"no Country Can Afford Totally Free Enterprise"

Canadian John Bulloch says the times demand some government intervention.

 

You'll have to excuse John Bulloch if he doesn't talk like other small business advocates you've heard. Oh, he can rant eloquently about government paperwork and regulations. He's a real bear on confiscatory taxes.

On the other hand, you won't hear him crying about getting government off business's back. He talks instead about a more intelligent role for the state in economic policy. He wants higher energy prices and thinks the government should collect most of the additional energy revenue. He's campaigning hard for large-scale resource development projects involving big business.

Heresy? Not where John Bulloch comes from. He talks a different line because he's Canadian, and he'll tell you that the Canadian business environment is different in one important respect from the American.

Almost 7% of all Canadian companies are foreign-controlled, but in 1978 those firms accounted for 33.8% of all domestic sales and 29% of business assets. In other words, big business in Canada is to a great extent foreign business. "We are just appendages of the United States," Bulloch sometimes complains. Foreign-owned firms, he points out, are not especially interested in promoting Canadian small business. Thus, Bulloch's view of what's good for small business -- and for Canada -- takes on an international dimension. He is not anti-U.S., but he is pro-Canada, and predicts his country will have a competitive leg up on us in the not-so-distant future.

Ten years ago, Bulloch founded the Canadian Federation of Independent Business, whose 58,000 member businesses are Canadian-owned. He is still the president of that organization, and its political victories are impressive. Nearly all of Canada's 10 provinces have drastically lowered their corporate small business tax rates, for example, and the point at which the full federal corporate income tax applies has risen from $50,000 to $150,000, largely because of CFIB urging.

John Bulloch recently lectured a group of American academics on "Private Enterprise: Canadian Style," and INC. Washington editor Tom Richman snagged Bulloch between flights as he returned to Toronto. Here are excerpts from that conversation.

INC: Americans were reminded by President Reagan's trip to Canada last spring and the more recent economic summit conference that we do have a rather large country to the north of us, and that Canadians don't always see things the same way we do.

Bulloch: For most people in the United States, the superficial similarities between the two countries stand out. We speak the same language. We share the long tradition of free societies. Much of our rhetoric has been the same as your own. Internationally, we have voiced the advantages of free enterprise and free markets. Meanwhile, back home, we behaved differently, and the differences run to the heart of our attempt to share this continent.

INC: What specific differences do you refer to?

Bulloch: Our manufacturing capability is highly centralized and substantially foreign-controlled. We are the world's largest per capita importers of finished products. If you experienced the same magnitude of trade deficit in manufactured goods as we do, it would amount to $150 billion to $200 billion. Our capital markets are tied to yours, and independent monetary policies are all but impossible. Consequently, we have had to accept much higher levels of government intervention than you.

I should also point out that the small and medium-sized manufacturing sector is weak in Canada, essentially because so much of the decision making on procurement is made in the foreign head offices and not in the Canadian subsidiaries. If we were to adopt a total laissez-faire North American trade approach to our development we would soon disappear as a nation.

INC: I assume you don't intend to let that happen.

Bulloch: Right Canada's economic future lies in developing our natural resources, and we are creating a public policy that will link our manufacturing sector to our resource sector. We'll embark on about $400 billion worth of energy megaprojects over the next two decades, $200 billion within the next 10 years.

You would think that Canadian business would say, "Great, let the private sector get on with the job." Well, they say something else. They say, "Let the private sector get on with the job -- providing that Canadian business gets 80% of the content; providing that Canadian business supplies the bulk of the $67-billion machinery market; providing that research and development spending goes up; providing that small business and all regions of Canada get a piece of the action." Those provisos are as important to Canadian business as "getting on with the job." And the job won't get started without them.

You can see, I think, how our geography and the fact of massive foreign ownership alters the normally free enterprise nature of the Canadian response.

INC: In the United States, free enterprise seems to be enjoying a period of renewed political respectability. I take it that's not the case in Canada.

Bulloch: I don't mean to say that free enterprise is dying in Canada. Quite the contrary. What we need rather desperately is a new language to describe a new world. No country -- Canada, the United States, or Britain -- can afford unadulterated "free enterprise" or unadulterated "state control."

In the States you use words like free enterprise and private sector in the same way you talk about being born again. But if you could get away from the buzzwords and talk instead about what makes the system work -- about new venture formation and how it is the key to job formation -- you would achieve your objectives without using language that causes people to take sides.

President Reagan may talk about free enterprise, but will he save Chrysler? Will he modernize U.S. Steel? Will he allow quotas (voluntary or otherwise) on Japanese autos? Will he increase defense spending and give a shot in the arm to the revitalization of America's technological base? The intervention will be cast in terms of competing with the world's weapons. It will be cast in terms of freeing entrepreneurial talent, but it will be intervention nonetheless.

INC: Canadian small business, you say, supports the energy megaprojects, provided small business gets its share. How is that going to happen?

Bulloch: First of all, that's what the public wants to happen We've made small business the language of Canada. Ten years ago you never heard the word, and now it's on every politician's lips almost every day. Every school in Canada has courses on small business and entrepreneurship. None of them did a decade ago.

Ten years ago it was my firm belief that the American economic system, with its frontier free-enterprise ethic, was the socioeconomic system that would result in the largest small business sector. But in fact, Japan, a highly structured society, has the largest small business sector in the world. Over 80% of the workers in Japan's private sector are employed by small and mediumsized enterprises, because the large Japanese firms subcontract to small Japanese-owned companies. We think that part of the Japanese system, at least, will work very well for us, so Canadianization and subcontracting are very high priorities with us.

INC: That sounds like nationalism.

Bulloch: Most Canadian small business people don't speak angrily or emotionally about Canadianization. But there are strong economic reasons for having the $400 billion in energy projects we plan designed by Canadian firms so that they'll specify Canadian machinery that will be manufactured in Canadian factories.

Despite what you read about Canadian factionalism, I think Canada's economic performance will be better than any of the major powers' by 1985 or 1990, depending on how fast we get moving.

INC: How can you make a prediction like that? Recently you said Canada was a foreign-dominated welfare state that was unprepared to meet the competitive realities of the '80s.

Bulloch: I can predict that because of our ability to be totally self-sufficient in energy and because of the massive domestic opportunity that self-sufficiency creates for resource-based manufacturing and service companies.

I've heard people in the States give speeches warning of the socialist hordes. Socialist hordes aren't the threat.The threat is your own affluence.

There are an awful lot of people in the world who want to get some of the oil, some of the steel, some of the resources, and to have your standard of living. They're watching your television programs in bamboo huts in Manila, and they're all going to school to learn to live like us.

Even now you can get almost anything made in Manila -- anything. The competition we are going to face hasn't even begun to affect us yet. Take Hong Kong. In 24 hours they can produce a duplicate of anything -- any piece of technology. It frightens me because it's hard to convince people of the immensity of the competitive threat we'll face.

The major problem for the industrial world is not energy. That's one problem, but the most significant problem is that in the developing countries, a billion people with educations are going to be looking for jobs. Whose jobs do you think they're going to get?

INC: And Canada, you think, will be less vulnerable to this competition?

Bulloch: The United States and Japan are far more threatened by the future than Canada is, because we will resort to our resource base. We have one of the biggest mining industries in the world, and over 90% of the machinery is imported. That will never happen again in our history. Energy is our trump card.