Opting for Controls

Campaigning in last year's national election, Canada's Liberal Prime Minister Pierre Trudeau scorned his Conservative opponents for advocating "rigid and cumbersome" wage and price controls to slow inflation. Last week, in a Nixon-like about-face, Trudeau announced that he will clamp selective controls on the Canadian economy. In a 20-minute nationwide radio and television address, he called for an 8% ceiling on wage increases and a freeze on nearly all prices--they will be permitted to rise only enough to cover increased production costs. To enforce these restraints, an 18-member review board will be created; it will monitor 1,500 companies and large industrial and public-employee unions, and will have the power to go to court to demand fines and even prison terms for offending corporate and union officials. For political reasons, the Prime Minister refused to use the word controls; he labeled his plan an "attack on inflation." But he left little doubt that it is a strict economic policy. Canadians, warned Trudeau, "are going to have to swallow some strong medicine."

Trudeau's sudden turnaround is a clear admission that the milder medicine he championed during the 1974 election campaign has failed. Although the government has urged business and labor to hold down price and wage hikes voluntarily, inflation in 1975 has run at a discouraging compound annual rate of 12.7%, and government economists have predicted that it could reach 16% by year's end. Wage increases have averaged almost 19% yearly--twice the U.S. rate--even though more than 7% of the work force is unemployed. Moreover, Canada has been plagued by more work stoppages than any major industrialized country except strike-happy Italy, and experts lately have worried that without controls the situation could grow worse. The postal workers, for example, last week threatened to shut down mail service for the seventh time in two years unless Canada Post gives in to their demand for a 71% pay and benefits hike. Large U.S. corporations with subsidiaries in Canada, such as American Can Co., have warned that new plants may be built in the U.S. instead of across the border if Canadian industrial wages keep rising above U.S. levels.

Dangerously Close. Meanwhile, in their zeal to boost profits, many corporations have raised prices of manufactured goods to levels that are dangerously close to being noncompetitive in world markets. As a result, Canada's drive to export more machinery, electronic equipment and other finished goods--a cornerstone of its economic policy--is faltering. The nation imported $9 billion more in manufactured goods than it exported last year; that deficit may well climb above $10 billion in 1975.

Confronted by these myriad economic woes, Trudeau last week felt he had little choice but to opt for controls. Scarcely a month ago, popular Finance Minister John Turner focused public attention on the issue when he gave up trying to win support for voluntary wage-price restraints and quit the Liberal Cabinet. His replacement, former Energy Minister Donald Macdonald, was promptly handed two choices by ministry staffers: an outright 90-day freeze on all wages and prices, plus other rigid measures--the policy advocated by the Conservatives--or a program of selective controls combined with cutbacks in federal spending. Macdonald and Trudeau chose the latter, partly to avoid the embarrassment of taking over the opposition's program completely.

The Trudeau-Macdonald plan is aimed at cutting inflation to 4% in three years, but it plainly faces formidable obstacles. It covers less than 50% of Canada's work force, exempts key industries such as agriculture and fishing, and is opposed by the powerful Canadian Labor Congress. Moreover, it permits wage boosts up to 12% for workers who have been unable to catch up with past increases in the cost of living. To be effective, it will clearly need strong support from the frequently independent-minded governments of the nation's ten provinces. In addition, it is markedly different from the economic policy being pursued in the U.S. That is a potential stumbling block because Canada's economy and currency are closely linked to the U.S.'s. In the past, Ottawa has rarely been successful in pushing major policies that are totally at variance with Washington.

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