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?!!UR~AY, EC. 8th, 950 EE CAADIA STATfiMA. flOMANVt.T. %041 IO AGSU Cosîs and gains in an expanding economic horizon Extracts *of addresses delivered at the 9Oth Annual Meeting of The Canadian Bank -of Commerce "Today we consider ourselves faced with the problem 'of redonciling the diverse aspects of economic growth with the desire to maintain a measure of- stability,"' said James Stewart, C.B.E., President, addressing the 9Oth Annual Meeting of The Canadian Bank of Commerce. S INCE we met together a year ago we have seen a further resurgence ai the dynarnic growth wvhich has generally characterized the Canadian scene during the past decade. A little time aga, concern was expressed by sorne observers as ta the* vitality of aur cconomy. The recovery experienced in 1955 ta which 1 referred last year was notable in itself, but it is even more en- couraging ta witness continuing strong and favourable economic farces thraughout the country. b think it a fair appraisal ai attitudes that economic growth generally is desired. Moreover, 1 would venture that the kind of expansion we have been experiencing is anticipated ta continue in the rnonths and years ahead cf us, altbough the pace may sacken for a time. Un- questionably this desire for expansion is laudatory, but at the same time it must be emphasized that economic grawth creates costs as well as gains. Only twa years ago we were concerned with the question ai bow best ta regenerate aur lagging rate ai expansion. Taday wc consider ourselves faced with the problem aif reconciling the diverse aspects of economic growth with the desire ta maintain a measure ai stabiity. 0 AT. the present time we seem ta be iacing a dilemma and belore considering the forces involved in aur cur- ~,rent position 1 shall, in brief compass, outline this pro- blern as it presently appears ta me. Assuming that we want econornic growtb, we should ask ourseives il wc can contain through appropriate policy measures the distortions that necessarily accompany changing ecan- arnic relationships. Perhaps we should put more cm- phasis on creating a wider awareness ai the costs as well as the gains in this economic phenomenon and that one ai the costs is reflected in relatively bigber in- carne levels. If, on the other band, aur sigbts become focused an economic stability - however this may be interpreted - are We in danger, in applying variaus brakes, ai dampening out or drying up the farces re- sponsible for aur present ecbnornic growth? W7e must continuably remind ourselves that aur econ- emy has two major facets - the domestic and the inter- national - and the internationail acet influences the domestic scene. *On the international side, it is well ta keep in mind that, although aur industrialization grows apace, we can not, for the foreseeable future, expect ta achieve ecan-. ornîc self-sufficiency. Despite, or it may even be be- cause ai this industrialization, aur imports have grown rapidly and far from even approaching seif-sufficiency it would seem that we shahl end the year with a deficit in aur merchandise balance ai payments ai record proportions. We bave not yet developed a wide diversity of exports - - which continue ta be represented, in the main, by raw materials or partly processed raw niaterials indigenous ta this country. 1 arn compelled ta suggest that we must give an increasing amount of attention ta widening and diversifying aur ioreign markets. And ,vhile 1 arn an the subject ai current trade imbalances, which ta the present have been offset by foreign investment, has flot auir expanded industriabiza- tion generated the very trends in capital inflows that are bcing criticized in sorie circles? O VERALL business activity bas been more than sustained during the ye ar. To sorne the situation as re- fiected in national aggregates might further reinforce the viefA' that we now have the formula for perpetual prosperity. To my mmnd this is indeed far from the situation, which is, in paint ai fact, a growth phase and nat ta be confused with the former - comiorting though the thought might be. I amn compelled ta wonder, bow- ever, at the rate af inerease in activity during this past twelve-month and ta raise the query as ta the best way ta govern aur expansionary forces. Consumer disposable incarne is above the level ai a year ago by somne six per cent and the level ai consumer purchases in total over the year bas risen fram the peaks established a year aga. - - Witb few minor exceptions there appears ta bc a healthy balance between pro- duction and consumption. Statistical evidence in the consumer segment ai ther economy dilutes the "taa much money chasing toc few goods" concept ai infla- tion. Changes in costs ai production olten are reflected in price mavements and also manpower shortages in some sectors ai the economy have been instrumental in atering cast-pricc relationships. At the beginning ai the year, capital investment in- tentions suggested increasing pressures throughout the year on available resources and skilled manpawer. At mid-year the estimate ai capital requirements was again upgraded above the earlier estimates, although- it now seems questionable whetber we will achieve the mid- year forecast. However, this does suggest a backlag ai capital projects and a continuing higb level af capital formation for at least the year ahead ai us. The increase of close ta hall a billion dollars'in the niid-year revision ai capital expenditure estimates is a reflection ini part af the increasing momentum ai busi- ness and in part ai a slight increase in costs during the first bal! ai the year. The present need, arising aut ai the great demnand for industrial materials in evidence over the past twa years, and the need for power and other energy re- sources associated witb a buoyant industrial situatiori, bas dictated certain shifts in the direction ai investment. OUR relatively high capital spending program leads ta consideration ai another lacet ai the ecanomny, name- ly, the credit situation. A policy ai general% restraint has been fbllowed in Canada. Early in November the rediscount rate was placed an a "floating basis" tied inta the rate at which treasury bibis are soid from week tai week by the Bank of Canada. Rising long-term interest rates have tended ta depress the bond market, and some municipal and other issues bave been underwritten in the United States, where interest rates bave been Iower. Avaidance of direct contrais bas been the general objective af poficy. People affected by credit restraints tend to find reasons for objecting ta the halters placed an them. Yet, rnost people wouid agree that aur capital spending has been proceeding at a rate which cannat be sustained on the basis ai existing manpower and other resources; and we could not bave continued this course without unvleasant- consequences at some future period. p - AFEW years aga I discussed the relationship o! equity to debt in the industrial community. It is pas- sible that currently high interest rates may serve ta alter attitudes towards borrowing yet I wouid recaîl my carlier position that "The advantages ai tax savings on fixed charges look attractive but such advantages can bc temporar and can when any seriaus siackening in production enierges, become a disadvantage if not a burden." A T the autset aofrny remarks I made reference to, what I consider a growing conflict in objectives. Are we in favaur ai encouraging wbat is commonly regarded as ecanomic growth or are wecocncerned' with the con- cept af stabi lity? If the manifold pressures af economic gro wth are viewed as toc seriously distorting the ecan- amy are we in danger oi iurtber distorting it by sbilting aur sigbts irom growtb ta considerations af stability an the assumption that growth can bc effectively delayed or postponed or even re-initiated bv fiat? Here 1 would raise a question whether or net we have become toa prone ta over-emphasize sbort-run con- siderations. - - I would suggest for reflection that in- herent in private enterprise capitalismn is a process of discontinuous expansion - a cantinuous pressure for growth broken into distinct steps necessary for con- solidation of gains in capacity and periods for taking stock of the situation. In the attempt ta contain obviaus distordions ini our economic deveiopment wç must be aware that the weapons now considered applicable are reiativeiy new to Our society. The manipulation of interest rates is capable of working deep changes in the way business- men spend their money. Monetary paicy is, of course, only ane of the many government approaches affecting the amaunt and kinds of business activity. High corparate and persona] in- corne taxes have been part of the fiscal fabric for so many years that the rates are coming ta be regarded as built into the economic structure. Let us net lose sight af the fact that these levies draw off a vast pool of savings and loanable funds each year. Considerations af economic growtb also caîl for re- assessment oi aur attitudes towards the relative position of primary and secondary industries in the Canadian economy. Along with monetary and fiscal policies, attitudes towards tariff protection and industriai con- centration have an important bearing on our problem of securing diversification ai investment and economies of scale in line with future market development. Wbile there might have been room for doubt some years ago - conccrning the course ai aur expansion - there does flot seem ta be much now. Despite the undoubted significance ai our primary industries ta the aver-ali national well-being, nevertbeless manufacturing bas been increasing in importance until at the present time it accounts for about a third of the nation's net domestic praduct. We have set ourselves on the road ta industrial ilationhoô d. ON the basis ai the present evidence it would be within the bounds af possibility that we shall, next year, break through the $30 billion Gross National Praduct barrier - and the probiems ai growtb must be examined in a dynamic nlot a static framnework. When we look ta the year ahead we can sec certain favourable and some unfavourabie factors facing us. Amang the unfavourable aspects, as I sce tbem, are. (1) The unsettled international situation. (2) The possible continuation ai tight môncy and its concomitant, high interest rates. The more important favourable factors which 1 sec are: (1) The çontinuing desire ta increase standards ai living with a resultant high 'consumer spending patential. (2) The cantinuing pressure for capital spendingi which is part ai aur growth potential. 1 anticipate -that policies will be developed during the coming year ta maintain an atmosphere conducive ta arderly economic growth. Neil J. MeKinnon, Vice-Prenident and General Manager, after reviewing the balane sheet, highlights of which are aummarized, Maid in part: The ninetieth Annual Statement once again shows the total assets af the Bank at a new bigh record. During the year deposits increased by $68,000,000 and assets by $78,000,000 ta a total af over $2,434,000,000. Business conditions during the year continued at an cxtremcly active pace in every field. There bas been ful utilizatian cf facilities and labour and the physicai re- sources af the nation have been under strain ta meet al the demands especially in the capital expenditure field. These have been reflected in the financial markets with a growing demand for finance ai ail kinds against a diminisiiing available supply. Bank boans continued ta risc during the first hall cf this year but levelled off about mid-year and the banks presentiy are fully occupied in meeting essential business needs witbout enlarging the aggregate afI bans. The cash reserves af the cbartered banks have been kept under close contrai by the Bank of Canada and the ability af the banking system ta finance any f urther expansion af consequence in loans is presentiy limited. IuU~ M During the iiast year the raie of the Canadian banks in financing and facilitating Canadian business bas be- conq, more evident than for many years past. Canada is an under-capitalized country and the banks fill an in- dispensable raie in mobilizing the savings and working funds of the nation and putting thern ta use in financing current business. This responsibility of the banks in the financing of agriculture, industry and commerce in ail its forms both small and large is vital to the country. In an economy which is short of working capital it' would be a disservice to the nation to immobilize any serious part of the deposits in the banking system, through fixed long-tertn investments as to do so would mean that much of the business conducted throughout the country could not be carried on. The principal changes ini the Balace Sheet this ycar are reflected in an increase of $1 73,000,000 in com- mercial and other loans and a reduction in investment holdings of $220,000,000, principally in Governument of Canada bonds which matured or were sold during the year. Cash and cash items increased by $42,000,000 and cal bans increased by $39,000,000. The Statement af Undivided Profits shows an in- crease in profits, after taxes, of $632,000 and after providing for dividend payments an amounit of $1,89 1,000 was carried forward which' with the amount remaining from last year left a total in Undivided Pro- fits of $3,290,000 fromn which $3,000,000 was trans- ferred to the Rest Account. The Rest Account was further increased by a transfer af $6,000,000 fromn tax- paid and other reserves. Once again it is a privilege to pay tribute ta the loyal and devoted service of members af personnel during the year. Banking administration under conditions of restricted credit is flot the easiest task and 1 want ta refer especially to the branch managers and the branch officers who have displayed a sense of responsibility worthy of high praise. The Chairman and President and, I arn sure, the sharehalders as well will wish ta be idlentified with this message of appreciation toa aIl the members of personnel. ANNUAL STATEMENT HIGHLIGHTS YEAR ENDED OCTOBER 31, 1956 ASSETS Cash Rescurces (including items in transit) ..........................$ 392,485,511 Government and Other Securities, flot exceeding market value....6,53,636,675 Coli Loans .......................... 155,093,865 Total Quick Assets .......$...Î1,201,21 6,051 Loans dind Discounts ..............1,069,285,025 Mortgages and Hypothees insured tjnder thec N.H.A., 195,4.......... 89,444,382 Customners' Liability under Accept- ances, Guarantees and Letters of Credit as per contra........... 31,531,892 Other Assets ......................... 43,436,954 Total Assets ................$2,434,914,30À LIABILITIES Deposits ............................ $2,279,097,420 Acceptances, Guarantees and Letters cf Credit ................. 31,531,892 Other Laiiis........11,494,355 Shareholders' Equity Capital Paid Up.... $37,500,000 Rest Account ...75,000,000 Undivided Profits ., 290,637 112,790,637 Total Liabilities ............$2,434,914,304 STATEMENT 0F UNDIVIDED PROFITS Profits before Incarne Taxes .......$15,1 23,807 Provision for Income Taxes ........... 7,232,266 Balance available for distribution .$. 7,891,541 Dividends ..........................5,999,996 Amount carried forward .............$ 1,891,545 Balance cf undivided profits October 31, 1955 .............. »......1,399,092 $ 3,290,637 Transferred ta Rest Account............ 3,000,000 Balance cf undivided profits The fuit text of the Presidlent's and the Ganerci Manager'$ addresses May b. obtained by writing ta the Secretary, Headi Office, Toronto. THE CANADIAN BANK 0F COMMERCE More Thon 750 Branches A cross Canada a lé I J ~ i.t~ d. i 1, ~ J *.. I*I i Y *1 TMMS"A'y, DZC. làth, 1958 TRE CANAD" STATEnUN. BOWMANVILLE ONTAJUO . J.1 ' , '1 1 ; ': , . ý & ý It. la . . L à d'à .