The Canadian Economy and Disarmament 9780773595569

Citation preview

The Canadian Eco n om y and Disarm am ent

THE CANADIAN ECONOMY AND DISARMAMENT

Gideon Rosenb/uth

The C arleton L ib ra ry No. 113 P u b lish ed by M c C lellan d a n d S te w a rt L td., in associatio n w ith th e In s titu te o f C a n a d ia n S tu d ies, C a rle to n U n iv ersity

THE CARLETON LIBRARY A se rie s o f o rig in a l w o rk s, re p rin ts a n d n e w co lle ctio n s o f so u rc e m a te ria l re la tin g to C a n a d a , issu e d u n d e r th e e d ito ria l s u p e rv isio n o f th e In s titu te o f C a n a d ia n S tu d ie s o f C a r le to n U n iv e rs ity , O tta w a . DIRECTOR OF THE INSTITUTE D a v id so n D u n to n GENERAL EDITOR M ich a e l G n a ro w sk i EXECUTIVE EDITOR Ja m e s H . M arsh EDITORIAL BOARD B. C a r m a n B ic k erto n ( H is to r y ) D e n n is F o rc e s e ( S o c io lo g y ) D a v id B. K n ig h t ( G e o g ra p h y) J . G e o rg e N e u s p ie l (L a w ) T h o m a s K . R y m e s (E c o n o m ic s ) D e re k G . S m ith (A n th ro p o lo g y ) M ich a e l S. W h ittin g to n (P o litic a l S c ie n c e )

C o p yrig h t © 1978, M c C le lla n d a n d S te w a rt L td . ALL RIGHTS RESERVED ISBN 0 -7 7 1 0 -9 8 12-X T he C a n adian E c o n o m y a n d D is a rm a m e n t w as first p u b lis h e d in 1967 b y M a c m illa n o f C a n a d a , a n d th is e d itio n a p p e a r s w ith th e ir p e rm issio n . T h e C a n a d ia n P u b lish ers M c C le lla n d a n d S te w a rt L td . 25 H o llin g e r R o a d . T o ro n to . P rin te d a n d b o u n d in C a n a d a

J)5

h it c.r

To m y children, Vera and David

CONTENTS

I n t r o d u c ti o n to th e C a r le t o n L ib r a r y E d itio n P re fa c e

ix xxiii

1. I n t r o d u c tio n

1

2 . T h e A m o u n t a n d C o m p o s itio n o f C a n a d a ’s D e fe n c e E x p e n d itu re s

5

3.

D e fe n c e P ro c u r e m e n t P o lic ie s

32

4.

P a tte r n s o f D is a r m a m e n t

49

5. A lte r n a tiv e s t o D e fe n c e E x p e n d itu re

66

6 . G r o u p s a n d A re a s D e p e n d e n t o n D e fe n c e E x p e n d itu re

83

7.

M o b ility in P e rs p e c tiv e

102

8 . P o lic ie s t o F a c ilita te A d ju s tm e n t

117

9. T h e E ffe c t o f D is a r m a m e n t o n R e s e a rc h a n d D e v e lo p m e n t

146

10. C o n c lu s io n

172

B ib lio g ra p h y

178

In d e x

183

Introduction to the Carleton Library Edition It is ten years since this stu d y w as first p u b lish e d , a n d even longer since th e tim e to w hich th e statistics in it refer. T h e figures in th e first ed itio n p re ce d e th e V iet N am W ar. S o m e o f the problem s discussed in this b ook a re n o w less p ressin g or less difficult o f solution th a n th ey w ere in th e m id-sixties, som e are now m ore u rgent, a n d so m e m o re in tra c ta b le . W e shall start w ith a review o f th e m a jo r c h an g es in the ro le o f m ilitary o u tp u t, em p lo y m en t, a n d e x p e n d itu re s a n d th e resu ltin g changes in th e p ro b lem s o f d isa rm a m e n t. REV IEW O F R E C E N T C H A N G E S

F irst o f all, th e cen tral fact is th a t th e relativ e size o f m ilitary expen d itu res in C a n a d a has d eclin ed g reatly . As T a b le 1 shows, m ilitary ex p e n d itu re s by th e C a n a d ia n g o v e rn m e n t as a percentage o f G .N .P . fell from 2.9 p e r c e n t in 1968 to 1.8 p e r cent in 1975. T h e arm ed forces h av e d eclin e d fro m a stren g th o f over 98 th o u san d in 1968 to u n d e r 78 th o u sa n d in 1975 (T ab le 2). T h ese tren d s m ay be te m p o ra rily h a lte d by th e p lan s that have been a n n o u n ce d to rep lace a n d u p d a te a rm e d forces ships, planes, a n d o th e r e q u ip m e n t. 1

ix

.v / Introduction to Carleton Library Edition

TABLE 1

C anadian M ilitary Expenditure (m illions o f dollars)

Year

1966 1967 1968 1969 1970 1971 1972 1973 1974 1975

C anadian m ilitary expenditure

G .N .P . at m a rket prices

M ilita ry exp en d itu re as % o f G .N .P .

(1)

(2)

(3)

1709 1805 1812 1799 1868 1926 1963 2173 2548 2773

61828 66409 72586 79815 85685 93462 103952 120438 140880 154752

2.76 2.72 2.90 2.25 2.18 2.06 1.89 1.80 1.81 1.79

SOURCE: S ta tis tic s C a n a d a , N a t i o n a l I n c o m e a n d E x p e n d itu r e A c c o u n ts , V o l. 1, T h e A n n u a l E s tim a te s , 1 9 2 6 -1 9 7 4 . C a t a lo g u e 13-531 O c c a s io n a l, a n d N a t i o n a l I n c o m e a n d E x p e n d i t u r e A c c o u n ts , C a t a ­ lo g u e 13-001 Q u a r te r ly .

S econdly, C h a p te r 2 includes a n ‘in te r-in d u stry ’ an aly sis d e ­ signed to illustrate the in d irect im p a c t o f m ilitary e x p e n d itu re on th e o u tp u t o f each in d u stry (T a b le s 2.5, 2.7). It is p o in ted out, m oreover, th a t to m ake a c c u ra te a n d re liab le estim a te s o f the im p act o f m ilitary e x p e n d itu re by in d u stry a n d reg io n re­ qu ires b etter d a ta re le v a n t to th e an aly sis th a n w as a v a ila b le in the sixties (p p . 11, 175). Since the sixties, m o re d e ta ile d a n d m o re u p -to -d a te tab les o f in te r-in d u stry tran sactio n s h av e b een p ro d u c e d by S tatistics C an a d a, a n d a system o f reg io n al in te r-in d u stry analysis, w hich is in th e course o f d e v elo p m en t, sh o u ld m a k e it possible to trace the im p act o f a given g o v e rn m e n t e x p e n d itu re by in d u s­ try a n d reg io n .2 I f sufficient co m m o d ity d e ta il on g o v e rn m e n t

Introduction to Carleton Library Edition / x i

TABLE 2

National-Defence-Related Em ploym ent (Septem b er 3 0 o f each y e a r) (thousands) Year 1968 1970 1972 1974 1975

M ilitary 98.5 88.4 81.6 78.2 77.7

C ivilian 34.8 34.6 33.7 35.7 37.2

T o ta l 133.3 123.0 115.3 113.9 114.9

SOURCE: S ta tis tic s C a n a d a , E s tim a te s . F ig u r e s in c lu d e D e p a r t m e n t o f N a tio n a l D e fe n c e , D e f e n c e R e s e a r c h B o a r d , E m e r g e n c y M e a s u r e s O r g a n iz a tio n , D e f e n c e C o n s tr u c t io n L td .. a n d C a n a d i a n A rs e n a ls L td .

p urchases for m ilitary p u rp o se s (o r fo r a n y o th e r p u rp o se ) w ere available, it w ould now be possible to trace th e ir im p act through a system o f tables b ased on o v er 600 c o m m o d itie s and nearly 200 in d u stries. U n fo rtu n a te ly , h ow ever, th e g o v e rn m e n t does not a p p e a r to have p ro g ressed sin ce th e sixties w ith re­ gard to the co m p ilatio n , let a lo n e th e p u b lic atio n , o f c o m m o d ­ ity detail on its p u rch ases. W e m u st th e re fo re stress a g a in , as we did in 1967, the ‘need to classify a n d c o m p ile g o v e rn m e n t ex p en d itu re on goods an d services by in d u stry , by c o m m o d ity , a n d by locality a n d reg io n ’ (p. 175). A n a ttem p t to u p -d a te th e resu lts sh o w n in T a b le 2.5 is sum m arized in T a b le 3. T h e analysis is b a se d o n m ilitary ex­ p en d itu res for th e fiscal y e a r 1974/75 a n d th e in p u t-o u tp u t table for 1966 (S tat. C an. C at. N o. 15-505). M ilitary e x p e n d i­ ture by co m m odities w as estim ate d by th e a u th o r from m a te ­ rial p u b lish ed in the P ublic A c co u n ts a n d th e E stim a tes. T h e d a ta w ere then revised by th e s ta ff o f S tatistics C a n a d a on the basis o f in fo rm atio n av aila b le to th em . T h e y also c o n v e rte d the figures from p u rch asers’ prices to p ro d u c e rs’ p rices a n d p e r­ form ed the calculations re q u ire d fo r th e a n aly sis.3

xii / Introduction

TABLE 3

Inter-Industry Analysis O f Defence Expenditures Fiscal Year 1974/75

T o ta l (3)

A griculture Forestry Fishing, hunting, trap p in g M etal mines M ineral fuels N on-m etal m ines an d resources Services incidental to m ining Food a n d beverages T obacco products R ubber a n d plastics L eather products Textiles K nitting mills C lothing W ood products F urniture and fixtures P aper and allied p ro d u cts Printing an d publishing Prim ary m etals M etal fabricating M achinery

—

12.0 4.0 0.5 4.0 25.4 1.8 1.6 25.6

12.0 4.0 0.5 4.1 34.9 1.8 1.6 25.7

1.4 0.3 0.1 0.2 0.4 0.1 0.1 0.8

0.1 —

9.5 _ _

0.1 0 0.8 _

0.1 0.2 15.0 — —

0.2 0.1 0.9 15.2 3.6

_

10.9 0.6 8.7 0.8 1.1 7.5 1.1 26.2 18.9 54.7 29.8 10.7

_

11.7 0.6 8.8 1.0 16.1 7.5 1.1 26.4 19.0 55.6 45.0 14.3

_

0.6 _

0.5 0.1 1.4 0.4 0.1 0.7 1.3 1.0 2.4 0.6

473“ 60.3 29b 70.7 26.3 22.4 n.a. 220.9 9.6 54.3 26.4 75.6 25.5 101.7 106.6 51.4 131.3 92.4 122.2 153.7 89.2

(4) as percentage o f (5) (6) 0.3 0.5 0.3 0.2 1.6 0.4 n.a. 0.4

E d iln

Indirect (2)

Total em ploym ent 1974, in thousands (5)

Library

D irect (D

D efencefin a n c e d em ploym ent in thousands (4)

Industry

_

1.0 0.2 0.7 0.3 1.4 0.4 0.2 0.5 1.4 0.8 1.5 0.7

to Carleton

D efence outp u t in m illions o f dollars a t pro d u cers' value

'

/

' / 102.5 39.3 0.1 58.9 35.2 2.8 99.2 13.8 30.6 22.3 4.0 15.6 6.8 40.9 32.0 0.1 25.1 0 116.0 72.1

13.8 20.9 9.7 11.2 24.9 8.5 11.7 51.5 11.5 8.0 35.8 7.4 27.8 1.0 15.2 30.3 1.8 14.2 44.7 22.2

116.3 60.2 9.8 70.1 60.1 11.3 110.9 65.3 42.1 30.3 39.8 23.0 34.6 41.9 47.2 30.4 26.9 14.2 160.7 94.3

T otals Im ports Pay, allow ances and fringe benefits o f a rm e d forces and civilian em p lo y ees

749.0 132.5

142.4

274.9

1543.4

113.9d

773c

14.7

Total

2424.9

181.3

9263

2.0

1 1 11 1 ^ •

172.0 133.2 57.6 17.4 79.8 65.1 698 717b

4.0 3.0 0.8 3.6 2.2 1.1 1.0 1.1

99b 1625b

1.0 0.4

466h

0.3

2436

0.7

J n.a. n.a. n.a.

to Carleton

6.9 4.0 0.5 0.6 1.8 0.7 7.3 4.0 3.5 1.0 3.7 2.8 1.2 3.3 6.8 3.4 3.5 n.a. n.a. n.a.

Introduction

T ran sp o rtatio n equ ip m en t Electrical products N on-m etallic m ineral p roducts Petroleum and coal p roducts C hem ical products M iscellaneous m anufactures C onstruction T ran sp o rt an d storage C om m unication Utilities W holesale trade Retail trade Finance, insurance, real estate Education, health, recreation Business services A ccom m odation and food services O th e r services T ran sp o rtatio n m argins O perating, office, lab o rato ry an d food supplies T ravel, advertising, etc.

67.4

Library Edition

SOURCES: (1 ) B a s e d o n e s ti m a te s b y th e a u t h o r d e r iv e d f r o m th e P u b lic A c c o u n ts a n d E s tim a te s . (2 ): ( 3 ) - ( l ) , (3), (4 ) C o m p u te d b y S ta tis tic s C a n a d a . (5 ) U n p u b l i s h e d d a t a s u p p l i e d b y S ta tis tic s C a n a d a e x c e p t w h e r e o th e r w is e n o te d . I a m in d e b te d to M r. D . G . C a m p b e ll o f th e M a n u f a c t u r i n g a n d P r im a r y I n d u s t r i e s D iv is io n .

/ x iii

NOTES: a A n n u a l a v e r a g e , S ta tis tic s C a n a d a , T h e L a b o u r F o r c e , C a t . N o . 7 1 -0 0 1 , D e c . 1974, p . 5 7 . b J u l y 1974. Ib id ., p p . 2 2 -2 3 . c L o c . cit. P u b lic A d m in is tr a tio n p lu s a r m e d fo r c e s ( T a b l e 2 ). d A s o f S e p t. 30, 1974. T a b l e 2.

xiv / Introduction to Carleton Library Edition T able 3 is o nly very ro u g h ly c o m p a ra b le w ith T a b le 2:5. T h ere have been m a jo r chan g es in the m e th o d o f e stim a tio n o f the industrial b reak d o w n o f d efen ce e x p e n d itu re , in th e th e o ­ retical in p u t o u tp u t m odel, in the classificatio n o f in d u stries, a n d in the p a ra m e te rs o f th e in p u t-o u tp u t tab le s. N ev erth eless certain b road p a tte rn s can be d e tec te d w ith re a so n a b le c o n fi­ dence. O verall, the p ro p o rtio n o f th e em p lo y e d la b o u r force e n ­ g aged directly o r indirectly in th e C a n a d ia n m ilitary en terp rise has declined from 4.2 p e r c e n t to 2 p e r ce n t. A rm ed fo rces a n d civil servants directly p a id from d e fen ce fu n d s have d eclin ed from 172.5 th o u san d to 113.9 th o u s a n d , w hile e m p lo y m e n t in in d u stry attrib u ta b le to C a n a d ia n d e fen ce sp e n d in g h as d e ­ clined from 92.7 th o u sa n d to 67.4 th o u sa n d . A t th e sa m e tim e total em p lo y m en t in C a n a d a (in c lu d in g th e a rm e d forces) has risen from 6.3 m illion to 9.3 m illion. T h e declining relative im p o rta n c e o f o u tp u t a n d em p lo y m e n t a ttrib u ta b le to C a n a d ia n d efe n c e sp e n d in g is o b se rv ed in m ost in d ustry groups. T h e classifications used a re u n fo rtu n a te ly too b ro ad to trace the effects in n arro w ly d e fin ed in d u s trie s.4 It is clear, how ever, th a t in th e in d u strie s th a t w ere m o st highly d e p e n d e n t on C a n a d ia n g o v e rn m e n t d e fen ce co n tra cts in 1963 this d ep en d en ce has g reatly d e c lin ed . A c co rd in g to T a b le 2.5, dom estic d efence p u rch ases a c c o u n te d d irectly fo r 41 p e r cent o f the o u tp u t o f a irc ra ft an d p a rts, 22 p e r c e n t o f sh ip b u ild in g , a n d 20 p e r cen t o f electro n ic e q u ip m e n t. In 1974, o n th e o th e r h an d , the total d irect an d in d ire c t e m p lo y m e n t for d o m estic m ilitary ord ers for tra n sp o rta tio n e q u ip m e n t as a whole am o u n ted to only 29 p e r cen t o f e m p lo y m e n t in th e a irc ra ft an d p arts industry. T o ta l d ire c t a n d in d ire c t e m p lo y m e n t for dom estic m ilitary o rd ers o f a ll electrical e q u ip m e n t am o u n te d to only 9 p e r cen t o f em p lo y m e n t in th e c o m m u n ic a tio n s e q u ip m e n t industry, a s u b g ro u p .5 T h ird o f all, the d e m a n d fo r C a n a d ia n g o o d s a n d services attrib u ta b le to foreign m ilitary e x p e n d itu re h as also d eclin ed from the peak reach ed d u rin g th e V iet N a m W ar. U n ite d States m ilitary ex p en d itu res in C a n a d a fell from $319 m illion in 1969 to $161 m illion in 1974, rising to $174 m illion in 1975 (in C an ad ian dollars. T a b le 4). In d ire c t U n ite d S tates e x p e n d i­ tures are estim ated at $282 m illio n fo r 1966 (p. 22). P rojecting

Introduction to Carleton Library Edition / xv

TABLE 4

United States M ilitary Expenditure in C anada

Year

E x p en d itu re (m illions o f C anadian $)

1966 1967 1968 1969 1970 1971 1972 1973 1974 1975

221 251 308 319 265 195 167 167 161 174

Computed from U.S. D epartm ent o f Commerce. Survey o f Current Business and I.M.F., International Financial Statistics.

SOURCE:

NOTE:

Canadian subcontracts not included.

this figure forw ard o n th e tre n d o f U n ite d S tates to ta l m ilitary ex p en d itu re yields a n e stim a te o f $394 fo r 1975.6 O verseas m ilitary ex p e n d itu re s on C a n a d ia n g o o d s a n d ser­ vices was estim ated a t b etw een $50 m illio n a n d $100 m illio n in 1965. A rough guess w ould p la c e th em a t a b o u t tw ice th e 1965 level, say a b o u t $150 m illion, in 1975. F o u rth , w e tu rn to th e po ssib le im p a c t o f d isa rm a m e n t. A d d ­ ing the results o f th e p re c e d in g section to C a n a d ia n m ilitary ex p en d itu re show n in T a b le 1, w e find th a t to ta l d o m e stic an d foreign m ilitary e x p e n d itu re in 1975 m ay be e stim a te d ro u g h ly a t $3.5 billion, o r 2.3 p e r c e n t o f gross n a tio n a l p ro d u c t. T his figure should be co m p a re d w ith th e e stim a te o f 4.0 p e r c e n t o f G .N .P . given in T ab le 2.9 fo r 1965. T h is relativ ely lo w er ‘s ta rt­ ing p o in t’ for m ea su rin g the im p a c t o f d is a rm a m e n t m e a n s th at the total relative decline in th e d e m a n d fo r g o o d s a n d services resu lting from ‘co m p lete’ d is a rm a m e n t can be e x p e cte d to be m uch less severe th a n w as e stim a te d in C h a p te rs 4 a n d 5. T his reduction in im p act was fo re ca st in C h a p te r 5.

xvi / Introduction to Carleton Library Edition In C h a p te r 4 tw o m odels a re p re se n te d , o n e o f w hich achieves ‘co m p lete’ d is a rm a m e n t o v e r a p e rio d o f five y ears w hile th e o th er has a tw elve-y ear tra n sitio n p erio d . In C h a p te r 4 (p. 63) ‘co m p lete’ d is a rm a m e n t is in te rp re te d as re q u irin g a residual m in im u m o f tw o th o u sa n d civ ilian s a n d fiftee n th o u ­ sand m ilitary p erso n n el for su c h d u tie s as in sp ectio n u n d e r the d isa rm am en t ag re e m e n t an d p e a cek eep in g . T h e se fig u res m a d e no allow ance for th e a d d itio n a l fu n ctio n o f p a tro llin g th e twoh u n d red -m ile lim it o f C a n a d ia n ju risd ic tio n o n th e o p e n sea w hich is now b ein g asserted. T h e y c a n th e re fo re be view ed as a m in im um . T h e resid u al stren g th o f sev e n te e n th o u s a n d p e rs o n ­ nel rep resents a d ecline o f 85 p e r c e n t from th e 114.9 th o u sa n d show n in T ab le 2 fo r 1975. I f w e assu m e a p ro p o rtio n a te d ecline in total m ilitary e x p e n d itu re , we h av e a n av erag e a n ­ n u al d ecline o f 17 p e r cen t o f 1975 e x p e n d itu re o v e r five y ears o f the faster d isa rm a m e n t m odel a n d an a v erag e a n n u a l d e ­ cline o f a b o u t seven p e r c e n t o v e r tw elve y e a rs u n d e r the slow er program . T h ese figures a re o f co u rse b a se d o n the assu m ption th a t the ta k e -o ff p o in t fo r d is a rm a m e n t looks like 1975. I f the p ercen tag e o f G .N .P . d ev o ted to m ilita ry e x p e n d i­ tures is the sam e as in 1 9 7 5 -2 .3 p e r c e n t o f G .N .P .- w e a re talking a b o u t an a n n u a l re d u ctio n o f less th a n 0.4 p e r c e n t o f G .N .P. u n d e r th e fast p ro g ra m a n d 0.16 p e r c e n t u n d e r the m ore g rad u al p ro g ram . In fact, given th e p re s e n t tre n d s o f declining m ilitary e x p e n d itu re in re la tio n to G .N .P ., th e im p a c t o f d isarm am en t is likely to be sm a lle r still. T h u s the p ro b lem o f the o v erall m ac ro -e c o n o m ic im p a c t o f d isarm am en t has b ecom e so sm a ll as to be alm o st, b u t n o t quite, invisible. But, as p o in te d o u t in C h a p te rs 6 a n d 7, the m acro-calculations h id e the fact th a t m ilita ry e x p e n d itu re s are a m uch m ore im p o rta n t facto r in ce rta in reg io n s a n d lo calities and th a t g eo graphical an d o c c u p a tio n m o b ility are im p erfect. T he experience o f C a n a d a a n d o th e r d e v e lo p e d c o u n trie s in the p a st few y ears suggests th a t g o v e rn m e n ts h av e n o t been able to solve p ro b lem s o f reg io n al in e q u a lity a n d reg io n al a n d occu p atio n al im m obility, a n d as a co n se q u e n c e h av e n o t co p ed successfully w ith th e p ro b lem o f in flatio n in th e m id st o f u n ­ em ploym ent. In C a n a d a the u n e m p lo y m e n t ra te associated w ith a given rate o f p rice in crease rose sp e c tac u la rly b etw een 1970 an d 1975 a n d h as n o t d eclin ed . It w o u ld seem th e re fo re

Introduction to Carleton Library Edition / xvii th a t the tone o f o ptim ism th a t m ay be d e te c ted in th e discus­ sion o f m obility policies a n d reg io n al d e v e lo p m e n t p o licies in C h a p te r 8 is n o t ju stified . As a c o n se q u e n c e , it is as im p o rta n t as it w as w hen th e book w as w ritte n th a t ‘th e fe a r o f u n e m ­ p loym ent an d business losses arisin g fro m c h a n g e le a d s to pow erful political p ressu res fo r su b sid ies to u n e c o n o m ic in d u s­ tries, for ta riff p ro tectio n , a n d fo r th e c o n tin u a tio n o f d efen ce expen d itu res a n d th eir allo c a tio n to p a rtic u la r regions a n d in ­ dustries’ (p. 145). In regard to p ro c u re m e n t policies, th e g o v e rn m e n t co n tin u es to follow the policy o f p u rc h a sin g m a jo r w e a p o n s system s a b ro ad , in the in terest o f e co n o m y a n d efficiency. T h e p ro te c ­ tionist sp irit resp o n d in g to th e p re ssu res ju s t m e n tio n e d is ex­ pressed, how ever, in n eg o tia tio n s fo r ‘o ffse t’ e x p e n d itu re s by the cou n try th a t receives a m a jo r w ea p o n s c o n tra c t a n d by -in sistin g on su b co n tracts fo r C a n a d ia n p lan ts. T h e se p ressu res a n d responses a re illu stra ted by the fo llow ing e x a m p le s from the P roceedings o f th e H o u se o f C o m m o n s: M r. K en H urlburt (L ethbridge) . . . In lig h t o f th e fact th a t we are n eg o tiatin g a d eal w ith W est G e rm a n y fo r th e L e o p a rd ta n k w hich involves a n e x p e n d itu re o f so m e $150 m illio n I m o v e ,. . . th a t th e m in iste r in v estig ate th e feasib ility o f b u ild ­ ing o u r ow n tan k in C a n a d a , w hich c o u ld re d u c e u n e m p lo y ­ m en t as well as instill a little se lf co n fid e n c e a n d p rid e in C an a d ia n s a n d th a t w e n a m e this new C a n a d ia n -b u ilt tank ‘T he B eaver.’7 M r. K en H urlburt (Leth b rid ge) . . . W o u ld the m in iste r . . . in ­ form the H ouse o f how m a n y C a n a d ia n firm s w ere given an o p p o rtu n ity to bid o n this larg e c o n tract? H on. Ja m es R ichardson (M in ister o f N a tio n a l D e fe n c e ) ... T h ere are n o C a n a d ia n firm s in th e ta n k m a n u fa c tu rin g business. H ow ever, w e a re n e g o tia tin g offsets from the G e r­ m an m a n u fa c tu re r an d th e re will be a su b sta n tia l a m o u n t o f w ork d o n e in C a n a d a as a resu lt o f th e c o n tra c t.8 D E F E N C E IN D U S T R Y S T R U C T U R E A N D D E F E N C E R E S E A R C H

T ab le 6.1 on p. 86 show s th a t th e le a d in g d e fen ce c o n tra cto rs w ere for th e m ost p art fo reig n -o w n ed . A t the to p o f th e list w ere C an ad air, a U n ited S tates su b sid ia ry w hich receiv ed over

xviii / Introduction to Carleton Library Edition 10 p e r cen t o f d efen ce c o n tra ct e x p e n d itu re in 1962/63, a n d su bsidiaries o f th e B ritish H aw k e r S id d eley g ro u p w h ich re­ ceived over 7 p e r c e n t o f d efe n c e c o n tra c t e x p e n d itu re . Both are p ro d u cers o f aircraft an d p arts, a n d th ey co n stitu te , in fact, a m ajo r p o rtio n o f th e C a n a d ia n a irc ra ft in d u stry . T h e m ajo r ch an g e in in d u strial stru c tu re sin ce 1963 h as been the p urchase by th e fed eral g o v e rn m e n t o f C a n a d a ir, in 1976, and o f de H av illan d , o n e o f th e H aw k e r S id d eley su b sid iaries, in 1974. It is very d ifficu lt to find a n official e x p la n a tio n o f this significant m ove in to state o w n ersh ip o f a irc ra ft p ro d u ctio n . T h e an n u a l rep orts o f th e D e p a rtm e n t o f In d u stry , T ra d e a n d C om m erce (in w hich one w o u ld ex p ect a re aso n ed official account) are silent, except fo r a p a ra g ra p h in th e 1975/76 rep o rt w hich states: ‘T h e g o v e rn m e n t’s p u rc h a se o f d e H a v il­ lan d A ircraft o f C a n a d a Ltd. in 1974 a n d o f C a n a d a ir L td . in Ja n u ary 1976 re p resen ted a step in th e im p le m e n ta tio n o f a strategy fo r restru ctu rin g a m a jo r p o rtio n o f C a n a d a ’s a e ro ­ space in d u stry .’ A ccording to an o p p o sitio n m e m b e r o f P a rlia m e n t th ese ac ­ q u isitions w ere in ten d ed to im p le m e n t a ra tio n a liz a tio n sch em e first proposed in a b ro c h u re p re p a re d by A ir C a n a d a in c o lla b ­ o ratio n w ith C om stock In te rn a tio n a l, e n title d ‘P ro p o sa l fo r the R ationalization o f th e C a n a d ia n A e ro sp ace In d u s try .’ T h a t pro p osal envisaged the m erg e r o f de H a v illa n d a n d C a n a d a ir, and this m erg er is now p re su m a b ly ta k in g p la c e u n d e r g o v e rn ­ m en t o w n ersh ip .9 A ccording to a n o th e r M P th e acq u isitio n o f de H av illan d w as also in te n d e d to facilita te th e d e v e lo p m e n t o f STO L aircraft fo r civilian sh o rt-h a u l tra n s p o rta tio n . 10 T h e gov­ ern m en t has stated th a t it do es n o t w ish to stay in th e a irc ra ft business b u t hopes to sell th e reo rg a n ize d e n te rp rise to p riv a te investors. O ne m ay co n jectu re th a t th e g o v e rn m e n t has b een a tte m p t­ ing to save th ro u g h n atio n a liz a tio n a n in d u stry w hose c o n tin ­ ued o p eration in C a n a d a w as c easin g to be p ro fita b le fo r the foreign p arents. T a b le 5 ind ic a te s th a t fo llo w in g a b o o m in o u tp u t a n d em p lo y m en t at th e tim e o f th e V iet N a m W a r the C a n a d ian aircraft in d u stry w en t in to sh a rp d eclin e, an d reached its low p o in t in 1972, th e y e a r in w hich the g o v e rn ­ m en t acquired an o p tio n to p u rc h a se de H av illan d . P resum ably th e g o v e rn m e n t’s m o tiv es fo r salv ag in g th e air-

Introduction to Carleton Library Edition /

x ix

TABLE 5 A irc ra ft a n d P a rts M a n u f a c tu re r s

Year

E m p lo ym en t (000)

Value-added" ($ m illion)

1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974

28.7 27.7 26.4 28.6 27.7 33.9 37.2 35.1 34.1 31.1 23.8 23.5 26.0 24.1

197 193 191 219 246 305 355 367 361 313 295 302 379 393

a V a lu e o f s h ip m e n ts less v a lu e o f m a te r ia ls , fu e l, a n d p o w e r. SOURCE: S ta tis tic s C a n a d a : A i r c r a f t a n d P a r ts M a n u fa c tu r e r s 1 974. C a t. N o . 4 2 -2 0 3 .

craft industry w ere th e c o m b in a tio n discussed in C h a p te r 3: the desire not to ‘d ep en d u p o n o u r n eig h b o u rs’ fo r d efen ce requirem ents, the desire to p reserv e jo b s fo r C a n a d ia n s, the d esire to p ro m o te exports, a n d th e h o p e fo r tech n o lo g ical sp i­ noffs. T h e critical discussion o f th ese o b jectiv es in C h a p te r 3 is still relevant. T u rn in g to d efence research, it is sh o w n in C h a p te r 9 th a t in 1963 research a n d d e v e lo p m e n t fo r d e fen ce p u rp o ses ac ­ co u n ted for 35 p e r cent o f th e fed eral g o v e rn m e n t’s e x p e n d i­ ture on research a n d d ev e lo p m e n t, 19 p e r c e n t o f to ta l research an d d evelopm ent, a n d 0.17 p e r c e n t o f G .N .P . T h e to ta l in ­ cludes the ex p en d itu res o f the D e p a rtm e n t o f N a tio n a l D e­ fence as well as th e sub sid ies fo r in d u stria l research in aid o f defence pro d u ctio n .

xx / Introduction to Carleton Library Edition A roughly c o m p a ra b le figure a v a ila b le fo r m o re re c e n t y ears is ex p en d itu re o n research a n d d e v e lo p m e n t w ith d e fe n c e as p rin cipal o r seco n d ary ap p lic a tio n . In fiscal y e a r 1974/75 this am o u n ted to $115.4 m illion, o r 12 p e r c e n t o f to tal fed eral ex p en d itu re on research a n d d e v e lo p m e n t." T h u s, th e relativ e im p o rtance o f d efen ce in federal research e x p e n d itu re h as d im ­ inished greatly, an d th e sam e is tru e o f d e fe n c e re search in relation to total research ex p en d itu re. T o tal research a n d d e v e lo p m e n t e x p e n d itu re co n tin u e s to be m uch low er th an in o th e r co u n tries, in re la tio n to G .N .P . It am o u n ted to a b o u t 0.9 p e r cen t o f G .N .P . in 1963 a n d a b o u t 1.1 p e r cent in 1973. In th e la tte r y e a r it w as ab o v e 1.5 p e r cen t o f G .N .P . in F rance, J a p a n , a n d S w ed en , a n d a b o v e 2 p e r c en t in G e rm an y , the U .K . a n d th e U .S . 12 D IS A R M A M E N T N E E D S A N D P R O SPE C T S

In the in te rn a tio n a l sp h ere th e ch an ces o f a c h ie v in g c o m p le te d isarm am en t alo n g th e lines illu stra te d in this b o o k have p ro b ­ ably n o t increased. T h e re h as b e e n so m e pro g ress to w ard s arm s lim itation, b u t n o t en o u g h to h a lt a rm s races a m o n g b o th m ajo r an d m in o r pow ers. T h e th re a ts to w o rld p e a ce are g reater th an ever, a n d so th e p ro b le m o f ach ie v in g d is a rm a ­ m en t is m ore u rg e n t th a n b efo re, alth o u g h n o t visibly clo ser to a solution. N u c le a r p ro liferatio n is im m in e n t a n d a tte m p ts to p re v e n t it by ag reem en t have n o t su cceed ed . T h e N o n -P ro life ra tio n T reaty was not ra tified by C h in a , F ra n c e , a n d o th e r n u c le a r asp irants. In te rm itte n t w arfare in th e M id d le E ast a n d A frica is fuelled by arm s sh ip m en ts fro m m a jo r a n d m in o r pow ers. G u erilla w arfare h as b ecom e c o m m o n p la c e in m a n y p a rts o f the w orld. T h e oil p ro d u cers o f the M id d le E ast a re u sin g th e ir new -found w ealth to e q u ip th em selv es a n d th e ir allies w ith heavy a rm a m e n t a n d m ilitary m a n p o w e r, a n d to fin a n ce a n d arm terrorist groups. C a n a d a has m ad e a significan t c o n trib u tio n to m a in ta in in g and increasing these sources o f ten sio n by its p olicy o f p ro m o t­ ing the export o f n u c le a r po w er p la n ts a n d m a te rials, as w ell as m ilitary eq u ip m en t. C a n a d a w as a m a jo r c o n trib u to r o f m a te ri­ als a n d supplies to the U n ited S tates w a r effo rt in V iet N am . Since the end o f th a t w ar C a n a d a has been a m a jo r so u rc e o f

Introduction to Carleton Library Edition / x x i supply for the in te rn a tio n a l a rm s tra d e . In th e p erio d 1965 to 1974 C a n a d a w as th e fifth larg est e x p o rte r o f a rm s in th e nonC om m unist w orld, follow ing th e U n ite d S tates, F ra n c e , the U n ited K in g d o m , a n d W est G e rm a n y . C a n a d a ’s arm s exports for the ten -y ear p erio d w ere v a lu ed a t $1107 m illio n , o f w hich $766 m illion w en t to the U n ite d S tates a n d $421 m illio n w en t to o th e r countries. A n n u a l a rm s ex p o rts re ac h e d a p e a k o f $195 m illion in 1969, to w ard s th e e n d o f th e V iet N a m W ar, and h a d declined to $109 m illio n in 1974.13 T h e se fig u res do not include services, m aterials, a n d su p p lie s p ro v id e d fo r m ili­ tary purposes, o th e r th an a rm a m e n t. Such exports c o n trib u te to w a rfa re a n d in stab ility in o th e r parts o f the w orld a n d th u s to th e e v e r-p re sen t d a n g e r to w orld peace. It is th erefo re a p p ro p ria te to re p e a t th e su g g estio n o n p. 47 th a t ‘a sensible policy o f e x p o rt p ro m o tio n w o u ld co n cern itself w ith those lines in w h ich th e p ro sp e cts fo r s ta b le g row th are m ost prom ising. M ost d e fen ce ex p o rts a re p ro b a b ly n o t in this category.’ G . R O SE N B L U T H

Vancouver A p ril 5, 1977

NOTES TO CARLETON LIBRARY INTRODUCTION 1 In N o v e m b e r 1975 th e M in is t e r o f N a t i o n a l D e f e n c e a n n o u n c e d th a t c a p ita l e x p e n d i tu r e s f o r d e f e n c e w o u ld ris e in r e a l te r m s b y 12 p e r c e n t a y e a r f o r fiv e y e a r s fr o m a b a s e o f S 4 7 0 m illi o n in 1 9 7 6 /7 7 . O p e r a tin g a n d m a i n t e n a n c e b u d g e ts w o u ld r e m a i n r o u g h ly c o n s ta n t in re a l te rm s . T h e 1 9 7 6 /7 7 c a p i ta l b u d g e t a m o u n t e d to a b o u t 14 p e r c e n t o f to ta l d e f e n c e e x p e n d i t u r e s o t h a t th e p r o je c te d a n n u a l in ­ c re a s e o f 12 p e r c e n t in th e c a p i ta l b u d g e t m e a n s a n i n c r e a s e o f a b o u t 2 p e r c e n t a y e a r in th e to ta l d e f e n c e b u d g e t in r e a l te r m s . If. a s is lik e ly , re a l g ro s s n a tio n a l p r o d u c t ris e s a t a f a s t e r r a te , th e r a tio o f d e f e n c e e x p e n d i tu r e to G .N .P . w ill c o n t i n u e to d e c l in e (s e e D e ­ p a r t m e n t o f N a tio n a l D e f e n c e . D e fe n c e 1 9 7 5 . O tta w a . 1975. p . 13). 2 S e e S ta tis tic s C a n a d a . T h e I n p u t- O u tp u t S tr u c t u r e o f th e C a n a d ia n E c o n o m y 1 9 6 1 -1 9 6 6 . C a t . N o . 1 5 -5 0 5 ; T h e I n p u t - O u t p u t S tr u c t u r e o f th e C a n a d ia n E c o n o m y 1 9 6 1 -1 9 7 1 , C a t . N o . 1 5 -5 0 6 E . 3 1 a m in d e b te d to M r. K is h o r i L a i, D i r e c t o r o f th e I n p u t - O u t p u t D iv is io n . S ta tis tic s C a n a d a , a n d h is s ta f f, f o r th is a s s is ta n c e .

x x ii / Introduction to Carleton Library Edition 4 T h e 1966 i n p u t - o u t p u t ta b le p r o v id e d le ss d e ta il th a n h a s s in c e b e c o m e a v a ila b le f o r 1961-71 ( S ta t . C a n . C a t . N o . 1 5 -5 0 5 E ). M o r e ­ o v e r, i n f o r m a tio n a v a i la b le fr o m th e P u b lic A c c o u n ts a n d E s tim a te s d id n o t p e r m it a d e t a i l e d b r e a k d o w n o f m ilit a r y e x p e n d i tu r e . 5 D a ta fr o m T a b l e 3 a n d u n p u b lis h e d d a t a f r o m S ta tis tic s C a n a d a (s e e S o u r c e s to T a b le 3, c o l. (5 )). 6 U n ite d S ta te s to ta l d e f e n c e e x p e n d i t u r e r o s e f r o m $ 6 0 .3 b illio n in 1966 to $ 8 4 .3 b illio n in 1975 ( U .S . S u r v e y o f C u r r e n t B u s in e s s . S e p ­ te m b e r 1976 a n d e a r lie r is su e s ). 7 H o u s e o f C o m m o n s D e b a te s , J u n e 9 . 1976. p . 14307. 8 I b id ., J u n e 17, 1976, p . 14610. 9 H o u s e o f C o m m o n s D e b a te s , A p r il 2, 1974. p . 1095. 10 H o u s e o f C o m m o n s D e b a te s , A p ril 3 , 1974, p . 1135. 11 S ta tis tic s C a n a d a , F e d e r a l G o v e r n m e n t A c tiv itie s in th e N a tu r a l S c i ­ ences, F isc a l Y e a r s 1 9 7 4 -7 5 , 1 9 7 5 -7 6 , 1 9 7 6 -7 7 , A p p lic a tio n s o f E x ­ p e n d itu r e o n R & D in th e N a t u r a l S c ie n c e s ( M i m e o g r a p h e d , M a y 1976), p p . 1-3. D a t a a r e f o r c u r r e n t e x p e n d i t u r e s o n R & D . 12 S ta tis tic s C a n a d a , R e s e a r c h a n d D e v e lo p m e n t E x p e n d itu r e in C a n a d a 1 9 6 3 -7 3 , C a t. N o . 1 3 -4 0 3 , p . 14. 13 U .S . A rm s C o n tr o l a n d D i s a r m a m e n t A g e n c y , W o r ld M il ita r y E x ­ p e n d itu r e s a n d A r m s T r a n sfe r s, 1 9 6 5 -1 9 7 4 , W a s h in g to n , 1976. p p . 58. 73, 76.

PREFACE

T h is study w as com m issioned a n d financed b y th e C a n a d ia n Peace R esearch In stitu te, C lark so n , O n ta rio . D r. N o rm a n A lcock, th e d irecto r o f the in stitu te, w as lavish w ith advice and encouragem ent. I am indebted to m any individuals in th e federal g overnm ent service for in fo rm atio n in o ral, w ritten , a n d statistical form . M y inquiries, d irected to m any g o v ern m en t d ep artm en ts, m e t w ith a friendly a n d co-operative resp o n se in every case. A m o n g n u m ero u s individuals w ho supplied in fo rm atio n , I sh o u ld p articu larly like to m en tio n D r. R . W . Jam es, o f th e D e p a rtm e n t o f N a tio n a l D efence a n d M r. J. P. F ran cis, o f th e D e p a rtm e n t o f M an p o w er a n d Im m igration. T h e p resid en t o f C arle to n U niversity, O tta w a , a n d m y col­ leagues in th e D e p a rtm e n t o f E conom ics have m y th a n k s fo r supplying office space a n d research aid s d u rin g tw o sum m ers sp en t in O ttaw a to g ath er a n d p rep a re m a te ria l fo r this study. M y task w as m ad e easier b y th e kindness o f m y colleagues T . I. M atuszew ski, L aval U niversity, J. A . Saw yer, U niv ersity o f T o ro n to , an d P. R . P itts, D o m in io n B u reau o f Statistics, as well

xxiii

xxiv / Preface as th e research staff o f th e R o y al C o m m ission o n T a x a tio n , w ho p erm itted m e to use their u n p u b lish ed estim ates o f inter-industry coefficients p rep ared for th e R o y a l C om m ission. F ro m tim e to tim e I enjoyed th e p a rt-tim e services o f u n d e r­ g ra d u a te o r g ra d u a te research assistants. I sh o u ld like to m en tio n p articu larly R o b e rt N . R a n d , w ho helped m e d u rin g tw o sum m ers a t C arleto n U niversity, a n d M rs. Ja n e t S m ith a n d A . P rentice, w h o assisted m e w hile they, w ere stu d en ts a t th e U niversity o f B ritish C olum bia.

G . ROSENBLUTH

Vancouver M arch 1967

A CHAPTER

ONE

Introduction

W hen research for this b o o k w as beg u n in th e sum m er o f 1963, th e p rospects for d isarm am e n t seem ed b e tte r th a n th ey a p p e a r as th e m an u scrip t is m ad e read y fo r th e press. D efence ex p en d itu re in b o th C a n a d a a n d th e U n ite d S tates h ad declined, in rela tio n to to ta l o u tp u t, since th e end o f th e K o re a n W ar. A b ila te ral balance o f nu clea r po w er h ad been a ttain e d . B o th th e U n ited S tates a n d th e Soviet U n io n h ad accepted th e p rin cip le o f gen eral a n d c o m ­ plete d isarm am en t, a n d n e g o tiatio n s w ere p ro ceed in g in the seventeen-nation d isarm am en t conference a t G eneva. T h e U n ited S tates h ad established th e A rm s C o n tro l a n d D isa rm am e n t A gency in 1961, a n d th e treaty b a n n in g nuclear tests in th e atm o sp h e re w as signed in 1963. A s th is in tro d u c tio n is w ritten , new sp ap ers a re re p o rtin g U T h a n t’s w arn in g o f the d an g e r to w orld p eace arising fro m the escalating w ar in V iet N am . T h e b alan c e o f n u clea r pow er has been u p set by th e a d d itio n o f C h in a an d F ra n c e to th e nuclear c lu b . T h e w ar in V iet N a m is leading to a n unex p ected rise in U n ited S tates m ilitary expen d itu re. T h e G en ev a n e g o tiatio n s have o n t advanced significantly. I t w ould, how ever, be a m istak e to believe th a t, ag a in st this

J

2 I Introduction th re a ten in g b ack g ro u n d , th e stu d y o f th e econom ics o f d isa rm ­ am en t becom es irrelev an t o r p u rely academ ic. O n th e c o n tra ry , th e g reater in stability o f the p resen t situ atio n m ak es th e need fo r su b stan tial steps to w ard s d isa rm a m e n t m o re u rg e n t if th e spread o f w ar is to be p revented. T h e eco n o m ic p ro b le m s o f d isarm a m e n t m u st be studied because d isarm a m en t is definitely on th e ag en d a. M o reo v er, system atic investigation o f th e econom ic im p act o f d isarm am en t h as a d irect influence o n th e achievem ent o f this g oal. Since th e beginning o f th e th irties, d ep ressio n h a s been ch aracteristic o f p erio d s w ith n o significant m ilitary expen d itu re, w hile periods w ith heavy m ilitary ex p en d itu re h av e been p ro sp er­ ous. T h e re w ere only a few ex cep tio n al years, in th e late 1940s, w hen b o th u nem plo ym ent a n d defence ex p en d itu res w ere very low. T o d a y , th erefo re, a disarm ed w o rld , o r even a su b stan tia l re d u c­ tio n in a rm am en t expenditu re, rep resen ts to m an y p eo p le an u n k n o w n c o n d itio n an d a p o te n tia l th re a t to th e ir livelihood. Investigation a n d discussion o f th e econom ic p ro b lem s o f d isa rm ­ a m e n t will allay fears based o n m isco n cep tio n s reg ard in g the n a tu re an d dim en sio ns o f these p ro b lem s. Such research should also lead to p lan n in g a n d p re p a ra tio n , an d th u s ren d er a ll fears groundless. In these w ays obstacles to th e achievem ent o f d isa rm a ­ m e n t are rem oved. W h a t a re th e m a jo r econom ic p ro b lem s th a t w ould a rise in th e event o f d isarm am ent? T hey a re o f tw o kinds. T h e first are p ro b ­ lem s o f ‘aggregate d em an d ’. D efence ex p en d itu res are p a rt o f the e co n o m y ’s to ta l d em an d fo r g o o d s a n d services, an d w hen the ex p enditures a re reduced, d em a n d falls unless co m p en satin g m eas­ u res a re u n d ertak en . A fall in aggregate d e m an d leads to a re d u c­ tio n in o u tp u t an d em ploym ent. C o m p en satin g m easu res to p revent such a red u ctio n cau se a n ex p an sio n o f p riv ate d em an d o r public dem an d fo r g o o d s a n d services in th e n o n -m ilitary sphere. T h e th re a t o f u nem ploym ent a n d th e o p p o rtu n ity fo r ex p en d itu res th a t th e com m unity c a n n o t afford w ith o u t d isa rm a m e n t a re th u s o p p o site sides o f th e sam e coin. S econdly, th ere are p ro b lem s o f ‘m o b ility ’. E ven if co m p en satin g m easures are tak en , th e ind u stries, regions, a n d o ccu p atio n al g ro u p s th a t will experience a n ex p an sio n o f d em an d a re n o t th e sam e a s th o se th a t will suffer a decline in d em an d d u e to d isa rm a ­ m en t. T h e re is th erefo re th e p ro b le m o f gettin g la b o u r a n d business to shift th eir activities, p ro d u c e new p ro d u c ts, acq u ire new skills, m ove to oth er regions. T o w h a t e x ten t can co m p en satin g m easures

Introduction / 3 be designed to red u ce th e need fo r m ob ility to a m inim um ? W h a t a b o u t cases w here a d eq u ate reg io n al a n d o c c u p atio n al m obility c a n n o t be achieved? O n e o f th e m a jo r p ro b lem s in th is c ateg o ry co n cern s scientific a n d technical research a n d d evelopm ent. T h ese activities are now focused largely o n defence p ro b le m s, so th a t d isarm am e n t m u st c h an g e th e d irectio n o f research a n d d ev elo p m en t activity a n d m ay well chan g e its extent. T hese changes m ay affect th e ra te o f tech ­ nological progress, a n d hen ce th e ra te o f econom ic gro w th . I t is evident th a t d isarm a m en t w ould n o t c re a te basically new types o f econom ic p roblem s. In a d e q u a te aggregate d e m a n d and c o n seq u en t un em p lo y m en t w ere im p o rta n t features o f th e C a n a ­ d ia n econom y, as well as th a t o f th e U n ite d States, fro m 1957 to 1965, w hile a n excess o f ag g reg ate d em an d leading to in flatio n ary p ressu res ap p eared to be developing in 1966. T h e m ob ility o f la b o u r an d business firm s h a s been a m ajo r p re o c c u p atio n of g overnm ent policy in relatio n to th e p ro b lem o f depressed areas a n d th e p ro b lem o f au to m atio n . M easu res designed to im prove reg io n al a n d o ccu p atio n al m obility a n d to a ttra c t business to d epressed areas h av e received a g re a t d eal o f a tte n tio n . G o v ern ­ m en ts have also been concern ed to stim u late scientific a n d tech­ n ical research a n d developm ent. I n very general term s, therefo re, th e eco n o m ic m easures req u ired to d eal w ith p ro b lem s arisin g fro m d isarm a m e n t are th e sam e as th o se th a t h av e been discussed o r im p lem en ted in recen t y ears. I t is in specific d etails th a t d isa rm am en t p re se n ts new problem s. Specific details, how ever, c a n n o t be discussed w ith precision in ad v an ce o f th e event. N o o n e k n o w s w hen d isa rm am en t will com e, w h a t th e levels o f defence e x p e n d itu re a n d em p lo y m en t will be at th e tim e, or w h at th e exten t o f d isa rm a m e n t will be a n d a t w h at pace it will proceed. N o r ca n we p red ict w ith accuracy the regional, in d u strial, an d o ccu p atio n al d istrib u tio n o f econom ic activity th a t w ill prevail a t th e tim e o r th e ty p e o f m ob ility p ro b lem s th a t will arise. A prelim in ary study such as th is c a n n o t, th erefo re, lay o u t a detailed b lu e p rin t for eco n o m ic ad ju stm e n t to d isarm am en t. I t c a n , how ever, illu strate th e n a tu re a n d gen eral dim en sio n s o f th e p ro b lem s by m ak in g plausible estim ates b ased m ainly o n c u rre n t d efence exp en d itu res an d o n d isa rm a m e n t p lan s n o w u n d e r d is­ cussion. T h e analysis o f th e econom ic p ro b lem s o f d isarm am en t also p rovides v alu ab le suggestions fo r ad v an ce activity in certain

4 I Introduction eco n om ic a reas p rio r to actu a l d isarm am en t. T h is activity includes im pro v em en t o f th e statistical system s fo r o b tain in g in fo rm a tio n o n th e stru c tu re o f th e econom y a n d o n th e im p act o f m ilitary e x p e n d itu re; co llatio n o f in fo rm a tio n alread y av ailab le; research o n p a rtic u la r aspects o f th e econom ic im p a c t o f defence a n d d is­ a rm a m e n t; d iscu ssion an d im p ro v em en t o f policy m easures d eal­ in g w ith th e c o n tro l o f aggregate d em a n d a n d th e im p ro v em ent o f m o b ility ; a n d adv an ce p lan n in g fo r th e tra n sitio n to a non -m ilitary eco n om y by business firm s, u n io n s, a n d g o v ern m en ts a t all levels. W e first exam ine th e general dim en sio n s o f the influence o f defence p ro g ram s o n aggregate d em an d , a n d th en trace th e efTect o n aggregate d em an d o f altern ativ e p ro g ra m s fo r gen eral and c o m plete d isarm am en t th a t have been p ro p o sed by ex p erts in the U n ite d S tates a n d th e Soviet U n io n . T h is investigation is follow ed by a discussion o f th e kin d s o f co m p en satin g m easu res th a t m ight be used to offset th e effects o f d isarm a m e n t on aggregate d em an d . In o rd e r to gain som e perspective o n th e po ssib le lo c a tio n a n d d im en sions o f m o b ility p roblem s, w e study, first, th e d istrib u tio n o f m ilitary ex p en d itu re an d th e em p lo y m en t it g en erates by in d u stries, regions, a n d o ccu p atio n s, a n d th e n the degree of m ob ility observed in th e p ast, b o th in th e p erio d o f ra p id change follow ing th e Second W orld W a r, a n d in th e m o re stab le p erio d o f th e 1950s. T h ese investigatio n s, w hich are m ainly statistical, are follow ed by a discussion a n d ev alu atio n o f policies designed to p ro m o te m o b ility a n d ad ju stm e n t to ch an g e. F in ally , w e exam ine th e ex ten t to w hich scientific a n d technical research a n d d ev elo p ­ m e n t in C an ad a are d ep en d en t o n th e defence p ro g ra m , a n d the possible effects o f d isarm am e n t o n these activities. T h e research fo r th is study h a s h a d to be stretch ed over a n u m ­ b er o f sum m ers, w ith th e resu lt th a t som e o f th e statistics used are n o t th e la te st available a t th e tim e o f p u b lica tio n . In som e cases figures o n defence expenditure h av e been b ro u g h t u p to d ate , b u t som e o f th e statistical analysis necessitates fairly e lab o rate m a n ip u ­ la tio n o f th e d a ta w hich could n o t be rep eated . T h is ap p lies p a r­ ticu larly to th e discussions o n th e in d irect in d u stria l im p ac t o f m ilitary ex p en d itu re a n d to th e detailed ex am in atio n o f regions a n d o ccu p atio n s d e p en d en t o n defence. S ince, how ever, th e p u rp o se o f th e statistics is to illu stra te the gen eral n a tu re o f th e pro b lem , it is n o t necessary to be u p -to -d a te here. I f an d w hen d isarm am e n t com es, som e o f th e relev an t c o n ­ d itio n s m ay well be m ore like th o se o f 1962 th a n th o se o f to d ay .

A

AA

t

CHAPTER

TWO

The Amount and Composition of Canada's Defence Expenditures

D E F E N C E E X P E N D IT U R E S IN

R E L A T IO N

TO

N A T I O N A L IN C O M E

T h e m ost co m m o n m easure o f th e im p o rtan c e o f defence in the econom y is th e ra tio o f defence ex p en d itu re o n g o o d s a n d services to G ro ss N a tio n a l P ro d u ct. D efence ex p en d itu re o n g o o d s and services includes th e b u lk o f th e ex p en ditu res o f th e D ep artm en ts o f N a tio n a l D efence a n d D efence P ro d u c tio n a n d associated cro w n co m p an ies.1 E xcluded are th o se ex p en d itu res th a t a re n o t fo r cu rren tly p ro d u ced go o d s a n d services, such as tran sfers to o th er d ep artm en ts o r govern m en ts, p u rch ases o f real estate, pay1 Expenditures by the Atomic Energy Control Board and Atomic Energy of Canada Limited are excluded since Canadian activities in this field are deemed to be concerned exclusively with non-military applications. Since 1965, expenditures o f the Emergency Measures Organization and certain expenditures of the D epartm ent o f Industry (research and development grants to industry previously administered by the D epartm ent o f Defence Production) have also been included in the official total o f defence expenditures. J

6 I The Amount and Composition o f Canada's Defence Expenditures m e n ts o f pensions, d am ag e claim s, etc. G ro ss N a tio n a l P ro d u c t is th e to ta l value o f cu rren tly p ro d u c ed g o o d s a n d services, om ittin g th o se re-used in th e sam e p erio d in th e p ro d u c tio n o f others. T A B L E 2 :1

C anadian Defence Expenditures and G ross N ational Product (2) (3) CO D efence expenditures G .N .P . ( / ) as a on goods and services Year {millions o f dollars) (m illions o f dollars) percentage o f (2) 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966

227 236 361 493 1,157 1,800 1,907 1,727 1,760 1,802 1,765 1,661 1,559 1,546 1,613 1,680 1,572 1,584 1,562 1,713

13,165 15,120 16,343 18,006 21,170 23,995 25,020 24,871 27,132 30,585 31,909 32,894 34,915 36,287 37,471 40,575 43,424 47,403 52,109 57,781

1.7 1.6 2.2 2.7 5.5 7.5 7.6 6.9 6.5 5.9 5.5 5.1 4.5 4.3 4.3 4.1 3.6 3.3 3.0 3.0

D o m in io n B u re a u o f S ta tis tic s, N a tio n a l A cco u n ts, In c o m e a n d E x p e n d itu re , B u lletin s 13-201 a n d 13-001, v a rio u s issues.

sou rce:

T ab le 2:1 show s th a t defence expenditures, b o th in d o lla rs and a s a percen tag e o f G .N .P ., ro se fro m very low levels a fte r th e w ar to a p eak o f nearly S2 billion o r 7.6 p er c en t o f G .N .P . in 1953, a n d have declined since th a t tim e, ru n n in g a t a b o u t 4.5 p er cent

The Amount and Composition o f Canada's Defence Expenditures / 7 o f G .N .P . or a little over $1.5 b illion betw een 1959 an d 1961, and falling to 3 p e r cen t o f G .N .P . in 1965 a n d 1966. In real term s the decline since 1953 h a s been g re a te r th a n th e d o lla r figures suggest since th e p a y o f defence p erso n n el an d th e co st o f g o o d s have increased significantly. T ab le 2:2 show s th a t, m easu red in re la tio n to G .N .P ., C a n a d a ’s d efence effort is less th a n h a lf th a t o f th e U n ite d States, less than tw o -th ird s th a t o f G re a t B ritain a n d F ran ce, b u t c o m p a ra b le w ith th o se o f m any w estern E u ro p e a n co u n tries, an d g reater th a n som e.

TABLE

2 :2

M ilitary Expenditure as a Proportion of G ross N ational Product S elected countries, 1962 (per cent) U n ite d States P o rtu g al U n ited K ingdo m F ra n c e T u rk ey W est G erm any N e th erlan d s Belgium G reece Canada Sw eden N o rw ay D en m ark Italy A u stralia N ew Z ealand Sw itzerland

10 8 7 7 6 6 5 5 5 4 4 4 4 4 3 2 2

'

F ig u re s fo r c o u n trie s o th e r th a n C a n a d a fro m D e p a r tm e n t o f N a tio n a l D e fe n ce , ‘A C o m p a ris o n o f D e fen ce E x p e n d itu re s in C a n a d a a n d C e rta in O th e r C o u n trie s ’, in H o u s e o f C o m m o n s , S p e c ia l S tu d ie s P re p a re d f o r th e S p e c ia l C o m m itte e on D efen ce, O tta w a : Q u e e n ’s P r in te r, 1965, p p . 90, 91.

sou rce:

8 I The Amount and Composition o f Canada's Defence Expenditures C O M P O S IT I O N O F D E F E N C E

E X P E N D IT U R E S

T h e to ta l o f C a n a d ia n defence ex p en d itu res is only slightly g reater th a n th e figures show n in T able 2:1 if ex p en d itu res th a t a re n o t for cu rren tly p ro d u ced g oods an d services a re inclu d ed . T a b le 2:3 show s defence expenditures a s given in th e P ublic A c co u n ts of C a n a d a . D etailed analysis o f defence ex p en d itu re m u st be based on these figures, since th e Public A cco u n ts a re th e m ain so u rce of d etailed in form ation. TABLE 2:3

Defence Expenditures as Shown in the Public Accounts (millions o f dollars) F iscal year ending M arch 31

B udgetary

1958 1959 1960 1961 1962 1963 1964 1965 1966

1687.4 1442.4 1534.2 1537.9 1650.0 1600.0 1730.0 1585.7 1595.0

sou rce:

note:

N onbudgetary 5.9 191.6 0.7 - 6.0 14.8

12.1 -11.2 2.8 - 7 .6

T o ta l 1693.3 1634.0 1534.9 1531.9 1664.8 1612.1 1718.8 1588.5 1587.4

P ublic A c c o u n ts o f C anada, v o l . I .

N o n - b u d g e t a r y d e fe n c e e x p e n d i tu r e s in c lu d e n e t p a y m e n ts f r o m th e D e f e n c e P r o d u c t i o n R e v o lv in g F u n d , a n d f r o m th e R e p l a c e m e n t o f M a te r i a l A c c o u n t u n d e r S e c tio n 11 o f th e N a t i o n a l D e f e n c e A c t. P a y m e n ts f r o m t h e f o r m e r f u n d a r e f o r m a te r ia ls u s e d in th e m a n u f a c ­ t u r e o f d e fe n c e e q u i p m e n t w h ic h a r e th e n s o ld to d e fe n c e c o n t r a c t o r s o r t o th e D . N . D . , th e p r o c e e d s b e in g p a i d i n t o th e f u n d . T h e R e p l a c e m e n t o f M a t e r i a l a c c o u n t is c r e d ite d w ith th e p r o c e e d s o f s a le s o f m a te r ia l to o t h e r c o u n tr ie s a n d is u s e d t o f in a n c e th e p r o c u r e m e n t o f m a te r ia l. U n t i l 195S, n o n - b u d g e t a r y e x p e n d i tu r e s a l s o in c lu d e d p u r c h a s e s f in a n c e d f r o m th e N a t i o n a l D e f e n c e E q u i p m e n t a c c o u n t. T h i s a c c o u n t h a d b e e n c r e d ite d w ith th e v a lu e o f e q u i p m e n t a n d s u p p lie s a c q u i r e d b y t h e D . N . D . b e f o r e 1 9 5 0 a n d s u b s e q u e n tly tr a n s f e r r e d a s m u t u a l a id t o N A T O c o u n tr ie s .

The Amount and Composition o f Canada's Defence Expenditures / 9 T ab le 2 :4 show s b u dgetary defence ex p en d itu res classified by th e ‘sta n d a rd ob jects’ o f ex p en d itu re used in th e public accounts. N early h a lf o f all ex p en d itu res co n sist o f civilian a n d m ilitary pay an d allow ances. B etw een one-fifth a n d o n e-q u a rte r o f ex penditures p u rch ase eq u ip m en t, m aterials, an d supplies. T h e largest item in th is category is a irc ra ft a n d en gines; th e o th e r m a jo r item s are ships, electronic eq u ip m en t, a n d fuel. T h e tra d itio n a l objects o f m ilitary ex penditure - a rm a m e n t eq u ip m en t, bom bs, a n d a m m u ­ n itio n - now acco u n t for a very m o d est sh are o f the to tal. T h e aircraft, shipbuildin g , a n d electronics in d u stries a re also the m a jo r recipients o f rep a ir a n d u p k eep expenditures. C e rta in n o n ­ m an u factu rin g industries a re o f c o m p a ra b le im p o rtan c e as defence c o n tra c to rs. N ex t to airc ra ft, th e c o n stru c tio n in d u stry receives th e largest sh are o f defence ex p en d itu re; the tra n sp o rta tio n and co m m u n icatio n industries to g e th e r a c co u n t fo r a g re a te r p ro p o r­ tio n o f ex p en d itu re th a n sh ipbuilding. E x p en d itu res g o in g to v ario u s service industries a re c o m p a rab le to th o se fo r ship bu ild in g a n d electronics. F ro m 1960 to 1964 the p ay o f m ilitary a n d civilian defence p er­ sonnel increased from app ro x im ately $650 m illion to a b o u t $780 m illion a s a resu lt o f rising p ay scales ra th e r th a n increases in perso n n el. P ersonnel declined fro m 1964 to 1965 as a resu lt o f reo rg an izatio n m easures a n n o u n c ed in th e W h ite P ap e r o n D e­ fence in 1964 (see below , p . 16). T o ta l paym ents for professio n al an d special services h a v e been fairly stable, su b stan tial increases in som e categories bein g offset by significant red u ctio n s in others. E x p en d itu res for m aterials an d supplies increased by n early 10 p e r cen t betw een fiscal years 1961 a n d 1964, reflecting m ain ly a su b stan tial increase in ex p en d itu res o n clo th in g an d p erso n al eq u ip m en t. T h e decline by 1965 w as d istrib u te d th ro u g h all categories. O utlays o n new c o n stru c tio n decreased drastically in th e last tw o y ears show n, w hile th e a m o u n t sp en t o n m a jo r new eq u ip m en t w as reduced significantly in th e la st th ree years. T h e su b stan tial increase in pen sio n s a n d o th e r benefits in 1964 is n o t a real increase in expenditures. I t is actu ally a larg e lum p su m p ay m en t to th e A rm ed F o rc e s S u p e ra n n u a tio n A cco u n t, necessitated by increases in p ay scales, an d is th u s m erely a tra n s ­ fer o f fu n d s betw een different g o v ern m en t accounts.

10 I The Amount and Composition o f Canada's Defence Expenditures

T A B L E 2 :4

Budgetary Defence Expenditures by Standard Object ( m illio n s o f d o lla r s)

Fiscal Year Ending March 31 1960

1961

1962

1963

1964

1965

183.1 470.1

191.3 491.9

198.6 540.3

204.8 545.3

210.1 573.4

202.8 562.0

Professional and special services •C o rp s o f com m issionaires, etc. •A rchitects, engineers, la n d valuation and legal M edical an d dental con su ltan ts and special services •F e es for special courses •O p e ra tio n o f R .C .A .F . establish­ m ents an d provision o f facilities by contract O ther

42.2 11.4

36.1 11.7

37.6 12.6

38.4 14.9

43.3 15.8

39.3 17.2

C ivilian salaries, w ages, allow ances Pay and allow ances o f arm ed forces

3.5

2.8

2.7

1.7

1.0

0.7

4.8 4.8

4.6 2.8

5.3 2.6

6.1 2.7

8.9 3.1

8.7 2.7

17.6 0.1

14.1 0.1

14.3 0.1

12.9 0.1

14.1 0.3

9.3 0.5

Travelling and rem oval expenses Freight, express, cartage Postage, telephones, telegram s, etc. Publication, exhibits, advertising, etc. Office supplies and equipm ent

40.9 8.1 7.8 3.9 7.5

39.8 6.6 8.0 3.8 6.2

41.6 6.9 9.2 3.9 6.6

40.2 6.0 16.5 3.3 6.3

38.3 5.8 23.8 3.3 6.1

37.7 4.6 25.2 3.2 6.2

M aterials and supplies •F u e l, gasoline, lubricants •C lo th in g and p erso n al equipm ent • F o o d supplies O ther

104.8 50.5 4.6 22.5 27.2

103.6 48.5 4.5 22.5 28.1

107.7 46.7 8.1 22.3 30.6

115.3 48.6 11.6 25.4 29.7

113.9 48.7 12.4 24.9 27.7

104.7 45.6 11.0 22.0 26.1

87.6 29.1 5.7 1.3

78.9 33.7 5.8 1.0

84.5 35.3 6.1 0.9

77.5 32.0 6.5 0.7

30.8 38.0 6.6 1.2

31.9 38.4 7.8 0.1

288.6 172.6 18.9

284.9 167.5 25.5

317.2 189.9 40.0

243.6 127.7 38.7

263.7 113.5 46.2

226.3 106.7 28.9

31.9 6.0 27.5 11.4 20.3

33.5 5.0 21.4 7.1 24.9

35.1 7.7 17.6 4.8 22.1

27.9 9.3 15.5 4.1 20.4

23.9 28.4 21.2 6.3 24.2

23.8 26.5 13.6 5.7 21.1

Buildings and works C onstruction R epairs and upkeep R entals •A cquisition o f real p ro p erty Construction or acquisition o f equipment •A irc raft and engines •Ships •E lectronic and com m unication equipm ent •T a n k s and m echanical equipm ent •A m m unition and bom bs •A rm a m en t equipm ent •O th e r

The Amount and Composition o f Canada's Defence Expenditures 1 1 1 R ep a ir and u pkeep o f equipm ent (including sp are p arts) M unicipal o r p u b lic u tility services C o ntributio n s, g rants, subsidies n o t included elsewhere Pensions and o th e r benefits O th e r expenditures Total Less E xpenditures Recovered N e t Budgetary Expenditures so u rce:

150.0 15.9

145.5 17.7

135.1 19.5

130.9 21.0

146.8 23.6

140.0 23.8

23.5 59.7 19.4

20.5 49.2 17.8

17.7 65.2 23.3

28.7 67.5 29.6

37.2 145.9 44.1

36.4 82.1 50.7

1349.2 1542.3 1657.2 1614.3 1756.1 1623.3 15.0 4.4 7.2 14.3 26.1 37.6 1534.2 1537.9 1650.0 1600.0 1730.0 1585.7

P ublic A c c o u n ts o f C a nada a n d D .N .D .

• D .N .D . T a b u la tio n

D IR E C T A N D IN D IR E C T IM P A C T O F D E F E N C E E X P E N D IT U R E S

T h e full im p act o f defence ex p en d itu res o n em p lo y m en t a n d o u t­ p u t in a given C a n ad ian in d u stry involves n o t only th e d irec t effect o f defence co n tra c ts going to firm s in th a t in d u stry , b u t a lso the in d irect effects o f su b co n tracts, o rd e rs from su b co n trac to rs, o rd ers fro m those supplying su b c o n trac to rs, a n d so on. M o reo v er, in o rd e r to estim ate th e n e t effect on n a tio n a l o u tp u t a n d em ploy­ m ent, it is necessary to e stim ate th e ex ten t to w hich defence req u irem en ts a re m et by im p o rts. A g ain it is n o t o nly d irect g overnm ent p u rch ases o f im p o rte d g o o d s an d services th a t a re relevant b u t also im p o rts m eeting th e re q u irem en ts o f c o n tra c to rs, o f su b co n tracto rs, supp liers o f su b co n trac to rs, an d so on. U n fo rtu n ately , it is virtu ally im possible to m a k e reliable esti­ m ates o f these in d irect effects fro m th e lim ited in fo rm atio n avail­ ab le to th e p ublic a n d to p riv ate research ers. W o rse still, even the in fo rm atio n cu rren tly availab le w ith in the g o vern m en t w ould n o t p erm it reliable estim ates o f th e in d irect effects w ith o u t a g re a t deal o f a d d itio n al processing. T h is situ a tio n is a n exam ple o f th e fact, to w hich w e shall have freq u en t occasion to refer a g ain , th a t a t p resen t the federal g overn m en t is n o t in a p o sitio n to m easu re the im p act o f its c u rre n t policies in the eco n o m ic field, le t a lo n e to gauge th e effects o f h y p o th etical m easures. I t is th erefo re n o t eq uipped to p la n effectively fo r policy ch an g es such as w o u ld be involved in th e event o f d isarm am en t. In th e absence o f reliable in fo rm a tio n , w e have lab o rio u sly c o n ­ stru cted very ro u g h estim ates o f th e ind irect im p act o f defence

TA B L E

2 :5

In te r-In d u stry A n aly sis o f D e fe n c e E x p e n d itu re s fisc a l y ea r 1962-3

Code No.

1,3 2 4 5 6 7-17 18 19 20 21 22 23 24 25 26 27 28 29

Industry

Agriculture, fishing, hunting, trapping Forestry Metal mining and non-ferrous metal smelting and refining Coal mining, crude petroleum, natural gas Non-metal mining and prospecting Food, beverages, tobacco* Rubber products Leather products Textile products Clothing Furniture Wood products Paper products Printing and publishing Primary iron and steel Agricultural implements Iron and steel products n.e.s. Transportation equipment Aircraft and parts Shipbuilding and repair Other transportation equipment

(5)

«5) (7) (8) Direct and (6) as a indirect Total Defence output, 1962-3, in defence employ­ percentage millions o f dollars, at Total ment, output, employ­ o f (7). producer's value (3) as a ment. 1962, subtotals - 1962, and in millions percentage in in totals thousands thousands Direct Indirect Total o f dollars o f (4) (1)

(