Mulroney's Stance Contrasts With Trudeau's : Canada Woos U.S. Investors--Without Immediate Success

Times Staff Writer

When Brian Mulroney was a boy in the Quebec village of Baie Comeau, he used to sing for his supper, so to speak. He would get $50 for crooning "Dearie" and other Irish songs for the American tycoon who owned the mine that dominated the town's economy.

"So my family became the first Canadian family to benefit directly from American foreign aid," Prime Minister Mulroney jokes now in a standard opening to speeches he gives to American audiences.

If the young Mulroney looked to an American benefactor for his family's sustenance, Prime Minister Mulroney is looking south of the border for something else. He wants billions of dollars in investments to rejuvenate his country's troubled economy.

All through the campaign last summer, and since his Progressive Conservative government took office in September, Mulroney has pushed the idea that overseas money will spur the economic growth necessary to create jobs, increase government revenue and cut the massive federal deficit.

In exchange for this money, he has been singing a song of friendship and cooperation that contrasts with the impression created by the Liberal Party government of former Prime Minister Pierre Elliott Trudeau.

Mulroney's government has pledged not only that the door will be open for profit-seeking investors but that the United States can count on Canadian support and cooperation in defense and trade matters and in the United Nations.

For instance, Canada's secretary of state for external affairs, Joseph Clark, carried the new pro-business message to Los Angeles last week, speaking to a luncheon gathering of the Canada California Chamber of Commerce. Tailoring his speech to the Southland's aerospace and high-technology industries, he emphasized Canada's commitment to military preparedness and to freer trade in the areas of telecommunications and transportation.

Clark also said he has taken a similar free-trade message to London and Tokyo and will visit Moscow and Paris this spring.

Even on the question of acid rain, Mulroney has taken the edge off Canadian criticism of U.S. industry by saying that Canada's own hands are dirty and that it must clean them before expecting the Americans to take any steps.

Still, no significant new money is making its way north, and interviews with economists, diplomats and politicians indicate that there is little possibility of getting the money that Mulroney hoped for when he told 1,500 New York executives Dec. 10: "Canada is open for business again."

Government figures for the first nine months of 1984, when the Liberal Party was in power, show that foreign investment totaled $1.7 billion Canadian. (The Canadian dollar recently has been worth about 72 cents U.S.) Estimates for the last quarter of the year, under Mulroney, indicate that there was a decline, to an average quarterly inflow of $300 million Canadian from $566 million Canadian.

While the expected 1984 total of $2 billion Canadian in foreign investment is a huge increase over the previous year's $200 million Canadian, the last-quarter decline is what worries economists, particularly when compared with the amount of Canadian money invested outside the country.

In the first three quarters of last year, Canadians sent $2.15 billion Canadian to other countries, mainly the United States. A rough estimate for all of 1984 is $2.8 billion Canadian.

There are those who argue that Mulroney's strategy cannot be written off yet. An executive with a New York investment firm who asked not to be named said: "Americans have a wait-and-see attitude. It is far too early to tell if it will or won't work."

Others, including Paul Robinson, the U.S. ambassador to Canada, say that even if there isn't a lot of new money flowing into Canada now, Mulroney has created an atmosphere that will pay off later.

"In the long run," Robinson said in an interview, "his (Mulroney's) New York speech improved the climate for foreign investment."

Nevertheless, according to the Canadian Conference Board, Statistics Canada and private economic groups, the money is just not coming in, and given world conditions it is not likely to in time to provide the economy with the fuel it needs to create jobs and defeat recessionary trends.

Still, Mulroney is continuing with a program designed, at least, to remove the barriers imposed on foreign investment 11 years ago by Trudeau, particularly the Foreign Investment Review Agency.

FIRA, as the agency is known, was designed to force foreign businessmen to prove that their investments would primarily benefit Canada and reduce the country's economic dependency on outsiders. "Canada for Canadians," was the watchword.

Even though the Trudeau government drastically cut back on FIRA's narrow policies when the country was hit by a severe recession in 1982 and 1983, foreign businessmen continued to see the agency as an irritant.

Working its way through Parliament and expected to go into effect in the spring is a proposal that would replace FIRA with Investment Canada, a new agency to promote investment, not restrict it.

In addition, Mulroney has promised to remove restrictions on foreign oil and gas firms operating in Canada, particularly a controversial rule requiring foreign businesses to pay the government, retroactively, 25% of their royalties on oil and gas discovered before 1980.

Matter of Timing

Finally, the government is promoting freer trade, although the exact approach is still under consideration and is likely to spur a vigorous, bitter and--for Mulroney--politically dangerous debate.

According to Wendy Dobson, executive director of the C. D. Howe Institute, an economics research organization attached to York University in suburban Toronto, "liberalization of investment is the right policy at the wrong time." It comes, she said, "at a time when the best investment opportunity is across the border."

This view, which is shared by many private economists and investment experts on both sides of the border, is based on the attraction of high U.S. interest rates, the strong American dollar and the rejuvenated American economy.

It is also borne out by the fact that Canadians invest more in the United States than in Canada, a drain that began in 1978 and continues.

"The question is whether there is any reason for investment in Canada," said Carl Beigie, chief economist at Dominion Securities Pitfield Ltd., in Toronto. "The answer is no."

Ambassador Robinson said "there just isn't that much investable income in the world." His view was supported by an Asian diplomat, who said that Japan, one of the few countries with a capital surplus, prefers to buy land and high-yielding certificates in the United States.

Then there is the problem of Canada itself. Much of the country's wealth is based on exporting natural resources--minerals, lumber, oil and gas. But the market for such items is depressed, and Canada, with its high living standard and elevated production costs, is having problems competing for customers.

The general state of the economy is bleak. Unemployment remains above 11% and inflation is a point higher than in the United States. Productivity is nearly 25% below the American rate, industrial growth is projected at 2.2% this year and the deficit will be above $35 billion Canadian, a figure far higher in per-capita terms than in the United States.

Adding to these factors are the concerns that some outsiders feel about Mulroney's political leadership. Throughout his election campaign and in the early weeks of his government, the prime minister preached the gospel of deficit cutting and reforming Canada's heavily regulated and subsidized economy.

His finance minister, Michael Wilson, issued a message to Parliament in November outlining stringent austerity measures, including a review of the country's extensive social welfare program, which takes up 50% of all government spending.

However, Mulroney is showing definite signs of pulling back from his concerns about the deficit. His initial statements about reforming the social welfare programs to give more money to lower-income people while cutting or eliminating payments to wealthier citizens were rapidly withdrawn after parliamentary opponents and affected groups attacked them.

Most columnists and political insiders now say that the deficit is no longer a prime concern of the government and that the spending imbalance will remain the same for the foreseeable future.

These same experts also say that Wilson, a firm believer in a free market economy and deficit cutting, has lost his influence in the government because Mulroney prefers to follow public opinion polls that show little concern over deficits and great worry about losing government benefits.

This worries people at the C. D. Howe Institute and other private economists.

"I don't think he (Mulroney) has thought it out," Dobson said. "He has closed out all but 25% of the economy from cutting. That is not leaving himself many options."

All this, Beigie said, has led to a perception "that the government doesn't know what it's doing."

Ironically, while Mulroney's plea for investment does not seem to be having any effect, it has set off a wave of nationalism among people and groups who fear that further American involvement in the economy will lead to a loss of political sovereignty.

$150 Billion in Trade

These people argue that 50% of Canadian business is in foreign hands now, the highest rate in the industrial world, and that Canada is already too tied to its southern neighbor in trade.

Two-way trade amounts to $150 billion U.S. a year, the largest in the world, and accounts for 75% of Canada's total trade and 25% of the United States'. In terms of pure foreign investment, at the end of 1983, a total of $74.5 billion Canadian had been brought into Canada from abroad in the period since the country was established in 1867; of that total, $57.4 billion Canadian came from the United States.

Past leaders of Canada-first movements, such as historian Pierre Berton, publisher Mel Hurtig and writer Peter Newman, say that this is more than enough and are trying to organize influential figures to fight freer trade, increased foreign investment and closer ties with the United States on defense matters.

So far, according to public opinion polls, these people are not succeeding. But Mulroney has shown that he listens to pollsters, and many economists fear that continued pressure from the nationalists, particularly if his initial approaches on investment and freer trade fail to work, will push the prime minister into following the policies that they say put Canada in its present distressed condition.

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