Economic Basis of Free Choice

Canada’s ability to withstand economic and diplomatic pressure from her southern neighbour is determined by the strength of Canadian vested interests- whether private or public- in relation to the American corporations and lobbies. Sectors where ownership is Canadian and markets not subject to special arrangements or concessions from the United States have significantly more freedom. Thus, in the case of the wheat sales, American wheat producers could do little more than express displeasure and envy and press the authorities to threaten restrictions against Canadian farm machinery. Such measures could in any event do little damage because the industry enjoys a large domestic market and is moreover reasonably competitive on world markets. Furthermore, the gains from the wheat sales to the prairie farmers, the transportation industry, and to the politicians who were instrumental in negotiating the wheat deals, are enormous and obvious.

An instructive example of unsuccessful American intervention against strongly organized Canadian interests was provided by the Mercantile Bank Affair. In this instance, a sharply worded diplomatic protest was delivered to Ottawa in forming the Canadian government that its banking legislation was “unacceptable” to the government of the United States. Neither this intervention nor the threat by American commercial banks to withdraw clearing facilities from all Canadian banks was successful in securing entry for Rockefeller’s Citybank into the Canadian banking system. Citybank had purchased a controlling interest in the Mercantile Bank, after being warned that Canadian banking legislation would not permit the acquired bank to be expanded into a large operation. Both the warning and the Canadian legislation were ignored on the miscalculation that sufficient pressure could be mounted to break the monopoly of the Canadian banking system. But naturally Rockefeller’s bank hand to retreat and finally was forced to bargain for the opportunity to sell their holdings in the Mercantile Bank on terms which would minimize their loss.

Although a reasonable case could be made for more competition in Canadian banking system. the American bank was effectively excluded because Canadian Banking is tightly monopolized by five very large Canadian-owned banks. This structure has been well secured by federal legislation. Canadian predominance in banking, transformation and communication is a historical legacy dating from the days of mercantile economy. Here lies the reason for the fact that Canada’s one of the few countries which do not permit American banks to enter – a restrictive contrast to Canada’s permissive attitude to American industry.

Or again we may usefully look at a case of successful American Intervention to establish a privileged position for an enterprise which has a remarkable record of survival. In spite of public censure from representatives of all political parties, and in the recommendations of a Royal Commission, that legislation be passed to protect the Canadian periodical press, Time Magazine enjoys unique privileges.

The Canadian edition sells 356,000 copies. It has the most ‘select” readership of its size in Canada: the average income of Time subscribers is 81.3.000. The man who assembles the four Canadian pages of Time has been described by one Federal Cabinet Minister as “just about the most influential newspaperman in Canada”. With an editorial product already paid for in the United States, Time raked in $6.5 million of advertising revenue in Canada in 1968. The magazine splits its press runs in five regional and even local editions, apart from the Canadian. Together with Readers Digest, it absorbs close to 60 percent of advertising revenue. The result is that Canadian mass circulation weeklies such as MacLeans Magazine or Chatelaine are no longer financially viable without subsidy.

In a House of Commons Debate, spokesmen from the New Democratic Party called the magazine “disreputable” “deplorable” and “intrinsically vicious”. In the same debate Opposition Leader Diefenbaker said that the magazine “has devoted itself to interpreting the news and re-writing it so as to direct Canadian thinking. It is not a Canadian magazine. It has three to four pages of Canadian news in each issue, which makes it a counterfeit magazine when it pretends to be Canadian. It uses these four pages to give its viewpoint, which is not a Canadian viewpoint to Canadians week after week. To what purpose? It is to tell the Canadians what they should do.” Liberal Cabinet Minister Gordon’s comment: “Influential? Yes, perhaps too darn much so, as a Canadian power directed from New York.”

In 1960 a Royal Commission investigated what should be done to save Canadian magazine publishing from extinction by unfair competition from Time and Readers Digest. The Chairman was one of Canada’s distinguished newspaper editors, Senator Gratton O’Leary. During the Commission’s hearing the following remarks were made to a representative of Time:

Commissioner George Johnstone: “Everything I read in Time is apt to be wrong.”

Chairman O’Leary: “Yes, inaccurate, incomplete, with glaring errors and gross distortions. How do you manage to make so many mistakes?”

The O’Leary Commission recommended disallowing deductions for tax purposes of expenditures on advertising placed in foreign magazines directed to the Canadian market. Implementation of the recommendations of the O’Leary Commission would have driven Time out of competition for the Canadian advertising dollar. The original US edition would of course have continued to enter Canada, like any other American magazine. “It may be claimed”, wrote the Commissioner, ‘’that the communications of a nation are as vital to its life as its defences and should receive at least as great a measure of protection.”

No less a person than President Kennedy himself interceded to inform the Prime Minister of Canada that he wished Time to be exempt from any Legislation based on the O’Leary report Washington put pressure on the Pearson administration by making exemption a pre-condition for agreement to the pending treaty on partial free trade in automobiles and parts. As Walter Gordon wrote in his book A Choice for Canada: “approval of the automobile agreements might have been jeopardized if a serious dispute had arisen with Washington over Time.” Time and Renders Digest were both exempted from the bill, passed in 1965 denying tax deductibility for advertising in any foreign-owned publication aimed at the Canadian Market.

The effect was to leave these two “branch-plant” magazines stronger than ever, protected against future competition from the United States. Senator O’Leary was outraged: “The probate death sentence on Canada’s periodical press with all that can entail for our future voyage through history.”

Unlike the banking field, there were no vested interests in Canadian magazine publishing strong enough to counter the pressure mounted by Mr. Henry Luce. Furthermore, the Canadian Government in the automobile negotiations was in the position of begging favours not only from US Congress but from The Big Three. ln such a delicate bargaining position, even the nationalistic Mr. Gordon agreed that “in the circumstances, the decision to grant the exemptions was realistic”. The unfortunate Mr. Gordon added that “explaining the reasons to the Liberal Party caucus was one of the most unpalatable jobs I had to do during my period in Government”.