When veterans lay their wreaths at cenotaphs across Canada on Remembrance Day in memory of fallen soldiers, not a word will be said about the business of war.
Lest we forget, however, during wartime a nation’s economic and industrial might is marshalled to outfit the war machine.
That’s true even at times such as these when the country is involved in an unconventional “war against terrorism”, with an enemy who knows no borders.
“This is not a typical wartime economy,” says Bob Schultz, a University of Calgary professor in the Faculty of Management. “It sounds like there is a war, but there really isn’t.”
In conventional wars, there are massive troop movements and a realignment of resources as industry switches from production of consumer goods to building tanks and ships while the national government switches spending priorities to bolster defence initiatives.
In this war, economists say it will be niches in selected sectors such as computers, electronics, security and other high-tech areas that stand to benefit.
|Glenbow Museum photo|
|The Buckeye Machine Company in Calgary manufactured munitions during the First World War. Today, economists are debating what impact the war on terrorism will have on our economy.|
Alberta in particular, which has seen sizeable growth in its participation in the defence industry, will gain from the war effort.
Companies such as Calgary’s Computing Devices Canada Ltd. will be busy arming the war against terrorism.
Over the longer haul, Alberta’s energy sector, particularly oilsands producers, may also perform a vital role.
The biggest question mark is how the federal government will deal with conflicting demands from both the public and private sectors of an economy in a downward spiral.
During the First World War, Toronto financier Sir Joseph Flavelle was chairman of the Imperial Munitions Board. He converted an inefficient, scandal-ridden industry into a vast, well-organized industry.
After the war, Flavelle, along with his former employer, William Davies Co., the British Empire’s largest pork packer, were accused of war profiteering. An inquiry later exonerated him.
During the Second World War, American-born industrialist C.D. Howe played an integral role in galvanizing Canada’s manufacturing industry. In charge of the federal Ministry of Munitions and Supply, the cabinet minister surveyed businessmen to determine who could make the switch to wartime manufacturing.
Determined not to put the country into debt, the cabinet minister found ways of bolstering the economy through wartime production. Fortunately for him, the post-Depression years boasted excess manufacturing capacity combined with insatiable markets in the United States and United Kingdom.
To his credit, Howe organized resources with precision and speed, and toward the end of the war oversaw Canada’s efficient transformation from a war time to a peacetime economy.
Even so, it was difficult to persuade the business community to put down their tools and do something for war defence, says Maj. Craig Stone, an instructor at the Canadian Forces College in Toronto.
“It wasn’t profitable,” he says. “But it became profitable.”
Many credit the Second World War with pulling Canada out of the Depression. This time around, the reverse is more probable.
Most economists wager that the war on terrorism will compound the impact of the looming recession. The economy was already entering a recession before the Sept. 11 attacks. Tourism was down, major airlines were faltering. That’s why many economists including David Bond, senior fellow with the Canada West Foundation, wanted the federal government to present a budget sooner rather than later.
The Vancouver economist wants to know the extent to which the federal government will divert money into defence and security initiatives while continuing to shore up the social safety net. “How much is it going to cost us?” he says.
In previous wars, taxes shot up. Looking at Paul Martin’s December budget, the question is: Can the federal government stimulate the economy, increase security, pay for a defence buildup, and maintain social services without either a tax increase, going into debt or increasing the money supply?
Canada will have to hunker down, says York University professor Bernie Wolf. “We can’t look at it as business as usual. My crystal ball is quite cloudy.”
The war is being fought on two fronts. One is in Afghanistan and against terrorists worldwide. The other is on the psychological front, which affects consumer confidence, says Wolf, who dubs the situation “a high-alert economy.”
People are not in a buying mood any more, he says – conspicuous consumption seems tacky. “If (we) get another terrorist scare we didn’t contemplate, all predictions are off.”
Bernie Grover, one of only a handful of defence economists in the country, says Canada will pay dearly during the coming years for having scaled back its defence planning and expenditures so drastically.
That’s been compounded by the short-sighted view of public policy makers. During the past decade, it was impossible to get politicians on either side of the border to focus any attention on terrorist scenarios or activities, says Grover, an Ottawa-based consultant to the defence industry.
“One of the things we’re doing now is paying the price of complacency,” he says. “What’s going to happen is that through direct additional costs during the next three to five years, we’ll pay the price and we’ll pay the price big time.”
As for constructing a typical wartime economy, Grover says there is no neat model that fits all wartime situations.
That is especially so since the United States changed its industrial mobilization strategy a decade ago. The U.S. government used to require firms to maintain excess capacity to meet wartime needs. It kept a list of companies capable of switching gears from peacetime to wartime, says Grover, a defence industry policy adviser in the Pentagon during the Reagan and Bush administrations.
“We could not afford to maintain all this excess capacity. We decided to go to war with what we had – a ‘come as you are’ war. ”
Equipment would be replaced after the war started and ended. The question is, how long can the U.S. arsenal last? If the war continues for months, or even years, then Canadian firms may stand to benefit from the need to stock up during a protracted conflict.
With all the military downsizing in recent years, Canada’s defence industry has grown by providing services, such as maintenance, which have been contracted out by the military. Calgary’s Atco Industries is one beneficiary.
Canada doesn’t build tanks or airplanes because it lacks the infrastructure. Instead, manufacturers, such as those in the aerospace industry, build components for export and assembly elsewhere.
General Motors, Canada’s largest defence contractor, builds light-armoured vehicles for the U.S. military. In fact, there are only a handful of major contractors in Canada like GM.
Instead, Grover says there will be a number of niche markets in areas such as postal surveillance, facial recognition and luggage security that benefit from the conflict.
Thanks to industrial regional benefit programs and the western diversification program, the number of defence-related companies in Alberta and the West has grown significantly in recent years, says Grover.
In 1999, Alberta ranked third behind Ontario and Quebec in terms of market segment, export performance, and job creation, according to a Canadian Defence Industries Association report prepared by Grover.
One of the leaders is Computing Devices Canada Ltd. of Calgary, one of Canada’s largest defence contractors. Last July, it beat out a couple of major international competitors for a $4-billion contract to supply the British Army with digital radio systems.
The company, which started up in Ottawa more than 50 years ago and is owned by General Dynamics of Falls Church, Va., opened in Calgary in 1993 to meet a federal requirement for the western regional initiative.
Because of recent events, another Computing Devices product, its 4WARN biological and chemical detection device, is in demand.
In the past, products designed for defence purposes were adapted for commercial use. Now the reverse holds true. Consumer goods are often adapted for use in the defence sector. In fact, inventors have a field day during wartime.
Take the quixotic case of the Grizzly Project. For the past 15 years, Troy Hurtubise, a North Bay scrap-metal dealer, has been developing G-man, an anti-grizzly bear suit. His ingenious design has been examined in recent years for applications such as bomb disposal and walking through minefields.
So, what if the conflict spreads? What if the Middle East oil-producing countries decide to use the so-called “oil weapon?” That’s a question posed by Dick Shaw, a retired oil industry executive, formerly with TransCanada PipeLines and the Alsands Group.
The new expanded round of terrorist attacks in North America was predictable, says Shaw. He believes the provincial and federal governments need to start addressing immediately a range of energy-related issues – areas such as cost, conservation, the environment, security and, most of all, how much Canadian energy ought to be sold to the Americans. “There could be big, big problems,” he says.
Certainly there is considerable speculation on both sides of the border about how the U.S. can reduce its need for Middle Eastern oil, hence reducing the security requirements in the region.
“If the U.S. decides to drop its reliance upon Mid-Eastern crude, then the oilsands would really take off,” says Canada West economist Bond.
Then there are the indirect spinoffs from the war. In late October, the federal government’s International Business Opportunities Centre listed a tender for 130 to 150 diesel locomotives for the oil-rich republic of Kazakhstan, located due north of Afghanistan, to be supplied during the next six to eight years.
Industry observers figure the tender is part of a payback to Kazakhstan for supporting the U.S.-led coalition.
Finally, there are the opportunities available once the war ends and reconstruction begins. The post-war opportunities are significant for the defence industry and sectors outside defence, says Grover.
“When the initial war is over, or when the U.S. declares it over, there will be a requirement for ongoing interest and investment in that region,” he notes.
One Calgary-area businessman is already examining the possibilities. Sanford Big Plume, a councillor at the Tsuu T’ina Nation reserve and president of Wolf Flats Ordinance Disposal Corp., is organizing a consortium to clear landmines in foreign countries.
The company gained its expertise while clearing ordinance from the defence department’s firing range on the edge of the former Sarcee Reserve. Now, it wants to export that expertise.
But Afghanistan’s needs won’t end with clearing ordinance. “The West will have to become involved in developing an infrastructure (highways, railways, telecommunications) that will lead to continued stability in the region,” says Grover.
Many Canadian firms are equipped to do that – already looking to the future.