Canada

What to do when the controls come off?

IAN URQUHART September 6 1976
Canada

What to do when the controls come off?

IAN URQUHART September 6 1976

What to do when the controls come off?

Canada

Not long after he introduced Canada’s first-ever peacetime wage and price controls last fall, Finance Minister Donald Macdonald observed that he felt like a man who has fallen from a 30-storey building and still has 15 storeys to go. These days, he may find the ground rushing toward him at an alarming rate. Labor is busy planning its October 14 “day of protest” against controls, a watered-down version of the once-threatened general strike. And, for the first time, the business community has launched a determined campaign of opposition. In full-page advertisements, speeches, interviews, and more than 450 briefs to the government, business leaders have made it clear that they do not like the program. Complained Imasco Ltd. president Paul Paré, whose company was turned down by the Anti-Inflation Board in its bid for an increase in the price of cigarettes: “The goal seems to have changed from anti-inflation to anti-profits.” It was small consolation for Ottawa that one complaint of labor leaders is that the program has failed to control profits.

What has most aroused business leaders is the rule announced in last May’s budget restricting companies to 85% of their previous profit levels. That rule is likely to be modified by Macdonald shortly after Labor Day, but the finance minister’s problems will obviously not end there. Labor will be satisfied by nothing less than termination of the program, and that is something the government is not prepared to do. Controls will, however, likely be lifted well in advance of the originally proposed termination date of December 31, 1978. An election is due in the first half of 1978 and the Liberals will hardly want to fight for votes with a controls program still in place imposing its “rough justice” on the public.

About 110 Newfoundland auto mechanics were among the latest to feel the program’s bite. A pay settlement giving them $6.45 an hour was rolled back to $6.30 by the Anti-Inflation Board. The mechanics appealed the decision to Donald Tansley, administrator of the controls program, who promptly chopped them back further to $5.50 an hour. Said Tansley: “I don’t expect people to like what I do.”

Ironically, Ottawa’s controls are coming

under heavy fire just as the first real signs emerge that the program is working. Statistics released last month showed the inflation rate has dipped to an annual rate of just 4.4%, down from 10.7% when the program was introduced last October and lower even than in the United States, where the annual rate reached 6.3% during the summer. Nor has the decline in the inflation rate been entirely attributable, as some labor leaders claim, to falling farm prices, which are outside the controls program. Even excluding food prices, the inflation rate for all other goods dropped to just 6.1% during the summer compared to 11.1% last October. Still, Canadian Labor Congress president Joe Morris remains unconvinced. Says he: “The program isn’t controlling inflation, no matter what they say.” Morris may have a point. The Parisbased Organization for Economic Cooperation and Development (OECD) believes that it is too early to tell if inflation has been licked in Canada. Forecast increases this fall in auto insurance rates, property taxes and food and energy prices could fan the inflationary fires again.

For its part, Ottawa’s faith in controls remains unshaken, though no one in official Ottawa is advocating that they be made permanent. The government’s energies, instead, are being directed to finding a replacement. The Americans, who had their own experience with controls earlier this decade, offered Prime Minister Pierre Trudeau one solution during the economic summit conference in Puerto Rico last June: do nothing after controls are lifted. That might be good politics, but it is probably poor economics. The basic structural problems that helped cause inflation in the first place—the market power of big business and big labor—would still exist. In the short term after controls, there might be a mad grab for more by people who felt they had fallen behind during controls. The Americans solved that problem by letting their economy slip into a deep recession, something the Canadian government is unlikely to do. One of the stated purposes of the controls program was to give Ottawa a “breathing space” in which to work out new ap-

proaches to economic problems' in what has since been billed as the “new society.” Trudeau has handed the task of developing new approaches to a high-powered group of 10 senior civil servants—dubbed the DMs-10 because they are all at the deputy-minister level. Meeting every Wednesday under the chairmanship of Michael Pitfield, Clerk of the Privy Council, the DMs-10 have mulled over a series of secret study papers on the economy that, according to one insider, can best be described as “inconsistent” in quality. Similarly, although just what has emerged from the DMs-10 deliberations is not known, the civil servants so far in the words of a senior Liberal “ain’t got any magic answers.” In the meantime, the secrecy surrounding the DMs-10 has caused some resentment among Liberal MPS and even cabinet ministers. Some are urging the discussion of post-controls society be opened up to the public. But Macdonald, who feels that the government was “burned” by the public debate on tax reform during the late Sixties

and early Seventies, is reluctant to go through a similar experience again.

Trudeau, Macdonald and several other key cabinet ministers have, however, held a series of meetings in private with Morris and other labor leaders on the subject of the post-controls economy. Morris is pushing a proposal for a Council for Social and Economic Planning, a group made up of representatives of government, labor and business that would set guidelines for investment in the Canadian economy. Advocates of this proposal liken it to the “tripartism” practices in Sweden and West Germany, while its detractors compare it to the fascist “corporatism” of Mussolini’s Italy and Franco’s Spain. Whatever it is called, it is unlikely to be adopted by the government. Aside from the undemocratic nature of the proposal—it would bypass parliament and leave out small business, non-unionized labor, farmers, and consumers—it is considered to be highly impractical in so diverse a country as Canada. It is doubtful even that Morris has the labor movement behind him in making the proposal: at least one major union, the Canadian Union of Public Employees, is reportedly working to kill the whole idea.

Less publicized than the meetings with labor have been a series of discussions between Macdonald and key business leaders. Such captains of industry as Imasco’s Paul Paré, Dick Thomson of the TorontoDominion Bank, and Paul Desmarais of Power Corp. have trooped through Macdonald’s office receritly. Yet they have apparently offered little in the way of suggestions for running a post-controls economy beyond the orthodox measures of cutting government spending and curbing the growth in the money supply.

The cabinet itself is scheduled to resume regular meetings September 13 and the post-controls economy is certain to be high on the agenda. Trudeau wants to make a major statement on the direction the government is headed in the Throne Speech planned for mid-October, but he admits to being personally perplexed about what to do. Indications are, however, that the government will do little more than introduce a new competition bill to bring corporate mergers and monopolies under the eye of a tribunal. Although the bill will probably provoke heavy flak from some corporate

spokesmen, its purpose would be not to curb free enterprise but to encourage it. Trudeau himself, despite his well-publicized flirtation with the works of Harvard economist John Kenneth Galbraith—who advocates permanent government controls for big corporations and unions—remains at heart an advocate of the marketplace as the best mechanism of control. Government proposals to create more competition for the banks rather than impose direct controls on them (see page 24) are a reflection of that view.

In a recent interview with Fortune magazine, Trudeau downplayed his association with Galbraith and spoke instead of his affiliation with Joseph Schumpeter, a profree enterprise economist, and Wassily Leontief, who advocates government intervention but not necessarily controls. Said Trudeau: “I’m inclined to say, ‘Who’s Galbraith?’ I’ve read two or three books by him. I’ve met him a couple of times socially. I find he is a delightful writer and thinker. But in terms of economics, you know, I spent two years studying with Schumpeter and two years studying with Leontief and if you want to know who is permeating my economic thinking you’d be better to think in terms of Leontief and Schumpeter . . . When a job isn’t being done by the private sector, I have no ideo-

logical hang-ups about the government stepping in and doing the job ... (But) in my view the proper role of government is to make policy decisions and not to administer the private sector. So, if there is any preconception in my mind it is on the side of private enterprise.”

IAN URQUHART