Blaming the Eagle

The misgivings of U.S. businessmen about the current state of the U.S. economy are nothing like the economic complaints issuing from their neighbors to the north in Canada. After a decade of thrusting growth, the Canadian economy is gripped by a far more serious recession than anything the U.S. faces, and it has caught the naturally optimistic Canadian public by surprise. A slump in key industries -- mining, manufacturing, house building -- promised the worst unemployment since the Depression and a winter in which 720,000 workers, or 11% of the work force, will be out of work. And to hear the Canadians tell it, the giant U.S., which generally thinks of itself as an economic good neighbor, bears a considerable share of the blame.

Canada pointed a disapproving finger at the U.S. -- not merely because of competition or the inevitable abrasive rub between adjoining economies. The complaint is that the U.S. controls Canada's economic destiny and holds it back. Long uneasy over the extent of U.S. ownership of Canadian industry and the southward flow of the rewards (60% of all Canadian corporate dividends are paid to foreign investors), Canadians now argue that the U.S. saps Canada's strength, preventing the necessary industrialization for its rising population. At the head of the chorus stands Canada's Prime Minister John Diefenbaker, crying: "The degree to which U.S. industries have almost absolute power and control over many enterprises in our country is not in keeping with Canada's destiny."

How Bad Was Bad? The year 1960 in Canada, if disappointing, was not all that bad. Gross national product rose, if by a melancholy 2.3%, to a record $35 billion; despite unemployment, personal income climbed to a $24.6 billion record. Canada's strong drive to export its abundant natural resources (wheat, natural gas, forest products) to world markets cut $200 million from its worrisome $1.4 billion balance-of-payments deficit. But what looms largest to Canadians is the statistics of ownership: 76% of the oil and gas industry, 61% of the mining and smelting industry, 56% of manufacturing are controlled by foreign investors, with roughly three-quarters of the amount in U.S. hands. Thus, went the argument, Canada cannot finance its economic growth, cannot build the industries necessary to fill the estimated 1,000,000 new jobs needed by 1965.

In Canada's growing spirit of economic nationalism, the Diefenbaker government's solution is to clip the U.S. eagle's tail feathers and declare economic independence. To the embarrassment--and distress--of the U.S., Canadian businessmen scrambled after trade with the Communist regime in Cuba, stayed strictly neutral in the politics and the battle. And then there is the Canadian government's year-end emergency budget, which promised a boost for Canadian business at the expense of U.S. capital investors. To Canadian enterprises went $60 million worth of tax concessions designed to prime Canadian investment at home; to foreign stock and bond holders went a heavy 15% tax on the flow of dividends and capital, designed to inhibit the capital inflow from the U.S.

How Good a Cure? Some Canadians wonder whether the cure might not be worse than the disease. Alberta Premier Ernest Manning charges the federal government with "catering to a small element of bigoted nationalists" in a way that could only bring harm to the Canadian economy. Many businessmen, particularly oilmen, who need big chunks of investment capital, argue that Canadians do not have the funds to finance major projects themselves. Calgary's Oilweek trade bible cited as a typical case a nearly completed, $90 million financing by Canadian-owned Alberta Gas Trunk Line Co. Ltd. for a pipeline-gathering system. Since that kind of risk capital is simply not available in Canada, Alberta Gas Trunk will probably still have to turn to the U.S. money market and pay 6.3% interest instead of 51% to compensate for the new tax.

Canada, like the U.S., will probably come out of its recession in 1961. Most economists predict a sharp upturn during the latter half of the year, which may soothe the complaints about the U.S. But the tides of nationalism are running strong, and the U.S. can expect to hear more and more about that jaw-cracking word "Canadianization" in 1961.

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