BUSINESS WATCH

A recipe for national success

Peter C. Newman October 29 1984
BUSINESS WATCH

A recipe for national success

Peter C. Newman October 29 1984

A recipe for national success

BUSINESS WATCH

Peter C. Newman

Even the most cynical members of Canada’s business community have welcomed the overwhelming mandate of the new Conservative government. This is not so much because of any deep belief in Brian Mulroney (whom they hardly know) but because the PC leader’s move into power has allowed them, after a gap of nearly two decades, to believe in themselves.

Business confidence is a fragile commodity, based much more on perception than reality. The dismal facts about the Canadian economy were the same before and after Sept. 4, yet the election has altered the country’s economic meteorology. Instead of plotting escape routes for their investment funds, most businessmen are strutting with optimism and self-confidence these days, busy figuring out how best to support Ottawa’s priorities in reviving the economy.

Some of the most interesting and specific suggestions on what Mulroney’s economic ministers ought to be doing come from Andy Sarlos, the Bay Street investment genius whose private $70million investment fund has earned its 70 participants an astounding 36-percent annualized return since it started less than a year ago. Few money men were hit harder by the recession than Sarlos, who lost an estimated $20 million, suffered a grievous heart attack, and very nearly drowned under a mammoth debt burden. His health is now restored, his debts are settled and he is minting profits, but unlike most of his colleagues Sarlos feels an obligation to share his thoughts on how the country he adopted when he arrived here from Hungary 27 years .ago should best go about settling its economic problems.

As a start, he believes that the federal deficit could be reduced by $4 billion if Ottawa jettisoned the current system of energy equalization payments. By not subsidizing Canadian oil prices to sell below world levels, Western producers would get a larger cash flow for reinvestment purposes. He believes that unless there are some dramatic new developments in the Middle East, oil prices are likely to decline anyway, so that Canadian consumers would not be hurt by his suggestion.

At the same time, he would like to see the amount and price of natural gas we ship to the United States totally deregulated. This would not only meet the private commitments that Brian Mul-

roney is said to have made to Peter Lougheed during the campaign, but it would help Canada’s balance of payments and allow Western oil companies to repay their debts so they could field more exploration teams. The price of natural gas in Ontario should be negotiated by a tender system, so that it is once again susceptible to market forces instead of government subventions. “I would extend deregulation to many other areas,” Sarlos told me recently. “It is the wave of the future—certainly Ron-

aid Reagan’s main economic successes were nearly all based on deregulation.”

He wants to further devalue the Canadian dollar and believes that Ottawa must turn Canada into a haven for foreign investment funds second only to the United States, which attracts huge amounts of flight capital by having eliminated withholding tax on bond interest paid to nonresidents. Sarlos contends we should do the same.

Like most Bay Street habitués, Sarlos would like to see the federal deficit reduced by the elimination of universality in social welfare programs. If this can-

not be done, he recommends that benefits be frozen at the present level, with future escalation paid only to those who really need it. At the same time, he would like to see many social services put on a user-fee basis, with university tuition, for example, paid more by students than governments, through repayable loans.

Sarlos believes these and other issues should be discussed at an economic conference of 300 of the country’s business, labor and public opinion leaders, to be held within the next six months. This would allow the new Prime Minister or his minister of finance to present a detailed briefing on the economy as they found it and, following some discussion, a consensus on prescriptions might emerge. Mulroney could then use such a consensus to implement some of the difficult choices facing the country.

Serlos has studied the anatomy of the current economic malaise and believes that the best way to tackle unemployment is through generating rapid smallbusiness growth. He emphasizes that the United States has generated three new jobs for every one that was eliminated during the recent recession, reducing unemployment to 7.5 per cent from 11 per cent in the process—andthat this was done mostly in the small business sector. “In Canada we still have 11per-cent unemployment,” he says, “so we must generate incentives for small business expansion—both for employment and capital expenditures, such as fast write-offs and subsidies for job creation and skill upgrading.”

Sarlos points out that this is the first time a truly national political force has emerged in Canada since the late 1950s that not only has broad popular support across the country but also has the backing of the majority of provincial governments—so that Mulroney can realistically expect to unite the country in the achievement of common objectives. “Mulroney is more likely to deliver the goods than either of his several predecessors, and he is certainly politically more competent to make it work,” says Sarlos. “I expect he will be in power for the next 12 to 16 years—giving us stable free enterprise and a united country. That is why I am so optimistic these days—even if that optimism is combined with grave concern over the country’s dire economic condition.”

Sarlos is not alone but the fact that Bay Street seems ready to pull together with Ottawa represents a shift of historic proportions.