What really happened to Walter Gordon

Canadians have agreed for years that somehow the sellout of our resources to foreigners must be stopped. But only two public men have staked their careers on strong and unconventional attempts to do something about it — and both attempts ended in noisy confusion. Now we have a better chance to regain control of Canada in the future if we understand why these men failed in the recent past. What follows is an account of the manoeuvres that were carried out behind the scenes in Ottawa while Walter Gordon was humbled in the headlines

Peter C. Newman October 19 1963

What really happened to Walter Gordon

Canadians have agreed for years that somehow the sellout of our resources to foreigners must be stopped. But only two public men have staked their careers on strong and unconventional attempts to do something about it — and both attempts ended in noisy confusion. Now we have a better chance to regain control of Canada in the future if we understand why these men failed in the recent past. What follows is an account of the manoeuvres that were carried out behind the scenes in Ottawa while Walter Gordon was humbled in the headlines

Peter C. Newman October 19 1963

What really happened to Walter Gordon

The stories of two national fall guys

Peter C. Newman

Canadians have agreed for years that somehow the sellout of our resources to foreigners must be stopped. But only two public men have staked their careers on strong and unconventional attempts to do something about it — and both attempts ended in noisy confusion. Now we have a better chance to regain control of Canada in the future if we understand why these men failed in the recent past. What follows is an account of the manoeuvres that were carried out behind the scenes in Ottawa while Walter Gordon was humbled in the headlines

IN THE FUROR that followed last June’s budget, the bloom came off both the new Liberal administration and the reputation of Walter Lockhart Gordon, its minister of finance. But now that there’s been time to examine the wider implications of that incredible budget, it’s apparent that Gordon may have taken down with him, when he fell from his pedestal as the apparent economic saviour of the nation, an idea that he and many other thoughtful people in this country have long cherished: that Canada’s business assets can somehow be wrested from American control. By framing an unworkable law to this end, Gordon cast doubt on the idea itself, and it may be a long time before any politician is foolhardy enough to take such a nationalistic stand again.

Because this wider mission of Gordon’s came to such an unhappy end it's all the more important now to piece together the reasons why his budget turned out to be the fiasco it was. What exactly did take place behind the locked doors of the finance

department during the fifty-three days between the swearing in of the Pearson government and the presentation of the budget? How was it possible that this man — whose professional lifetime had been spent marketing his reputation for business competence — could bungle the task which he himself had often described as his highest political calling?

The explanation probably lies in the collision of the unusual personality of Walter Gordon with the circumstances in which he found himself after the Liberals had narrowly squeezed into power last April 8. More specifically, the debacle resulted from the working habits that Gordon acquired during his twenty-five years as the moving spirit of Woods, Gordon and Company of Toronto, Canada’s best-known firm of management consultants. This is a profession that earns fees by recommending alternative solutions to corporate problems, with the understanding that the client will reject those ideas which prove impractical. This was also Gordon's approach to the

national accounts — he tried out some of his ideas on the country. The approach didn’t work this time because there is no provision for trial and error in the budget system.

There are any number of professions for which Walter Gordon’s personal characteristics amply fit him, but an executive position in the merciless scuffle of Canadian federal politics would not appear to be high on the list. He is, above everything else, an intensely private person. The emotions that move most politicians to spend their waking hours mouthing appropriate generalizations have no place in his make-up. In Ottawa, where ministers seldom make even a minor point without first taking a tour d'lwrizon of all the rumors they’ve heard in the previous twenty-four hours, Gordon stands out as a man who is incapable of small talk. He keeps lists of what he wants to discuss with the people who call on him, and expects them to do the same. A typical opening gambit of his is to lay

the appropriate list in front of him continued on page 76

WALTER GORDON

continued from pape 22

Toronto’s three “bright boys” replaced the department’s pros

and then ask: “Who'll go first?” The working habits that isolate him most from his fellow politicians are his decisiveness (“I think in straight lines") anil his willingness to delegate power to people he trusts.

Although Gordon appears to have only two facial expressions (mild boredom and superior amusement), his manner is probably rooted more in shyness than in arrogance. If he gives the impression of being a cold, abrupt man, it's because he is repelled by the parading of emotions in public. Throughout the budget fiasco he maintained an almost superhuman aloofness. and the events of last June seemed only to drive him further into a self-protective shell of disengagement.

Vet in private he compels devotion. and few Ottawa politicians have as loyal a coterie of followers. His friendship is hard to win, but once won it's permanent and warm.

His centre-stage presence in the current political scene may not suit his temperament, but it is the logical climax of a lifelong devotion to public service. Alter graduating from Upper Canada College in 1922, he by-passed university and went to the Royal Military College at Kingston instead. (This military training was never put to use: a mild arthritic condition prevented him from serving in the army in World War II.) His father. Col. Harry Gordon, was a highly successful Toronto businessman. In 1935, when Walter was twenty-nine, he was given a partnership in Clarkson, Gordon and Company, the family chartered accountancy firm, and five years later he took on the same role in Woods, Gordon. At this point Gordon might have decided to spend his life in the languid pursuits of the very rich; he became instead a kind of roving ambassador of efficiency, moving from one government problem to the next with imperturbable ease and widely admired results.

He came to Ottawa first as a dollara-year man in 1939 to help establish the Foreign Exchange C'ontrol Board. He also took part in drafting the first federal-provincial tax-sharing arrangements and worked on the first wartime budget. Later he headed three royal commissions, including the monumental analysis of Canada's economic prospects (the Gordon Report) undertaken from 1955 to 1957. This gave him an unusual opportunity to study at first hand the anatomy of the nation's business problems.

His interest in partisan politics wasn't roused until he was over fifty, and it came about as a direct result of his friendship with Lester Pearson. The two men met first in 1935 when Pearson was secretary of the Royal Commission on Price Spreads and Gordon was hired to investigate the agricultural implement industry. They enjoyed each other's company immediately and have been intimate friends ever since. In late 1957, when

Pearson was dubious about yielding to pressures within his party that were compelling him to contest the leadership, it was to Gordon that he turned for advice. Gordon not only urged him to run but became his campaign manager for the 1958 leadership convention. When, not quite three months later, Pearson suffered the most shattering electoral defeat a Canadian Liberal leader has ever had to face, Gordon felt partly responsible.

As a result, he turned his energetic efficiency during the next four years to rebuilding the moribund Liberal Party organization. “Walter is the real architect of our party’s renaissance,” says Keith Davey, the Liberals’ national organizer. “He’s the man who made all the tough decisions. Without him, we'd be nowhere.”

In 1961 Ciordon published Troubled Canada, a pamphlet in book form which outlined the Liberal campaign platform. In the 1962 campaign he moveil into active politics hy contesting and winning the Davenport seat in downtown Toronto. In that election, Diefenbaker helped Gordon to national prominence by attacking him from coast-to-coast as “the Toronto taxidermist who fills Mr. Pearson with flossy economic ideas.” (Gordon replied to the charge only once, at a small rally in Hamilton, Ont., when he said, “If one must be stuffed, it is better that it be with ideas than merely wind and straw.”) In the '63 campaign, to underline the Tory regime's bumbling indecision, Gordon formulated the slogan, “Sixty Days of Decision.” As the prospective minister of finance in the new adminstration, he promised that within this period he would bring down a budget that would fulfill his party's pledges.

This is how it came about that on

April 22, when he put on an old raincoat and went to Government House for the swearing-in of the Liberal minority government, Gordon was faced with the self-imposed task of bringing down a budget within eight weeks.

In order to fulfill the Liberal election platform, the budget would have

to:

• Implement Gordon's conviction that the federal government must interfere to halt the American takeover of Canadian business assets;

• Move significantly toward balanced budgeting (under John Diefenbaker, an uninterrupted string of deficits had added more than three billion dollars to Canada’s national debt);

• Find some method of stimulating the domestic economy so that the unemployment rate might he reduced.

These would be ambitious objectives even for a budget prepared under normal circumstances. And Gordon had given himself only sixty days. Just how difficult a deadline this was can only be measured against the procedure that's usually followed.

Normally, briefs from individuals and associations arc heard by the minister of finance and senior officials in his department for as long as six months before budget preparation begins. Then there arc at least two dozen meetings, attended by the ministers of finance and national revenue, where department officials present the pros and cons of each of the suggestions received. Next comes another series of conferences — and there can be as many as thirty or forty of these — where the possible contents of the budget are debated. Representatives of the justice department sit in, taking notes on the kind of legislation they’ll have to draft; Bank of Canada ad-

visors are consulted on the country's over-all financial situation. Finally, two weeks before budget day, one of the assistant deputy ministers of finance writes a draft of the document for the minister’s consideration, and this draft goes through six versions before final delivery. “The work is so organized,” A. K. Eaton, a former assistant deputy minister of finance, once explained to a Canadian Tax Foundation seminar, “that about half a dozen officials have ready access to the minister. This means that tax policies for a budget are gradually developed over, say, a six-month period as a result of casual and informal conversations with the minister in the daily routine of work.”

Gordon was familiar with this long gestation period but he chose to ignore it. To compensate for the lack of discussion within the Department, he decided to bring from Toronto three of his own advisors: D. C. H. Stanley, an investment executive with Wood, Gundy; M. P. O'Connell, a municipal finance expert from Harris & Partners, Ltd.; and G. R. Conway, a young tax specialist who had been studying for a doctorate in economics at Harvard. The introduction of these temporary assistants was not intended as an affront to the department's permanent staff. Gordon had known most of the senior men in Finance for at least twenty years (two of them — A. F. W. Plumptre and H. A. Davis — had been schoolmates at Upper Canada College) and he respected their abilities. But Gordon realized very quickly that the officials at Finance didn't share his views on how the government’s economic objectives might be achieved. The three private advisors, in contrast, had worked with him before on formulating the same Liberal platform he now proposed to turn into a budget. Gordon was so sure of himself and this triumvirate that he thought at first they wouldn't be needed longer than two or three weeks; this is why he didn't go to the bother of taking Stanley and O’Connell off their companies’ payrolls. (Conway was paid fifty dollars a day, plus expenses.)

Then on May 15, Gordon took a minor decision that turned out to be a major irritant in his relations with the department. Instead of working on the budget in his departmental office, at the Confederation Building on Wellington Street, he decided to move permanently into his Commons office on Parliament Hill. This meant that civil servants who wanted to confer with him had to trudge all the way up the Hill for an audience, and throughout the budget preparation this physical separation underlined the minister's estrangement from the men who had the professional experience to prevent the kind of errors that slipped into the budget.

A far more serious decision was taken eight days later when the Liberal cabinet passed an order-in-council naming Bob Bryce, the clerk of the Privy Council and the most dynamic and talented administrator in the federal civil service, as successor to Ken Taylor who had been deputy minister of finance since Jan. 1, 1953. Taylor’s hectic decade as deputy had weakened both his spirit and his health, but he was still a few months from retirement

age. The order made the transfer of authority from Taylor to Bryce effective on July 1 — two weeks after the budget was to be delivered. This delay had three grave consequences. It meant that Bryce's talents could not officially be applied to the formulation of the budget. It meant that Taylor's authority had been undermined in the middle of the budget preparations. It also meant that the assistant deputies — who might have expected the promotion to go to one of their own number — were figuratively slapped down just as the budget was at its crucial stage.

The first budget meeting had been held in Gordon's office on May 18. Each of the twelve senior officials present made a five-minute speech about what he thought ought to go into the budget, and each one in turn had most of his ideas shot down either by the minister or one of his three young Toronto advisors. From that day on the three outsiders were known in the department as “the bright boys” and tension between the minister and his officials began to build up. At one point, an assistant deputy found his way to the minister's office blocked by “the bright boys” and gave them a scathing lecture on protocol. The budget “white paper,” usually a noncontroversial document reviewing the previous year’s fiscal situation, had to be rewritten on Gordon's orders, because he considered the original draft too apologetic for the policies of Donald Fleming and George Nowlan, his Conservative predecessors.

In the final three weeks before budget day, experts from other government departments were called in Vo help with preparations. George Haythorne and W. R. Dymond were sent from the Department of Labor, Ray Labarge and J. C. McEntyre from National Revenue and D. S. Thorson and J. W. Ryan from Justice. By this time the Toronto experts had extended their influence; Stanley was working on the Canada Development Corporation and O'Connell on the municipal loan fund. Conway was still engrossed in details of the budget’s takeover tax. Warnings had already been sounded both by Finance and Justice that such a tax would be an administrative monstrosity. (The consultants, however, had little to do with the suggestion for lifting the eleven percent sales tax exemption from building materials and production machinery. A similar suggestion for raising revenues had been presented by Finance officials to the previous administration, although in its original form the sales tax level would have been dropped to eight percent and there would have been compensating cuts in corporation taxes.)

The draft of the budget speech, compiled as usual by one of the department’s assistant deputies, was rejected by Gordon; instead, he wrote a much more partisan document. Gordon's final draft wasn’t taken to the prime minister’s office until the evening of June 7, when it was delivered by Brian Land, Gordon’s executive assistant. (Pearson had been shown an earlier version four days before.) Pearson questioned the practicability of the thirty percent takeover tax, but in the end approved its inclusion to give the budget “some kick.”

At 8 p.m. on June 13, dressed in a charcoal grey suit with a coat button missing, Gordon rose in the House of Commons to deliver his maiden budget; from there he went on to a party in his parliamentary office to celebrate the great occasion.

Curiously, immediate reaction to the budget was, if not ecstatic, at least favorable. (Even those with mild doubts reassured themselves with the formula: “This is by Walter Gordon. It must be all right.") But during the

next twenty-five days, the document fell apart under pressure from the parliamentary opposition, from within Gordon's own party, from taxpayers who had suffered by its provisions, from the presidents of Canada's stock exchanges and from a suddenly hostile press. To Gordon, who had never been thought of by any Liberal as less than an awesome economic oracle, the avalanche was totally bewildering.

The debacle began the day after budget night when Douglas Fisher,

deputy leader of the NDP. got up in the Commons to ask Gordon to assure the House that “he and his government officials alone prepared the budget speech without the assistance of outside consultants or ghost writers from Toronto.” (Fisher said afterwards that he based his apparently idle question on a chance encounter in the parliamentary cafeteria with David Stanley, one of the “bright boys,” who had been at college with him.) Jack Pickcrsgill, the Liberal house

leader and Gordon’s seat-mate, whispered urgently as the minister rose to reply: “Don't answer!” Gordon limited himself to stating enigmatically that he took sole and full responsibility for everything in the budget. Had he at this point straightforwardly admitted all the facts, which were in themselves innocent enough, the storm over the presence of his advisors might have been averted. As it was. it looked as though Ciordon felt he had something to hide.

At five o’clock the same day. after hours of corridor buzzing and a hurried lunchtime conference with the prime minister, Ciordon interrupted House proceedings to say that the three advisors had indeed helped him and had been given access to the budget in its final version, but since all three men had taken an oath of secrecy there was no reason for opposition alarm.

While the House and the nation mulled over the intelligence that two

of these advisors had remained on private company payrolls, Eric Kicrans, then president of the Montreal Stock Exchange, was preparing a letter to Ciordon which he released in Ottawa four days later. In the letter he condemned the thirty percent takeover tax as "complete and utter nonsense.” (Under the scrutiny of Kicrans and others the tax — which was to have helped prevent secret takeovers of C anadian firms by applying a thirty percent levy on the proceeds

of the sale of listed Canadian stock valued at more than fifty thousand dollars — proved to be administratively inapplicable to the actual operations of a modern stock market.) At 2.41 p.m. the following day. Gordon condemned Kierans’ “irresponsible" criticism. then unabashedly withdrew the tax.

At this point he committed a second blunder. By making the announcement nineteen minutes before the stock markets closed ( no one had even thought of warning him against this), Ciordon allowed floor traders to take large profits out of the upswing which pushed averages up ten points in the final minutes of trading. In the Commons. Ciordon assured Opposition Leader John Diefenbaker that he had informed no one of the impending withdrawal of the tax "other than the prime minister and certain members of the cabinet."

With the raison d'etre of his budget lost and his political ineptitude both in and out of the Commons now established, Ciordon went next morning at 9.15 to see his old friend, the prime minister. During their brief meeting, he offered his resignation. No decision was reached but an hour or so later, Pearson phoned Ciordon and asked him whether he had lost confidence in himself. When the answer was firmly negative, discussion of resignation between the two friends ceased.

The resignation rumor was fanned again the next day when newspapers published stories predicting Gordon's impending departure. (This speculation was based on the fact that one of the prime minister’s closest advisors had polled some members of the parliamentary press gallery as to whether or not they thought Ciordon should go.)

That Friday morning. Walter Ciordon, the man who more than any other individual had revived the fortunes of the Liberal Party, sat in lonely reverie in his office. Not one ol his parliamentary or cabinet colleagues phoned or came near him to offer cither advice or sympathy. Later in the day, when Pearson interrupted a cabinet meeting to deny the resignation rumor, the industrial average on the Toronto Stock Exchange immediately plunged four points — a cruel indication of the business community's verdict on Gordon's performance.

In the Commons that afternoon, when Stanley Knowles, the NDP member from Winnipeg, questioned Gordon further about who had been informed about the withdrawal of the takeover tax, Gordon stated (contrary to his previous assurances) that he had also told his three Toronto advisors. That admission turned a touchy political situation into a catastrophe. “Inexperience is one thing," said the Ottawa Jour nal, in a comment typical of the reaction that followed. "bad judgment is something more . . . but open and knowing defiance of parliament and its traditions is too much." In parliament. Colin Cameron, the veteran B. C. socialist, spoke for the nation when he looked over at the Liberal front benches and fiercely exclaimed: “For heaven's sake, pull yourselves together. We cannot afford any more of these follies . . . Canadians have

to cringe along with you at the ridiculous spectacle you are presenting to the rest of the world.”

In the meantime, yet another aspect of the budget was coming under fire. Forty telegrams an hour were flowing into Gordon's office to protest the lifting of the sales tax exemptions on building materials and production machinery. The Canadian Construction Association estimated that projects across the country worth S120 millions would be canceled immediately: the printing trades complained that their industry would collapse because the tax inadvertently placed a levy on typesetting. An enraged builder from northwestern Ontario called Gordon's office to ask for an appointment so that he could “shoot the minister” and was slightly taken aback when a secretary calmly replied: “You'll have to get in line."

Even the budget's minor provisions weren't bearing up under close scrutiny. In one clause, Gordon tried to get at businessmen who own yachts by narrowing the eleven percent sales tax exemption on ship repairs to vessels used for commercial purposes. Embarrassed government lawyers w'ere forced to report to the minister that this meant taxes would have to he paid on warships of the Royal ('anadian Navy and Department of Transport weather ships. On June 24 Revenue Minister Jack Garland tried to smooth the situation by making a long clarifying statement on the tax, but the protests continued unabated. “If Mr. Gordon holds to it,” wrote John Meyer, financial editor of the Montreal Gazette, “he will have the distinction of having braked the national economy to a standstill all by himself.”

On July X Gordon made what was, in effect, a second budget speech in w'hich the sales tax increase w'as cut to four percent for the current year and most of the budget's remaining provisions were canceled or modified.

The government survived the opposition's ensuing motion of non-confidence. 113 to 73, but significantly, only three members of the Liberal Party spoke up firmly during the budget debate in Gordon's defense. They were Trade Minister Mitchell Sharp. E. J. Benson, the member for Kingston who is (Jordon's parliamentary secretary, and Jack Davis, a Vancouver Liberal who is parliamentary secretary to the prime minister.

While Gordon's budget was almost entirely destroyed, none of the assaults on his integrity — or on that of his advisors — succeeded. Not one of the many innuendoes raised by the opposition that there had been some impropriety in Gordon's methods was substantiated. Still, there was little doubt that his reputation had been

blemished. Most of the newspapers that traditionally support the Liberals called for his resignation, and Russell B. Irvine, an Ottawa labor economist, charged that Gordon was “unfit to manage the economic affairs of Antarctica, let alone Canada."

Gordon himself remained characteristically unruffled. When he was asked on the CBC-TV program Inquiry what he had learned from his experience, he replied: “Oh. I don't know. 1 don't suppose many people

would think I'm a very good politician. I'm very new at the game. For one thing. I've always been accustomed if somebody came along and made a good suggestion to me for improving something that I’ve done. Eve always taken it. Now I gather that this is not according to traditional custom in political circles.” Gordon has since hinted that he'd like to revise the budget procedures so that major changes in taxation could be examined at hearings attended by affected par-

ties before they are implemented.

Rumors have continued to circulate in Ottawa that Gordon will have to go. but when 1 called on him recently to ask the inevitable question about his future, he glanced calmly around his office which has recently been redecorated in subdued pink, and told me: “I don’t expect to spend the rest of my life in politics, but as long as 1 feel my party hasn't abandoned my objectives and that l can play a useful part in achieving them. Ell stay.” ★