency, or one of the hundred richest men in the country. A man in a single-breasted suit could be anybody.) To return to Wallace McCutcheon. he is a mathematician (U. of T.. '26), a lawyer ( Osgoode Hall. '30), an actuary, a QC, a CBE, a member of the United Church of Canada and of ten of the most exclusive clubs in five Canadian cities as well as the most exclusive club in Nassau, which may be a record. He is a millionaire, possibly several times over. His twenty-room house in mid-Toronto has two pianos in the living room, and he likes to “shake up his liver," in his wife’s words, by jockeying a tractor on a "hobby farm" he owns at Gormley, Ont. He has a compulsive sense of order that makes him take a brief case home every night whether he has anything to put in it or not.

As. a World War II dollar-a-year man. on loan from the National Life Insurance Company, McCutcheon had dealings with another dollar-a-year man. Edward Plunket Taylor, on loan from himself. When Taylor formed the Argus Corporation in 1945, he made McCutcheon a vice-president and the managing director.

Argus is a holding company; it owns nothing hut shares in other companies and gets its income from the dividends they pay. But Argus is a holding company of a highly specialized kind: it holds only large blocks of shares in companies it can thereby dominate by seating Argus executives on their boards of directors. This year, Argus holds between ten and twenty percent of the stock in six large corporations and almost half the stock in a seventh smaller one. Until his call to the Senate and the cabinet McCutcheon sat on all seven hoards. (A list of the twenty-seven primary directorships McCutcheon held until August, too unwieldy to include here, appears in a box on this page. It is incomplete since he himself would have had to search his files to identify all the subsidiaries, some in the U. K. and the U. S., of which he was a director ex officio.)

Four men (The Four Horsemen, hard-writing financial page reporters liked to call them before McCutcheon's resignation) ran Argus: Taylor and McCutcheon, W. Eric Phillips and John A. McDougald. Among themselves they are reported to own between thirty and forty percent of the stock in Árgus. with several thousand investors holding the rest. They are probably the only four men who could define with precision the role

of each in operating their company. But the description of McCutcheon as Taylor's "right-hand man." applied to him after his appointment by John Diefenbaker and George Hees. is inaccurate if it suggests that McCutcheon's job was to take orders. “Wally's peculiar genius was to make Eddie's schemes work," a man who has attended board meetings with both of them said recently. "Is one more important than the other? Hell, one hardly exists wdthout the other."

McCutcheon exercised his peculiar genius most particularly on Dominion Tar & Chemical Co., Ltd. When Argus bought into Dominion Tar in 1951 it was a medium-sized company selling about $25 million worth of building products a year. With McCutcheon installed on the executive committee, the company had become by the end of last year one of Canada's ten largest industrial enterprises; in 1961 it sold $325 million worth of pulp and paper, building materials and chemicals and earned a net profit of close to $19 million. This year Dominion Tar was one of the halfdozen Canadian firms on Fortune magazine's list of the 100 biggest industrial companies outside the U. S.

Not every move McCutcheon made in assembling this rich giant w-on him new friends. The day he arrived in Montreal to make his first visit to the company's head office, according to the notes kept by a financial report-

er who was there at the time, he fired a large number of the executives. To the display of this kind of toughness, McCutcheon soon added a display of shrewdness.

McCutcheon and his associates controlled a great many companies in addition to Argus, among them a small investment company called Arbor. In the years leading up to 1955 Arbor bought 200,000 shares of a paper-making company called St. Lawrence Corporation. The price Arbor paid for the shares has never been disclosed, but the highest price anybody paid for St. Lawrence Corp. stock during the period was $78. In May 1955 Arbor sold its block of St. Lawrence stock to Argus for $75 a share, or $15 million. Argus later sold the shares to Dominion Tar. which thereby took control of St. Lawrence. Argus shareholders profited and Dominion Tar grew', hut it is a fair statement that nobody profited more than McCutcheon and his associates. Whatever the difference was between the price at which they bought the stock through one of their companies and sold it to another of their companies, the difference was a tax-free capital gain.

"Some investors have raised their eyebrows," the Financial Post said at the time, ". . . at the method whereby company directors make investments on their own behalf and later turn the stock over to the company." Bay Street, the Post said, w'as buzzing w'ith vehement discussion. McCutcheon's footwork — which was entirely legal and aboveboard but very, very fast— in this and other cases still rankles in many Bay Street board rooms. "1 don't think it was a proper way to operate,” a prominent broker said recently. “It's the kind of thing that can hurt business.”

McCutcheon's business came to no harm by it. In 1952 the going price of all the shares Argus owned in other companies was S26 million. McCutcheon and his associates made stock deals, negotiated mergers, reinvested profits, raised capital, bought machines and built plants — the companies they dominate have made capital investments of $800 million since the w'ar. When they found fault with men or companies they got rid of them, as they did when James Duncan failed to raise profits at MasseyFerguson and Orange Crush failed to compete with Coca-Cola. In August, 1962. the going price of the shares Argus owned in other companies was something like $130 million. The companies Argus dominates employ about 100.000 people and their assets are carried on their books at almost exactly one billion dollars. The recently resigned managing director of this extraordinary enterprise is no stranger to power.

Nothing in this classically competitive business history would lead you to suppose that some of McCutcheon's ideas might alarm a dogmatic capitalist. hut such is the surprising case. A caption in the Toronto Star of Sept. 30, 1957. read: BRAISES CANADA'S

DRIFT TOWARD WELFARE STATE. The account of a speech McCutcheon had made to the Canadian Club followed. "Relating . . . the vast expansion of government and voluntary health and welfare programs. (McCutcheon) said. ‘You might expect me as a busi-

nessman to denounce this whole movement ... as a dangerous if not to say pernicious thing. On the contrary, I regard it not only as one of the greatest achievements of private enterprise and a modern industrial society, I consider it necessary to the continued existence of both.' ”

McCutcheon at the time sat on the boards of almost as many welfare organizations as he did corporations. (A list of the charitable, social-agency and educational posts he resigned in August, again too unwieldy to include here, appears in a box below.) When the trustees of Toronto's United Appeal met to set a figure for the Appeal's second fund-raising drive, most of them agreed that the city's welfare agencies were asking for several hundred thousand dollars more than the board could raise. “McCutcheon stood out against all of us," another of the trustees recalls. “He swung the whole board behind him and we went after the full amount." They missed by less than a hundred thousand dollars.

About a year ago McCutcheon added to the list of agencies on whose behalf he was soliciting funds the National Progressive Conservative Association. From here McCutcheon took a long step when he resigned executive posts and directorships that are reported to have given him an income of more than a hundred thousand dollars a year—particularly since he took it in order to join a minority government that is a long gamble to survive six months in office. McCutcheon’s own explanation is that he has recently fallen into the habit of making speeches calling on businessmen who don't like the way the government is running the country to get into politics where they can do something about it. “When the prime minister asked me to join the cabinet,” he says, “it was put up or shut up.''

E. P. Taylor has suggested another explanation that takes into account not only McCutcheon's good will, but the more conventional economic motive of self-interest. “What's good for Canada is good for Argus," Taylor is reported to have said when he was first asked to comment on McCutcheon's move, “and Wally McCutcheon is good for Canada.” Taylor's paraphrase of Charlie (What's Good

for General Motors is Good for America) Wilson is less laughable than the original. McCutcheon has made no bones of his intention to hold on to his Argus stock as long as it pays him to do so. (On this account there has been much talk of conflict of interest. In fact, though, no legislation or established practice exists to govern share holdings by cabinet ministers. What is at issue here is a man's probity, and that is impossible to judge before the event. Suppose Mc-

Cutcheon took his money out of Argus and put it into the most logical and least controversial place possible, government bonds. Suppose he were then to advocate policies that tended to support the bond market to the disadvantage of other forms of capital?)

Argus now' straddles the Canadian economy so completely that Taylor’s words are the precise truth. What's good for Canada—economic expansion—is bound to be good for Argus. What's good for Argus is good for

Argus shareholder Wallace McCutcheon. It remains only to be seen whether Wallace McCutcheon will turn out to be as good for Canada as E. P. Taylor expects him to be.

THE PRIME MINISTER stepped out of character a second time when he appointed George Nowlan to the finance ministry. In recent years few of the Tories who have opposed John Diefenbaker’s ideas or undertakings have prospered in the service of the party.

He is a rough man to cross, and even Plough it is six years since George Nowlan tried to cross him. this is regarded in Ottawa as little enough time for a marked man to regain the prime minister's confidence.

Nowlan was one of fourteen Conservatives who met in a room at the Chateau Laurier early in the fall of 1956 to launch what became known as the Stop Diefenbaker movement. They regarded Diefenbaker as a prairie radical whose personality would do the party no good. Diefenbaker won the party leadership at the subsequent convention with ease. But by then it was known that Nowlan, as the Stop. Diefenbaker group's delegate, had urged the late Sidney Smith to make a run for the leadership.

Since Nowlan was and is the senior Tory from the Maritimes — he has been MP for Digby-Annapolis-Kings, N.S., since 1948—he was automatically included in the first Diefenbaker cabinet in 1957. But the portfolio he won was National Revenue; tax-collecting is a thankless, routine and therefore almost anonymous job. Nowlan stayed in it until this August.

A week after his appointment to the finance ministry Nowlan turned sixty-four. He is six-and-a-half-feet tall and has the weathered look of a man who has spent his life hauling lobster pots on the Nova Scotia coast. Nowlan has never laid a glove on a lobster pot; he is a third-generation Tory politician who won his first election, to the Nova Scotia Legislature, at twenty-six, not long after he graduated from Dalhousie Law School.

Nowlan practises the highly personal kind of politics in which every voter is the candidate’s first-name friend and potential beneficiary. He won his seat in a by-election in 1948. Only two Nova Scotia Tories were successful in the ’49 election. Nowlan was one of them. His majorities, running up to 5,000, are the largest recorded in the riding since confederation. The health of the Conservative Party in the Maritimes is generally acknowledged to be the result of Now'lan savvy, hard work and special pleading. “George was responsible for

prying a million dollars out of the government to help unemployed Nova Scotia coal miners when, logically, the government just didn't have a million dollars to spare," a civil servant who watched Nowlan's manœuvre with astonishment says.

Inside the revenue department, Nowlan for a long time made his assistants nervous by his habit of delivering even his longest reports to the House olf the cuff. “Ministers in this department aren't normally conspicuous for their eloquence," a department employee who has worked for several such ministers says. “Nowlan amazed us.'' Nowlan isn't eloquent in any memorable sense, but he is fluent, interesting, and often funny. Describing the Liberals' acerbic spokesman Jack Pickersgill, Nowlan once said: “The honorable member for Bonavista-Twillingate, who is sometimes logical and always political and has a habit of raising his voice higher the weaker his case, this time spoke more loudly than I have ever heard him before.''

Pickersgill had raised his voice on the subject of the CBC. As revenue minister. Nowlan had the extracurricular job of reporting to parliament on broadcasting, although when he got the job he had never owned a television set. In 1959 the CBC came under the heaviest attack it has endured since the Corporation was established in 1936. Conservative backbenchers accused Nowlan of mollycoddling the CBC and demanded that he clamp political curbs on the Corporation. Most of the officials of the CBC's public affairs department resigned, charging that political curbs had already been clamped on their broadcasts. The Liberal front benches took up the charge, and suggested that Nowlan himself was the leading culprit. The prime minister was heard to say more than once that the time had come to “clean up the mess” at the CBC.

Nowlan weathered several hundred thousand words of acrimonious, contradictory and frequently silly debate with composure; his own statements w'cre remarkably equable. The uproar

in the House led to no conclusions whatever, but inside the CBC and outside there is general agreement that Nowlan did a tough and honest job of shielding the Corporation from political pressure. Some people are inclined to put the case more strongly: “The C BC can get down on its hands and knees," a broadcasting official who was involved in the fight said recently, “and thank God it had a minister like George Nowlan."

Nowlan has shown the fibre to make and back up politically unpopular decisions at other times, as he did in 1960 when excited headlines in some Quebec dailies accused the Tories of investigating the account books of the clergy. So they were— an unheard-of intrusion into Quebec's religious life. The tax collectors were looking for evidence that some citizens of Quebec are not above multiplying the size of their donations to religious orders several times before deducting them from their taxable incomes. Investigation of the same misdemeanor in other provinces had turned up proof, right there in the clergy's books. Investigation turned up proof in Quebec. Nowlan stood behind his invest'gators, although, for a while, it looked as though the Tories might lose votes in every parish in the province.

Politics, nevertheless, is Nowlan's profession, and his true instinct is to catch votes. In this sense he is remarkably close to the prime minister, according to men who know them both well.

NOW'LAN AND MCCUTCHEON met several times during the first week of their new ministries to get to know' each other—they were strangers when they shook hands at the sw'earing-in ceremony—and to discuss the state ot the nation's finances. During the same week I spoke to them separately, and found them both cautious about expressing any economic views beyond the ones the prime minister had broadcast in announcing his “emergency program” to strengthen Canada's foreign exchange position. Nowlan did say he was confident that unemployment would be no worse this winter than it was last. Since DBS reported increases in unemployment during June and July, when jobless men usually have some chance of going back to work, the new finance minister's optimism is open to question. McCutcheon said he believed any falling-off in confidence in the Canadian dollar has been confined to foreign investors: Canadian businessmen, he said, have no reason to lack confidence in either the dollar or the government. A straw poll I took later among industrialists and investment dealers turned up one man who agreed with the new minister and eight who, with varying degrees of emphasis, did not. I learned of a bank director and a securities dealer who have recently moved large amounts of their own money out of Canada. They have both taken steps to protect the money against the Canadian government, if and when the order goes out to Canadians to bring back funds they are holding outside the country.

McCutcheon here seems to have shown himself to be a quick study in the kind of lines Nowlan learned long

ago: to a politician in office the outlook is always good, since most electors have no wish to vote for hard times. McCutcheon would hardly have gone to Ottawa, though, if it were his intention merely to endorse policies already adopted by the prime minister. More than a year ago McCutcheon’s close associate, E. P. Taylor, began campaigning for a new ministry of economics to attack “Canada's chronic problems of high unemployment and low rate of economic growth.” Taylor said the new minister "must be not only a strong character but a successful, well-informed, practical man of good judgment, who is prepared to . . . form his own conclusions and then . . . implement his recommendations no matter how unpopular they may be in some quarters.”

Taylor might have been describing McCutcheon, in all respects but one. McCutcheon agrees with Taylor’s ends and means, he said privately not long after he went to Ottawa, but he doesn't think there’s any need to set up an entire new ministry to pursue them. The chief ends and means, as Taylor set them out, are these:

• Long-range planning of government outlays and economic policies;

• Tariff reduction, and "possibly some forms of free trade,” particularly between Canada and the U. S. and Canada and the Common Market countries;

• Tax reform, particularly the kind of tax reform that will encourage capitalists to make new outlays;

• Measures to “maintain a reasonably receptive climate for attracting foreign savings.”

Tariff reduction is the boldest of these proposals (as for free trade, the words are so appalling to voting Tories that they will probably never be spoken in the prime minister's presence) and the most controversial. It costs votes to cut tariffs, not only among a few manufacturers but among their many workers as well. As long as he was running Argus, McCutcheon could afford to look at the possible advantages of cutting tariffs with equanimity; the Argus companies make products that don’t particularly need tariff protection. Now, in a Conservative cabinet, he will hear other arguments.

A more urgent argument is apt to arise more quickly. Nowlan, McCutcheon and Diefenbaker are unanimous, for the time being, on the need to hold the government's deficit below half a billion dollars this year. President Kennedy, who fears a rise in unemployment this winter, has already said he will cut taxes in January in the hope the money will make new jobs. In the kind of economic slump that throws large numbers of men out of work, the Canadian cabinet would have to raise taxes to keep the deficit down. At precisely the same moment, the cabinet is more likely than not to be facing an election.

That is the moment when Wallace McCutcheon's instinct for running in the black will come up against George Nowlan's instinct for softening up the vote. At that moment, it will be interesting to see where that proven politician, John Diefenbaker, stands, and how the order of power in Canada reads then. ★