Federal-Provincial Conference, Notes for Use by the Honourable John P. Robarts (16-17 February 1970)

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Date: 1970-02-16
By: John P. Robarts
Citation: Federal-Provincial Conference, Notes for Use by the Honourable John P. Robarts, Prime Minister of Ontario, (Ottawa: 16-17 February 1970).
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We welcome an opportunity to participate in this
discussion because we believe that if we are not to
repeat the mistakes of the past, some sense of
perspective concerning our current economic situation
must be maintained. In 1957, Canada was in a position
where, under the influence of very large increases
in investment which had been occurring for several years
and which were creating significant pressures in the
economy, it was necessary to institute a very tiqht
monetary and fiscal policy. Pullino too hard on the
economic brake plunged Canada into a period of very slow
economic qrowth, which lasted until l96l. We believe
that for different reasons a similar situation exists
Our agenda topic is the current economic situation and
in terms oi that situation, we believe that tho efforts
of the monetary and fiscal authorities in the Uniteé States
and Canada have finally been successful in bringing our
respective economies under control. The problem of inflation
cannot be discussed without considering whether or not the
consequences of the policies currently being used
to fight it will not result in slower economic growth
and more unemployment than we should desire to see in
this country. It is our belief that the war on inflation
is not primarily a battle against the forces of real
eemand but is a battle against expectations on the part
oi the general public that price increases will continue
in the iuture. For that reason, we would suggest that
the use of more selective and anti-inflationary policies
may help us prevent risinq unemployment and severe
curtailment of real economic growth, while achieving a
sivnificant measure of price restraint. The efforts
of the Prices and Incomes Commission to secure voluntary

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aqreements from the public concerning the future course
of prices and incomes are a stop in the right direction.
At the same time, governments at all levels should continue
to exercise a program 0E expenditure restraint in order
to brinn the psychological war on inflation home to
individual Canadians. In addition, selective consumer
credit controls, on a temporary basis, may be warranted
in certain instances. In our view, the use of more
selective anti~inf1ationary policies represents the
realization that the stifling of aggregate demand and
growth through the excessive use of monetary and fiscal
policy, must be a temporary phenomenon.
To date, the main thrust of public anti-inflationary
policies in the United States and Canada has been aimed at
directly reducing tho rate of expansion in the output of
goods and services in the economy through the use of
monetary and fiscal policy. In assessing the results
of these policies, the Governor of the Bank of Canada has
observed that:
“….there can be no question that the pace of
expansion (of the Canadian economy) has slowed
markedly….” +
A similar situation is occurring in the United States.
The U.S. economy has experienced a downturn in economic
activity even though prices have continued to rise.
Industrial output in the U.S. dropped 2.5 points in the
fourth quarter of 1969 while GNP in constant dollar terms
+ Remarks of the Governor of the Bank of Canada to the
Canadian Club of Montreal, February 2, l97O.

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showed one o? the few quarter-to-quarter declines
encountered during the past decade. Mr. Paul W. McCracken
Chairman of the Council of Economic Advisors, suggested
recently in Toronto that solutions to a number of major
economic problems in the United States, including
inflation, are now falling into place:
“….we are now beginning to make real progress
in getting our overheated economy cooled off….“ +
Ontario is concerned that the present desire on the part
of all qovernments in Canada to bring inflation under
control does not mask the very real dangers which confront
us now in the choice of appropriate policies. The current
economic situation in Canada is delicate.
kecent economic indicators in Canada tend to show that the
process of real growth in the economy has been arrested
and that we may even now be in a no-qrowth situation.
Real output declined in the second and third quarters of
1969 and it is expected that the fourth quarter will
show only a nominal increase owing to the catch-up from
the effects of a large number of labour disputes earlier
in the year. One should not be misled that this modest
revival late in l969 is indicative of the fact that
Canada has already passed through a “mini” recession.
Indeed, it is our belief that in l97O, real growth in
Canada will be confined to the latter half of the year
and may fall as low as 2.8 per cent. This slowdown in
Canada’s rate of real qrowth will be accompanied by large
increases in unemployment across the nation. In a
country as vast as Canada we must expect wide disparities
in unemployment across the country. Our own estimates of
the average level of unemployment for 1970 range between
5.5 per cent and 6 per cent for Canada and just over
4 per cent {or Ontario. This trend toward higher
+ Speech to the Empire Club, Toronto, February S, l970.

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unemployment, which began last year, must be viewed with
serious concern. Bvon as we are discussing what to do
in the future, we must not overlook these figures which
indicate a definite contraction in the oconomy rioht now.
In Ontario, a distinct lowering of our economic prospects
Ior 1970 has occurred since we last reported in December.
Private and public investment, which will be one of the
{ow relatively strong sectors of our economy in 1970,
is turning soft and forecasted increases have
already fallen from l7 per cent to about 12.6 per cent.
Most of the investment declines appear to be occurrinq
in non-residential construction and, to a lesser extent,
in machinery and equipment. The outlook for residential
construction in Ontario remains very pessimistic and
real gains in this sector are not expected to match
price increases. In 1967 and 1968, business investment
was squeezed by the twin screws of economic uncertainties
and the pressure of mounting public sector spending.
In 1969, the business sector was faced with both extremely
tight credit conditions and labour unrest and many
investment Gecisions were deferred. As a result of
slower economic growth, corporate profits are under severe
pressure and may have declined by 1 per cent over 1969
and by as much as 15 per cent during the last quarter.
With industrial production and productivity falling
and unemployment rising, our economic outlook is not
while we must do all that is within our power to
combat inflation, we still have to be careful of
ovcr~roactinc. The real enemy may be unemploymenp
lost capacity, and foregone income.

From a 1969 growth rate of 9.4 per cent (of which better than
5 per cent was in real terms), Canada’s economic horizon for
1970 appears to have fallen to a growth rate of 6.8 per cent
overall and a real growth of 2.5 per cent. The same slowdown
will also hit Ontario hard. Our estimate for 1970 indicates a real
growth of 3.2 per cent and an overall growth of 7.2 per cent.
Should Canadians continue to bear the full burden of economically
restrictive monetary and fiscal policies if those policies are
no longer appropriate? In the United States and in Canada, there
are strong suggestions that the war on inflation has been successful
and what remains is the tidying up without the backsliding. In
Canada, some indications of success can be found in government
expenditure restraints, industry price rol1—backs and the recent
efforts of the Prices and Incomes Commission. The public now
believes, and has come to expect, that governments are serious
in their concern about inflation and in their willingness to
canbat it. In this respect, Ontario will continue to act in
whatever capacity she can in order to assist in this endeavour.
We should all be mindful of the fact that given the current
economic situation, our attitudes must be tempered by economic
realities and the fact that our policies must not operate to
reduce our national capacity for real growth – both in the short
and long run.
We would also be foolish in deluding ourselves that efforts in
the United States and in Canada to combat inflation will result
in immediate success – prices are still rising and will continue
to rise throughout the course of 1970. This is a natural
consequence of the inflationary momentum generated in this
country and in the United States over the course of the last
four years. What is important is recognition of the fact that
in the United States and now in Canada, we have reached a turning
point in our public policy.

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ll. All governments in Canada must now be prepared to open
UP a second and more vital front in joint federal
provincial economic policy-making. Just as the question
of overkill in the war on inflation is crucially important
now, so too, over the course of the next few months, will
be the question of how to design our policies to enhance and promote the resumption of economic growth across this country and the realization of our full potential.

What we now require is a long-run strategy which will
both deflate latent inflationary tendencies and at the
same time restore balance in the economy. Growth in the
private sector must be restored by deliberately restraining
growth in thc public sector and by emphasizing production
and savings rather than consumption.
It should bc the immediate task of this Conference to
achieve two objectives relating to the current economic
The first is to obtain an accurate assessment
of the current economic situation and the problems
which confront us.
The second is to determine tho form and structure
of the appropriate federal and provincial policy
responses not only immediately but also over
the long run.

3. An accurate and up-to-date assessment of the economic
outlook for l970 is critical in the determination of the
priorities we shall follow and in the use of the policy
instruments at our disposal. The economic forecast which we now
require will deal with expected developments in the
Canadian economy in 1970 – region by region. It must also
include the anticipated growth of various sectors, changes in employment and an estimate of real growth versus inflation. We also need to know what the federal government contemplates in its use of fiscal and monetary policy in 1970.

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In order to contribute to joint policy determination, the
Province of Ontario is prepared to table its 1970 Canada
and Ontario economic forecast for joint review with the
federal government’s 1970 forecast. We would also be pre-
pared to have our officials discuss with their federal
counterparts the main components of both forecasts, in
order to bring back to this Conference the necessary infor-
mation upon which we can base our policy alternatives.
In the design and determination of the appropriate economic
stance to be taken in 1970, we need to know the exact nature
of the problems which are being experienced across this
country. We would also want to consider the available policy
alternatives appropriate to the different conditions in
various regions of Canada as well as the different weight
and form these policies might take.
In this respect, we believe that the current reliance on
monetary and fiscal restraint is not well suited to the needs
and requirements of differing areas across Canada. For example
the impact of monetary and fiscal policy is weighing more
heavily on some regions than on others. The Ontario economy
is already experiencing a slowdown. Unemployment is rising
both in our province and across the country. Given this
situation, wrong-headed economic policies which give rise
to additional unemployment and unused capacity in Ontario will
not help to create jobs in Quebec or the Atlantic Provinces
or solve the problems of regional economic imbalance.
In our view, there are a number of general and specific policy
questions where we must reach some form of agreement in order
to attach the proper degree of urgency to our policy priorities

To the best of our ability we must answer the following
1) To what extent should the federal government continue
to use monetary and fiscal policies in combatting
inflation given the constraints imposed by our current
economic outlook?
2) How can each province use its own budget, as well as
other economic powers, to meet both slow economic
growth and the residue of past inflation pressures?
3) What selective or special policy packages are required
to promote additional economic growth in certain areas
of the country? Certainly the situation in eastern
Quebec and the Atlantic Provinces is different from
that of the Prairies or Ontario.
4) What special or selective policy packages are required
to relieve particular bottlenecks? Restrictive monetary
and fiscal policies combined with expenditure restraints
on the part of the federal government will not, for
example, solve a very critical housing problem in Ontario
Surely we have the ingenuity and the know-how to devise
particular problems to relieve particular problems in
particular areas — wheat, transportation, housing or
pollution are good for a start.
5) How can all governments in Canada best contribute to a
reduction in inflationary expectations across Canada?
Inflation in this country is not confined to a single
area or region but is evident across the country. All
governments together have a role to play in this respect
6) Finally, what special social and economic policies can
be erected now to alleviate the inflation hardship
brought about for particularly vulnerable groups such
as unorganized and unskilled labour, old age pensioners
annuitants and other fixed income recipients. Surely
rising unemployment, as an offset to inflation, is
insufficient and unjust as a policy answer both to the
unemployed and to the helpless in the economic process

Before closing, I would like to add a note to the discussion
to-day which we may tend to forget in our concentration on the
more technical financial, economic and legislative aspects of
controlling inflation. This has to do with an almost revolutionary
change in the attitudes of the people of Canada and for that matter
in many other parts of the world. Attitudes, of course, change
most dramatically in young people but what I want to say applies
to a majority of our population, at least in Ontario. I am
worried about taking too scientific an approach to what is in
many respects a non-scientific problem. What we as politicians
always have to be concerning ourselves with is what people really
want. My philosophy of government tells me that while on many
issues governments must lead public opinion, they must also be
continually aware of what people are concerned about and what
they expect from governments.
Young people to-day are not imbued with the attitudes that were
drilled into many of us who were brought up during the depression.
At that time thrift was almost the greatest of virtues in my
society, borrowing was next thing to a sin and the thought of
having to pay interest was almost beyond the pale. But, after
all, at that time, people had to save. Many had come through
the financial catastrophe of having the head of the family
thrown out of work. Sickness, as well as unemployment, could
be a financial catastrophe if no savings had been put aside.
To-day, there is much less need for people to save or to adopt
the kind of attitudes that promote saving. Most people are
fully covered for the risks of accident, sickness, unemployment
and almost all will have a form of pension coming on retirement
that will be adequate. with their personal worries about what
may happen to-morrow largely taken care of, people can and will
spend quickly and borrow with little thought for the interest
rate they have to pay.

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In recounting this change, I am not necessarily decrying it.
The fact remains that it has occurred, and it has meant, I think,
that there is less incentive to save, less concern about what is
going to happen tomorrow, more concern with the here and now,
and, above all, a willingness bordering on eagerness to go now,
pay later and damn the consequences of the cost of doing it this
Moreover, our western society has witnessed a further revolution
in the shift from a production-oriented economy to one in which
the stress is on consumption and leisure. Have governments and
business grasped these facts? Do we know where the attitudes
resulting from them are leading us? Are we, in our search for
solutions to contemporary economic and fiscal problems, in danger
of being trapped in the framework of older attitudes and once more
gearing ourselves up to fight the last war? Are we really con-
cerning ourselves with what people want? Are;we engaging in
arguments between governments and in the process forgetting the
interests of those who elected us to serve their interests?
These are certainly not all the questions nor even, I am aware,
all the right ones. But they are among those which most concern
me now, and I feel rather sure I am not alone in this regard.
They most certainly have come to my mind in the course of my own
preparations for this particular Conference. They do lead me, in
concluding these observations, to make a few final points.
From time to time, we may deplore the apparent lack of concern of
newer generations for the old virtues. However, I think mot of
us recognize that we must pay heed to the positive side of what
younger people are saying and thinking. Their real concern, as
I see it, is less with themselves and more with the problems of
the apparent values of our society. Perhaps we should be the ones

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to do more of the changing. Can we really justify the things we
do with our resources and our environment? ,Can we continue to
accept the coexistence of hunger and vast wheat surpluses, of
poverty and wealth side by side, of vast sums spent on weapons
of destruction? In this current context, can we deliberately
accept a policy which suggests that the cold discipline of
unemployment is needed to cut down price increases? Should we
deliberately try to manipulate our economy so that it is not
functioning at its full potential?
To me at least, what is so crucial to be gained from this meeting,
from the meeting of the Prices and Incomes Commission last week,
and from the continuing and stimulating debate about tax reform,
is not so much in the way of formal agreements, but_in the way of
changes in our attitudes which I hope will emerge, It is these
changes, in my opinion, which will lead to sounder public policies,
policies which are closely attuned to the expressed and real
interests and attitudes of Canadians. It is in this connection
that we must demonstrate unequivocally that we are concerned first
and foremost for people and their needs. Individuals, industries,
and governments must all show that they are aware of the potential
dangers to our economy and society of “consumeritis” run mad, of
spending our wealth before we have created it. Above all, and I
say this in the spirit not of a lecture but of sober contemplation,
governments must prove to all our people — young, middle-aged, and
old — that we have a humane and abiding concern about the effect
of our actions on each and every individual, and that we are com-
mitted to using our resources to their maximum potential in improv-
ing thc quality of life in our society. As government leaders, we
have a duty to Canada to try to work out jointly a set of govern-
ment expenditure priorities that will allow this country to achieve
its potential without at the same time stoking the fires of infla-
tion. The Province of Ontario, its government, its people, and all
the instruments at its command, stands ready to act in concert with
the other governments in Canada to achieve its objectives.
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