CANADA'S INDEPENDENCE INVENTORY: the cupboard is ours, but the stock is fast becoming theirs

December 1 1971

CANADA'S INDEPENDENCE INVENTORY: the cupboard is ours, but the stock is fast becoming theirs

December 1 1971

CANADA'S INDEPENDENCE INVENTORY: the cupboard is ours, but the stock is fast becoming theirs

Every bottle in the Canadian pine cupboard at right represents a key sector of Canada, and if you examine the contents carefully two facts leap out. The first is that Canadians still firmly control some key sectors of their native land. According to the most recent report — that for 1968 — compiled under the Corporations and Labor Union Returns Act, we hold 71% of investment companies, 81% of public utilities, 69% of retail trade. But the second clear fact is that the richest, fastest-growing sectors of our economy are controlled by outsiders. We own 94% of agriculture, forests, fishing and trapping; they own 99% of the booming petroleum and products industry. (They, in more than three quarters of all cases catalogued by the government, are Americans — a concentration that makes the foreign ownership more ominous than if it were shared.) We own industries, such as those in the financial sector, protected by law; they have a strong and growing grip on everything else. Even the way we look at ourselves is slipping under foreign domination. Newspapers, television and radio are protected by law, but where there is no such limitation outsiders are crowding in. Increasingly, Canadian universities are being taken over by foreign-born teachers; Canadian book publishing threatens to disappear under the onslaught of outside control; almost twice as many magazines sold in Canada are U.S. products than are Canadian. The foreign grip is tightening, inevitably, because it is concentrated in our most powerful and profitable companies. In 1968, nonresident corporations reporting accounted for only 3% of all Canadian firms in terms of numbers, but they controlled 27% of all assets, made 35% of all sales, and cleared 41% of all profits. The implications are obvious; unless we act soon, the cupboard at right may be embraced by one all-encompassing label — Product of the U.S.A.

continued on page 57


THE COST: how we are paying to finance our own disappearance

Confronted with the ominous figures on the increasing U.S. penetration of the Canadian economy shown on page 25, our politicians generally slide behind a protective screen of slogans. It doesn’t matter who owns the factory, or oil well, or hockey team, as long as the rules of good Canadian corporate citizenship are observed. When Prime Minister Pierre Trudeau was asked if Canadians suffered because of domination of the economy by Americans, he replied, “They don’t, I think, suffer in an economic sense, or even for that matter in a technological sense. It is because of American capital investment, and the technology that came with it, that we enjoy one of the highest standards of living in the world.”

In short, without massive injections of U.S. capital, we would be poor; to interfere with that capital is to risk our well-being; instead, we should be egging on the golden goose. This assumption has been attacked with increasing vigor by Canadian economists, led by Professor Kari Levitt of McGill University. In her study, Silent Surrender, Professor Levitt argues that “the acquisition of control by U.S. companies over the commodityproducing sectors of the Canadian economy has largely been financed from corporate savings derived from the sale of Canadian resources, extracted and processed by Canadian labor, or from the sale of (the products of) branch-plant manufacturing businesses to Canadian consumers at tariff-protected prices.” Those aren’t American dollars expanding our economy; they are Canadian dollars manipulated by Americans. In the period from 1957 to 1964, U.S. direct investment in the crucial sectors of our economy — mining, manufacturing and petroleum — came out of Canadian pockets: 73% from retained earnings and reserves of U.S. companies here, 12% from Canadian financial sources, only 15% from new U.S. funds. The trend is clear — and disturbing: in 1968, of $2.61 billion in new American investment here, only $127 million, 4.9%, came from

U.S. funds. And we pay through the nose for that tiny injection of capital; since 1960, Canada has paid out $2,625 billion more in interest, dividends, royalties and fees to U.S. citizens than we have received in new investment.

Nor is it true that it doesn’t matter who really holds control. Because so much of our economy is owned outside, and marches to a distant drummer, we have lost the right to lay down the policies or even the laws many of our major companies follow. In a number of cases, Canadian subsidiaries have been prevented from accepting orders from countries declared outside the pale by the U.S. Trading With The Enemy Act. Enemies, under this law, include North Korea, North Vietnam, Cuba and, until recently, China. Ford of Canada was approached in 1957 about a sale of 1,000 cars and trucks to China, but, under the terms of the legislation, couldn’t even consider it; the B. F. Goodrich Company was unable to pursue a more recent order for a sale of conveyor belting to the city of Chungking; the H. J. Heinz Company and Gerber Products were barred from selling canned goods to Cuba, and three Canadian flour mills were unable to ship flour to that same country. American authorities have even intervened to apply restrictions on trade to nations which are not technically “enemy.” In 1964, for instance, several Canadian construction firms were instructed by their U.S. parents not to sell machinery to Russia. Whatever the loss in dollars involved — and it cannot be high — such incidents make a mockery of Canadian sovereignty. Just as important, the most affluent and aggressive sector of our industry has made no attempt to open new markets in the areas sealed off by American fiat, and now that China has been rediscovered by President Richard Nixon we have lost any head start we might have had there.

U.S. antitrust legislation also affects the operation of Canadian subsidiaries. Sometimes, we have benefit-

ed: American law forced the establishment of a separate Aluminum Company of Canada, forced Schlitz Brewery to step back from its attempt to take over Labatt’s, forced the establishment of Du Pont Of Canada Ltd. and Canadian Industries Limited as separate companies. Sometimes we have been hurt: Canadian branch

plants in the forest-products industry were prevented by U.S. law from combining for greater competitiveness in export markets. Whether good or bad, the main thrust of this legislation has been to shift important decisions affecting our economy to U.S. boardrooms and government offices. It also affects the prices we pay for goods. Studies have shown that the Canadian refrigerator market of 400,000 units annually could be efficiently served by two factories. In fact, there are nine, seven of them branch plants. If they were to combine, they could reduce the price of refrigerators here, compete more effectively abroad, and face prosecution in U.S. courts.

Just as U.S. law governs how individual firms may operate, U.S. policy determines their collective behavior in the crucial matter of capital flows. Twice now — in 1965 and 1968 — American presidents have asked or required U.S. companies abroad to bring home more capital. In each case, a hapless Canada, faced with a massive hemorrhage of funds, has begged for an exemption; in each case we have received it only for a price — the handing over of an ever-increasing share of control over our currency reserves to the U.S. As Royal Bank chairman and president Earle McLaughlin noted, “Under the new arrangements, our own monetary authorities appear to be attached to a string . . . the business end of which is held in Washington.”

American subsidiaries tend to buy from their U.S. parents rather than from Canadian sources, and to compete only timidly for export sales. A 1967 federal government study shows that 82% of the output of foreign controlled companies was sold in Canada. The president of a large U.S. branch plant in Peterborough, Ontario, once told me bitterly how his firm was blocked from an export market by the parent company. The Canadian sales office had opened negotiations for a contract in Barbados, which had to be approved in New York. The international office added bookkeeping costs to the Canadian bid that made it noncompetitive, then the U.S. firm submitted a lower bid and got the contract.

Finally, we pay for American ownership because the decisions to ex-

continued on page 58


pand or retract, to open new plants or close old ones, to conduct research here or buy it elsewhere, are made in the U.S., for reasons that may make perfect sense to them but make no sense at all to us. When economic retraction begins, U.S. companies start retrenching in Canada; when they expand, they do so with American jobs in mind, which is perfectly proper conduct from their point of view, but leaves more than half our manufacturing jobs naked to the wind. In testimony before the U.S. House of Representatives Ways and Means Committee, Harold D. Arneson, president and general manager of Abbott Laboratories International Company — which has a Canadian subsidiary — put the point clearly: “Our investments abroad have resulted not only in exports of chemical or pharmaceutical raw materials from the United States but also of American machinery and other capital equipment to equip our manufacturing facilities in foreign nations. It is significant that Abbott Laboratories International Company’s employment in Chicago, as a result of its increased capital investment abroad, rose 50% in the last six years.”

The almost automatic way in which subsidiaries follow U.S. rather than Canadian policy was underlined shortly after President Nixon clamped his wage freeze on American firms. Douglas Aircraft Corporation at once cited the American freeze in refusing to make any new wage offer to its Canadian workers, and cited the President’s action for excuse.

There are, of course, subsidiaries who make a conscious effort to put Canadian needs first, and whose directors insist on a high degree of autonomy. One such company is General Foods of Canada, whose president, Robert S. Hurlbut, insists that all policy decisions be made on this side of the border. Hurlbut contends that “the real question of any company operating here is the performance record of the company, not who owns it.” But Hurlbut reflects an uneasiness which is growing, even in business circles, about the degree of U.S. penetration. “I don’t see any point in trying to buy back established firms,” he says, “but I do think we should try to keep new concerns in Canada.” He suggests more government intervention may become necessary to safeguard the economy. “The government has to look farther out and work at long-range goals and objectives; we need laws not to punish foreign investment but to encourage Canadians, and a clearly defined policy for the future.”


decisions are union made... in the U.S.A.

The disturbing trend to a homogenized, American-dominated continent does not stop at the university foyer or the factory gate; it extends into the union hall, although here the consequences of U.S. control are harder to measure. For 10 years, I was a member of The Newspaper Guild, which is officially described as an international union. It is not, of course; it’s an American union with about 10% of its membership in Canada. Most of the time, the cross-border link was an advantage; we could not have run a strike without U.S. support, and we could not have organized any new locals without the expertise and’ funds provided from Washington headquarters. Sometimes, however, the interference became oppressive. In 1964, when the International Typographical Union struck the three Toronto papers in what seemed to us a stupid and futile cause, our U.S. headquarters tried to make us honor the ITU picket lines. We knew that, in fact, the local ITU had accepted a contract and had been overruled by the union executive in Colorado Springs and sent on strike against the votes of its Toronto members, so we objected. However, the NG was anxious, for its own purposes, to cultivate the goodwill of the ITU, and the Toronto locals were subjected to a good deal of pressure, persuasion and abuse at international meetings and in the pages of the NG’s Guild Reporter. We crossed the lines anyway.

Having been through that, I cannot accept the view that international unionism is the same as American corporate control. Had we been corporate employees, we could not have ignored the American policy; we wouldn’t have been criticized, we’d have been fired. At the same time, the argument that U.S. ties are only incidental to Canadian unions is plainly ludicrous; while some of our unions are autonomous in everything but name, others are run with nearly the same branch-plant mentality of any U.S. subsidiary.

The degree of American control

over unions parallels that over manufacturing concerns. While 58.1% of our manufacturing is owned abroad, 62.5% of our union members belong to international bodies (although, unlike the companies, the degree of outside control is lessening). In most cases, the Canadian locals are merely a splinter group in the international, without any hope of influencing its general policy decisions. Of 94 international unions, only six have a Canadian membership greater than 20% of the total, and 58 have a membership less than 10% of the total.

When U.S. ties begin to chafe, the Canadians are prevented from reaching for greater autonomy by international constitutions they have no hope of reforming. Last summer dissidents began an independence movement within the giant United Transportation Union, but it was quickly snuffed out at a convention held, naturally, in Miami Beach. The autonomists were not looking for a clean break from the U.S. union, all they wanted was distinctive Canadian conventions and a right to elect their own top officers (at present, they are voted on by the international, whose members are more than 90% Americans). At the August convention, Canada’s 21,000 members were represented by 170 delegates — out of 1,800 — who were themselves badly split on the nationalist issue. A motion to set up a .committee to investigate autonomy was defeated in the Canadian caucus, before it ever reached the convention floor. The American domination of the meetings brought some nice touches; one came when the Canadian top officers received a 30% pay boost, in line with recent U.S. railway wage increases (in Canada, pay raises have been about 15% for railway workers; later, the boost was held back because of President Nixon’s wage freeze). Another came at the closing banquet, when the band sat down right after playing The Star Spangled Banner, and a forlorn group of Canadians rose to chorus O Canada unaccompanied. It was the one time they were listened to.

continued on page 60


At least in the United Transportation Union the top Canadians are elected; in some unions, the Canadian director is simply appointed by the president of the international. This was the case, for instance, with the prestigious Oil, Chemical and Atomic Workers Union, whose 13,500 Canadian members had never voted for or against their director, Neil Reimer, from 1954 until a convention in Miami Beach last summer, when they won the right to elect their own director. Larger unions have more autonomy, according to Dr. John Crispo of the University of Toronto’s Centre for Industrial Relations. “Most international unions claim . . . that they allow the Canadian members to run their own show. I believe this is largely true of most of the major unions ... I do not think it is true of the majority of the smaller international unions.”

Labor leaders are sensitive on this subject. William Dodge, secretarytreasurer of the Canadian Labor Congress (and member of a Canadian union) contends that international affiliation need not limit the autonomy of local unions. “It all depends on the guy in charge,” he says. “For instance, Neil Reimer has consistently advocated policies directly contrary to those laid down in the U.S., on everything from Red China to NORAD.”

Just the same, the degree of American control is beginning to make the CLC nervous, and it has adopted a set of guidelines for autonomy, which includes election of Canadian officers by Canadians, determination of policy on this side of the border, and the right of Canadian elected officers to speak for the union. (One of the least edifying sights in modern labor relations was the spectacle of two spokesmen, one for the union, one for the company, heatedly denying that the GM settlement last year was made in the U.S.A. The denials were issued by an American officer and an American union leader.)

The CLC has also launched a study, the first ever, to determine how autonomous its locals are. That study will grapple with, among other things, the fact that, according to returns under the Corporations and Labor Unions Returns Act, international unions collect about $12 million more in Canada than they spend here annually. Do we lose that money, or, as Dodge contends, would it cost us more than that to duplicate services now provided by the Americans?

Hopefully, the CLC study will settle what is, in fact, the crucial question: who calls the shot for our unions — Canadians or Americans?

THE LINKS: all together now, which way does our trade flow? wrong!

Few things are certain in this everchanging world, but one thing we can all count on is that someone somewhere today will rise to address a service club luncheon, or a school group, or a political gathering, and will tell his unastonished audience that “the natural flow of trade” in Canada runs north and south, not east and west. This theme has set the tone for more boring speeches than any other phrase in the Canadian lexicon, except the one that salutes our undefended border, and because we accept it as gospel Canadians consider they are tampering with something primal any time a suggestion is made that we should look more to each other and less to the U.S. for economic nourishment. In moments of stress Canadians from the Maritimes to BC curse the artificial barriers that distort the natural flow of trade. The Canadian railways, we are told, were built in defiance of continental logic.

But they were built, and the trade patterns they established abide. The U.S. is not Canada’s best customer; we are our own best customer by a country mile. A glance at the major economic movements shows this at once, yet the notion is so novel that the Ottawa statistician who helped me compile these figures looked dazed at his own handiwork and said, “My God, I’d never thought of it that way.”

In manufactured goods, Canadian producers sell about five times as much domestically as they do to all foreign customers combined. In 1967, the only year for which Statistics Canada has made a detailed study in this area, 56% of all factory shipments went to the province of origin, 28% to other provinces, and 16% to foreign customers. Quebec sells more to Ontario than it does abroad, and is in turn Ontario’s best customer by far. Nova Scotia ships almost as much to Ontario and Quebec as to all foreign nations put together, Saskatchewan sells more to each of Quebec, Ontario, Manitoba and Alberta than it does to the U.S.

The pattern set by manufacturers’ shipments holds true in other fields.

Figures available for 1970 show that interprovincial movements of gas, oil and electricity are all higher than either exports or imports. (Last year Canada exported 245 million barrels of oil, but the interprovincial movement was 259 million barrels; we sold 789,486 million cubic feet of gas across the border, but 1,187,460 million cubic feet interprovincially; we exported $14 million worth of electricity, but sent $16 million across provincial borders.) This is all the more significant because our national oil policy deliberately discourages what could be a major energy resource movement — that of Alberta oil to the rich Montreal market. By law, western oil shipments are confined west of the Ottawa Valley, a fact that upsets many Alberta producers.

And so it goes; we make about 16 times as many long-distance telephone calls to each other as we do outside the country (in 1970, there were 407 million domestic long-distance calls, just over 26 million calls to the U.S.), our major passenger airlines fly more miles within our borders than across them (last year Air Canada and CP Air logged 6.39 million passenger kilometers within Canada, 5.87 million outside), our railways carry six tons of domestic freight for every export ton, and five domestic passengers for every international one.

These figures carry two obvious implications. First, while we may be dependent on the U.S., we are much more dependent on each other. Quebec separatists who argue that their province, after independence, could find what it needs in American markets are ignoring the essential role of interprovincial trade. An isolated Quebec would soon miss those internal Canadian props now virtually forgotten amid the clatter of clichés about the natural north-south flow of trade. Secondly, our mutual interdependence can be as much a source of strength as of weakness. A valuable part of what we have left of our nationhood is the chain of links that bind us together; there lie the hopeful beginnings of national self-sufficiency.

continued on page 62


DEFENSE: taking the joint approach and doing it their way

For more than 60 years now, Canadians and Americans have found that the simplest way to deal with each other is not through the cumbersome, slow and unwieldy process of government-to-government diplomacy, but directly, through joint boards on which Canadians and Americans meet to thrash out mutual problems. One of the earliest of these bodies was the International Joint Commission, founded in 1908 and still going strong. It was followed by more and more joint ventures, until today there are no fewer than 17 such bodies, from the Canada - U.S. Ministerial Committee on Trade and Economic Affairs to the International Pacific Halibut Commission.

They are, in large measure, a sham; they are places where Canadians meet Americans so the Americans can tell us what they intend to do and we can say, Yessir. Consider the Permanent Joint Board on Defense, established in August, 1940, by Prime Minister Mackenzie King and President Roosevelt after their historic meeting at Ogdensburg, New York. The Ogdensburg Declaration laid down the ground rules for the new body: “It has been agreed that a Permanent Joint Board on Defense shall be set up at once by the two countries ... It will consider in the broad sense the defense of the northern half of the western hemisphere.”

That was pretty heady talk for Canada — a half share in defense policy for “the northern half of the western hemisphere.” It hasn’t worked out that way. When the PJBD was first formed, the U.S. needed cooperation, access and bases in Canada for her own defense, and our views carried some weight in Washington. In the missile age, we are not needed and not listened to. The board consists of representatives from the three armed services and the diplomatic corps of each nation; it meets three times a year for what the diplomats insist are “full, frank and free” discussions, but it does not reach any decisions. Only its discussions are reported back to the member govern-

ments. (At first, PJBD decisions went as unanimous recommendations to the governments; one of the early discussions centred on “how an American army of 300,000 could at need be sent into Nova Scotia without delay,” in case Britain fell and Germany threatened Canada. We were thus assured that any battles would take place on our soil. Also, the board drew up a “Joint Canadian-United States Basic Defense Plan 1940,” which boiled down to a plan for continental defense under the “strategic direction” of the U.S.) Those discussions, as a Canadian board member affirmed, are pretty one-sided. “The Americans have such resources in terms of intelligence, technology and systems analysis; they have all those intellectuals who do nothing but sit around thinking deep thoughts, the guys who say, ‘We have an airplane that can do such and such; shouldn’t we be doing it?’ All we can say is, ‘Well, yeah, if you say so.’ ”

The board’s practical work consists of clearing away the underbrush on administrative problems. For instance, it looked after the trade by which Canada turned in 58 CF-101 Voodoos to the U.S. and got back 66 F-101s for some adjustment on the financing of the Pinetree radar line. It is also responsible for the operation of an eight - inch oil pipeline that runs from Haynes, Alaska, to Fairbanks, Alaska, across the Yukon. (The line broke a couple of years ago, polluting a lake, an ominous portent for those planning a far larger project in either Alaska or the Northwest Territories.)

But the PJBD’s main purpose is to function as a listening post, where the defense partners can inform, consult and complain. Mack Johnson, Director of the Office of Canadian Affairs in Washington, and the senior U.S. board member, told me that “Canada’s views are very important and very carefully considered,” but the record does not support him.

The most important recent decision on North American defense was the U.S. decision to proceed with its

anti-ballistic missile program, a move Canada opposed from the beginning. Did we use the PJBD to register our objection? Not on your digital computer; the item never made the PJBD agenda. Our generals were informed of what the Americans were up to, but if we had any complaints they didn’t want to hear them. Similarly, when the U.S. insisted, against our disapproval, on conducting underwater nuclear tests off the Aleutians, the PJBD stayed clear of the subject. On the other hand, the recent Canadian White Paper on Defense was the subject of spirited discussion in the PJBD, and Canadians were told what kinds of changes the U.S. would approve, and which ones might produce a frown.

In short, from its lofty beginnings, the PJBD has turned into a briefing club for the enlightenment and persuasion of Canadian generals and diplomats. Roger F. Swanson, a research associate at Johns Hopkins University, and author of An Informal Alliance: An Analysis Of The U.S.-Canadian Defense Relationship, says, “By the very nature of the beast, on the PJBD, the U.S. defines and Canada reacts.Swanson, an American, believes the very informality of our defense relationship with the U.S. is its chief danger. “You have too many people who just pick up the phone and call somebody in Washington, in the name of pragmatism. Well, I don’t see pragmatism as such a bloody blessing. All it means is that, if you leave something undefined, you leave it open to the option of the larger partner, the U.S.”

Swanson says flatly that “the most obvious national security threat to Canada is the United States,” and “you therefore want to define your rights and duties on continental defense very carefully. You have an obligation not to let anyone else use Canada en route to attack the U.S., but you don’t have an obligation to surrender defense policy decisions to the U.S.” ■