THE SHARP/GORDON DEBATE

July 23 1966

THE SHARP/GORDON DEBATE

July 23 1966

THE SHARP/GORDON DEBATE

mericans own a lot of things that make this country rich.lJw Does this mean colonial status for Canadians? And if so what are we going to do about it? Walter Gordon says we've got to be choosier about the terms on which we accept foreign investment. Mitchell Sharp IPIL is worried, too, but he'd rather woo Canadian money than risk scaring off American dollars. It's the latest phase of a debate that's older than CONFEDERATION.MÍ But the winner of this round could shape the direction of the Liberal E0 Party and the country for a generation. Which route will we choose — Sharp's or Gordon's? Blair Fraser reports

WALTER GORDON was 60

last January. Mitchell Sharp didn’t turn 55 until May. Yet Gordon is widely accepted as chief of the Liberal Party’s Angry Young Men, while Sharp is a member and symbol of Ottawa's elderly Establishment.

Sharp left school at 14 to help his mother support the family, worked his way through university at night classes, took a postgraduate degree from the London School of Economics when it was run by socialist Harold Laski.

Gordon was born rich in Tory Toronto, went to expensive, conservative Upper Canada College and then to Royal Military College instead of university. Yet Sharp is a leader of the Liberal Party’s Right wing, and Gordon for some reason is called a Leftist.

□ Both men resent and reject such glib labels, but these are examples of a pattern of paradox that runs through every comparison that can be drawn between them. They have served together under Lester B. Pearson, not only in the same cabinet but consecutively in the same portfolio, Finance. Yet they head the opposing factions in a great national controversy, the liveliest if not the only political issue that divides English-speaking Canada:

□ How, and to what extent, can our country be rescued from the domination of foreign owners who now control about two thirds of Canadian industry?

□ The Gordon-Sharp confrontation is often called a “power struggle’’ for leadership of the Liberal Party. Like most such hackneyed phrases this is a distortion of half-truth.

□ Sharp is an acknowledged contender for the succession when Prime Minister Pearson retires. Gordon is not. His efforts are concentrated not on a leadership convention that may be held next year or the year after, but on a policy convention that will be held this October. Gordon wants to make the party platform an expression of his views, especially his views on American control of Canada’s economy. If he fails in this attempt he will probably retire from active politics. If he succeeds, even partially, he will continue to be a strong force in the Liberal Party,

whether or not he decides eventually to become a candidate for actual party leadership.

□ Gordon refuses to say definitely that he will not be a candidate. He wants to remain free to take whatever steps will be best, in his judgment at the time, to translate his policies into action. But so far as Can now be foreseen it’s unlikely that he will run — he will be at least 62 years old, he speaks no French and is not trying to learn any, and he has never been personally ambitious. It is much more probable that he will be giving important and perhaps decisive support to some other aspirant, whichever one comes nearest to Gordon’s views.

□ Whoever else that aspirant may be, it won’t be Mitchell Sharp. The differences between the ex-colleagues are as openly declared as, and much more easily defined than, those between the two major parties.

: J The differences are not personal, or anyway not bitterly so. The two men are not close friends, but they maintain mutual courtesy and profess mutual respect in private as

well as in public. When Gordon’s first budget was being torn to shreds in the Commons three years ago, and he was facing heavier fire than any minister of finance since Confederation, only two cabinet colleagues intervened to help defend him; one, and the more effective of the two, was Mitchell Sharp.

□ Even the argument between them can be made to sound minor. One of Sharp’s recent speeches contains whole paragraphs that might have been, and probably were, derived from Gordon’s new book, “A Choice For Canada.”

But however narrow the gap may appear, it is in fact a chasm. However similar their stated ends, the means they prescribe are so different that they would set Canada upon virtually opposite courses.

□ The two men don’t disagree about the existence or the nature of the problem. It was Mitchell Sharp, not Walter Gordon, who said in a speech in Toronto in May, “One of the greatest threats to Canada’s freedom of action is our dependence on massive imports of foreign capital . . .

No other country has such a large proportion of its production in the hands of corporations that take direction from parent firms in other countries ... No responsible government can look at the present degree of nonresident control over our economy with any great feeling of confidence.”

□ The question that divides them is, what should, or could, be done to correct this situation?

□ Walter Gordon believes in direct action. In his book, he lists no fewer than 53 Canadian firms taken over by American buyers since 1959. Then he says, “Canadians should employ every possible means to buy back the Canadian businesses now controlled by foreigners. At the same time, the sale to foreigners of businesses now controlled in Canada should be discouraged.”

□ How? Gordon had an answer in his 1963 budget. He put a tax of 30 percent, a forbidding penalty, on the sale of shares in Canadian companies to foreigners or to foreigncontrolled companies. He also imposed discriminatory taxes on companies in Canada that were wholly or mainly owned abroad — companies with less than 25 percent Canadian ownership were to pay twice as high a withholding tax as those that did have 25 percent Canadian ownership or more.

□ The howls of dismay from the financial community have hardly stopped echoing even now. According to the experts of Bay Street and St. James Street, these taxes were not only unjust, they were unworkable. Eric Kierans, then president of the Montreal Stock Exchange, sent Gordon a furious letter that began, “The financial capitals of the world have just about had enough from Canada,” and described Gordon’s views on foreign takeovers as “complete and utter nonsense.”

□ Gordon might have ignored these outcries had he not been thrown off balance by attacks on the three “outsiders” whom he had brought in to help prepare the budget, much to the resentment of the regular civil servants, and also by “certain administrative difficulties” in applying the taxes, which apparently he had not / continued on page 36

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Sharp: “Canadians want it both ways”

foreseen. In any case, the taxes were in fact withdrawn.

Now, in his book, Gordon says, “In retrospect, I believe this was unfortunate.” He thinks the anti - takeover taxes “could have been modified to meet the objections,” and he leaves no doubt that, given another chance, he would reimpose them now. He also favors use of the tariff to protect Canadian-owned enterprises — provided, he hastens to add, that they are efficient and competitive.

Sharp disagrees categorically with this whole approach. As a westerner brought up on the doctrines of Manchester liberalism, he is against anything that savors of “protectionism” (Gordon indignantly denies that he’s a “protectionist”). But apart from any abstractions of economic theory. Sharp is convinced that Gordon's policy would be ruinous for Canada.

For one thing, he thinks it would split the country.

“I’ve just come back from the west, and I found they were talking of nothing else but Walter’s book,” he said recently. “Gil Molgat [Liberal leader in Manitoba] had come out strongly against it. So had Ross Thatcher [Liberal premier of Saskatchewan]. The west is fully committed to the idea that we need foreign capital, and that we must remain an open society.”

Ross Thatcher himself confirmed this, with a violently anti - Gordon speech in Ottawa a short time later: “I consider the views expressed by Walter Gordon to be not only naïve, misguided and obsolete, but potentially disastrous for the nation in general and the west in particular ... I have little sympathy for those who talk narrow economic nationalism. Certainly the government of Saskatchewan, in the months ahead, intends to take every practical or feasible step to attract additional American investment.”

Thatcher credited American capital with the “dramatic transformation of Saskatchewan from an impoverished, have-not province to one of the more prosperous partners in Confederation . . . Had our doors been even partially closed to American capital, through gimmicks envisaged by Mr. Gordon, we would still be one of Canada’s backward provinces.”

Walter Gordon doesn’t deny that American capital has raised the Canadian standard of living. “Canadians have been able to live a bit better than they would have been able to do without it.” he admits. But he thinks this advantage a trivial one: "It has not been sensible for us to borrow heavily abroad to pay for luxury goods we could have got along without, or might have produced ourselves.”

Sharp is convinced that Gordon underestimates the danger. The Canadian economy is more vulnerable, he says, than Gordon seems to think: if Canada's access to American capital were cut off or seriously impaired, the result would not be a mere scarcity of luxury goods but economic ruin, widespread unemployment, the devaluation of the Canadian dollar to a mere fraction of the American.

Canada runs a deficit in her balance of payments with the U. S. that last

year ran close to two billion dollars, reduced by a surplus on trade with the rest of the world but still nearly a billion dollars overall, and a grand total of 10 billions since 1956. These deficits have been met by a large, steady inflow of American capital.

Says Mitchell Sharp, “Canadians always take it for granted that somebody, somewhere, will finance our deficit for us, but we could be wrong. Indeed, we have been wrong from time to time. That’s why we had a foreign-exchange crisis in 1962. It’s also why we nearly had another one in July 1963, when President Johnson announced the U. S. interest-equalization tax.”

This American tax was intended to stop the flow of American capital abroad, and thus protect the United States’ own balance of payments. The effect on Canada’s foreign - exchange reserve was catastrophic: Canada lost more U. S. dollars on Friday, July 20, 1963, than she had lost on any single day during the crisis of 1962 (when the Canadian dollar was devalued and various emergency measures taken). Walter Gordon, as Minister of Finance, telephoned to his friend Douglas Dillon, U. S. Secretary of the Treasury; Louis Rasminsky, Governor of the Bank of Canada, made a hasty weekend trip to Washington; between them they managed to convince Washington that it would be in the interest of the U. S. to exempt Canada from the interest-equalization tax that applied, and still applies, to all other foreign investment of the U. S. Thus Canada emerged without permanent damage (the average citizen wasn’t even aware that anything had happened), but it was a close thing.

Ruin in a twinkling?

Gordon and Sharp both cite this incident as proof of their respective contentions. To Gordon it proves that “we must begin to take the kind of steps that will release us from our present predicament,” and all the steps he mentions as examples (such as revival of the tax on takeover bids) would be likely to arouse U. S. hostility.

Sharp draws a different moral. To him, the exchange crises of 1962 and 1963 prove that American hostility, or even American indifference, could ruin Canada’s economy in a twinkling.

“Canadians want to have it both ways with the United States,” he said in a recent conversation. “We want complete independence, but we also want special treatment. We want to be exempted from the U. S. interestequalization tax. We want to have access to the American market for our oil. even when other imported oil is excluded. We want an open border that Canadians are allowed to cross at will. We can’t always count on having these special privileges free of charge.”

As an example of this Canadian preference for eating cake and having it. Sharp points to the recent fuss over the "guidelines" suggested by President Johnson and by Henry Fowler, U. S. Secretary of the Treasury, for American-owned companies abroad. They advised these American companies to

SHARP-GORDON DEBATE continued

“Our differences have nothing to do with Right and Left”

draw as little as possible on U. S. capital from home, and take various other steps to protect U.S.-exchange reserves.

Says Sharp. “If we really meant what some people have been saying about not wanting so much American capital, we'd have welcomed the Johnson guidelines — but we didn't."

Again Walter Gordon draws a different moral. He quotes in particular one sentence from Secretary Fowler's speech: “These [U. S.-controlled] companies have not only a commercial importance, but a highly significant role in United States foreign policy." Gordon thinks if any Canadian corporations have a role to play in foreign policy, it should be Canadian foreign policy, not American.

Sharp would agree, of course — any Canadian would — but again he comes back to the difficult question of what to do about it: “If we were to discriminate directly against foreign-owned industrial companies, and against their employees, we'd be in danger of serious trouble.”

He's careful to specify “industrial” companies, because he does agree with Walter Gordon on one thing: banks and other such financial institutions must remain in Canadian hands, and Sharp is the sponsor of the new Bank Act which will guarantee this. He has also agreed, though with more reluctance than Gordon, to make this law retroactive against the First National City Bank of New York, which in 1964 bought the Mercantile Bank of Canada from Dutch interests in direct defiance of Gordon’s warning that if they did, he'd make the Bank Act's restrictions retroactive against them. Sharp was a member of the cabinet at the time and accepted Gordon's policy, so he now feels obliged to carry it out. Nevertheless, he has grave misgivings about passing retroactive legislation. and about its effect on Canada's standing with the international financial community.

T his is the kind of thing — concern with the good opinion of big investors — that leads people to call Sharp a Rightwinger, while Gordon’s airy contempt for their views makes him a Leftist. These pigeonholes rather exasperate both men, but especially Sharp.

"It has always seemed odd to me that I should be considered a man of the Right in the cabinet, and Walter a man of the Left.” he said. “In fact. I've had rather more direct experience than Walter has had, of how people live on low incomes in this country. The real difference between us has nothing to do with Rigfo and Left. It is simply that my chief experience has been in government, and Walter’s has been in business.

"In business the great thing is to make decisions, even if you make

mistakes — at worst you can't lose anything but money. In government you can't do that. If you make mistakes you can lose a lot more than money, and things a lot more important than money.”

But if Gordon's suggestions for correcting the imbalance would be a mistake, what should be done instead?

"This country has always existed by compromise,” Sharp replied. “That's how we deal with all our problems — the bicultura! problem, the regional problems, all of them — and it's how we shall have to deal with the problems of our economic relations with the United States, too.

“I make no apology for being a

pragmatist in this, rather than a doctrinaire. We just have to do the best we can. proceed step by step as the way opens up and opportunity presents itself."

To Gordon and his followers, this low-key, common-sense approach is not enough to guarantee, or indeed to permit, the survival of Canada. As they see it. the threat to an independent Canada is urgent and overriding. I hey don't believe Americans w ill be as hostile to Canadian attempts to

SHARP-GORDON DEBATE

preserve il as the Sharps and the Thatchers seem to think, hut in any case they’re prepared to run the risk. To them, the alternative danger is worse: the extinction of economic independence, and reduction of political independence to the status of an American satellite.

These two schools of thought will

meet in battle at the Liberal convention in October. The result will not be final —almost certainly, the platform will contain enough qualifications and ambiguities to allow both factions to remain within the party on reasonably amicable terms — but the general direction will be important.

For the Sharp faction, which is the dominant one in the cabinet if not in the caucus, the major problem in strategy and tactics has already begun

to emerge; how can they present, in stirring, emotional terms that transcend mere common sense and rouse enthusiasm, the cautious, Mackenzie King-like pragmatism of their defense of the status quo? Common sense didn't make Canada. If our forefathers had done the rational thing. Canada wouldn't exist. Walter Gordon and his young friends believe that Canadians want Canada to go on existing, whether it makes sense or not. ★