What’s wrong with Canada? The destruction is still creative

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NationalPost.com – Business/FP Comment
February 17, 2015.   Terence Corcoran

How the free market rolled over The Canadian Establishment, and will again

Oh dear oh dear, what is wrong with the Canadian economy? The automakers are fleeing to Mexico, Bombardier is on the ropes, we lost BlackBerry, big oil is in a tailspin, manufacturing is stalled, Nortel is long dead. Then there’s retail, with Target collapsing, Sony and Mexx closing down, Sears and Indigo in rough water, department stores struggling.

Whenever corporate upheavals strike, the handwringing and worrying speculation begin. Perhaps there is some deep failure of national character. A recent Wall Street Journal analysis, “What’s the matter with Canada?” included comments from Frank McKenna, deputy chair of TD Bank, lamenting a lack of tough capitalist thinking north of the border “In the U.S.,” he said, “there just seems to be a an eat-what-you-kill mentality….less fear of failure.”

Not sure what Mr. McKenna is getting at, but let us not waste too much economic policy energy working ourselves into a lather over the turmoil in the economy. There is nothing really wrong with the Canadian economy, aside from too much government, taxation and regulation.

Corporate failure and reorganizations are the norm in a market economy, a reality that’s all too obvious when looking back at Peter C. Newman’s blockbuster book, The Canadian Establishment. This year marks the 40th anniversary of its publication. In 1975, it was a sensation, a book that pulsed with ideas of power and permanence, and populated by men who — as Mr. Newman told it — sat in mighty control over the Canadian economy, their fingers on the levers of politics and production.

A typical Newman turn: “Canada’s Establishment [always with a capital “E”] consists of a surprisingly compact self-perpetuating group of perhaps a thousand men who act as a kind of informal junta, linked much more closely to each other than to their country.” The real power was corporate, said Newman. “Canada’s Establishment is dominated by the corporate elite.”

If today one were to write a sequel to the Newman epic, it might be titled How Free Markets Rolled Over The Canadian Establishment. Most of the big corporate empires are gone, gobbled up by competition or driven into bankruptcy. The conglomerates — Argus, Brascan — that seemed to loom over many industries, from beer to financial services and retailing, to farm equipment and paper making — have been de-conglomeratized. The steel companies, Stelco and Algoma, were decimated by competition. Retail giants — Eaton’s and Woodwards and Simpsons-Sears — were wiped out long ago.

The Canadian corporate giants and empires of 1975 have ceased to be, or if they continue to exist they are shadows of their former selves. The banks are still with us, although diminished in number and perhaps in moral authority. The successors of Paul Desmarais continue to run Power Corp., but nobody today could write as Mr. Newman did about the “complex maze of interlocking shareholdings and directorships [that] places Desmarais at the top of an amazing pyramid.” A dramatic pull-out organization chart followed.

Power Corp. is still a large enterprise today, but few Canadians cower under the illusion that the company is at the heart of Canadian economic or political power, pulling strings and in perpetual acquisition mode, as if poised to take over the whole economy.

What happened is nothing mysterious or surprising. In 1942, the great Austrian economist Joseph Schumpeter graphically outlined the economic forces at work. He described a “process of industrial mutation — if I may use that biological term — that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.”

The economic revolution that swept over the 1975 Canadian Establishment continues today, taking out existing players and installing new ones. For the average Canadian, the Big E establishment holds little of the awe-inspiring and mysterious power that Newman talked about, mainly because it has no such power. The loss of an Eaton’s or a Target, the reorganization of a Bombardier or a BlackBerry, also matters not a bit to consumers, who continue to have ever expanding access to retail services and products that are immeasurably superior to the options available even a decade ago. The loss of auto manufacturing plants in Ontario has not deprived Canadians of the best new cars the world has to offer imported from companies all over the world. Consumers and all Canadians turn to the next development, eager for the new.

Meanwhile, as the global market economy rolls on, members of today’s Canadian Establishment can only be well aware that they are not in power or control. In a market economy, few corporations and CEOs are beyond being toppled by the next wave of creative destruction. They are all too busy looking over their shoulders.

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