March 10, 1933

PRIVATE BILL

FIRST READING


Bill No. 42, respecting the Algoma Central and Hudson Bay Railway Company.-Mr. Bradette. CANADIAN NATIQNAL-CAiNADIAN PACIFIC RAILWAY BILL The house resumed from Thursday, March 9, consideration of the motion of Hon. R. J. Manion for the second reading of Bill No. 37, respecting the Canadian National Railways C.N.R.-C.P.R. Bill-Mr. Malcolm and to provide for cooperation with the Canadian Pacific railway system, and for other purposes, and the amendment thereto of Mr. Mackenzie King.


LIB

James Malcolm

Liberal

Hon. JAMES MALCOLM (North Bruce):

Mr. Speaker, in resuming the debate on Bill No. 37, I should like to take this opportunity of complimenting the Minister of Railways and Canals (Mr. Manion) on the very fair presentation of the case which he made for the legislation being submitted. I should like also to thank the Prime Minister for the speech which he made yesterday inasmuch as it undoubtedly made clear to the minds of most of the members of the house what he considered to be the need for the legislation, based on his opinion of the situation with regard to our nationally owned railway system.

I further feel indebted to the hon. member for Hants-Kings (Mr. Ilsley) for some remarks which he made in his very admirable speech last evening when he referred to some statements that had been made by the Prime Minister with regard to the very able men who had sat on the Duff commission and to the ability of the members of the Senate who had passed on this legislation. I am thoroughly in accord with the member for Hants-Kings. I do not think that any man who sat on the Duff commission, regardless of what his ability or previous experience may have been, has any more knowledge or any more conception of the railway situation as it applies in this dominion than have most of the members of this house. The Prime Minister himself, as he said in his remarks yesterday, has carefully watched the growth of the different railway systems in Canada, and I think I can say with many other members of the house that we also, just as well as any man who sat on the Duff commission, have watched the growth of these systems and have seen the moneys that were granted by parliament spent to build up private systems, and have later seen those private systems collapse and the roads taken over under state ownership. Not only that, but I consider that hon. members of this house have a better knowledge of the requirements of the Dominion of Canada and a fuller appreciation of what our railway system means to the national life of this country than any men who could possibly be appointed to any royal commission who have not been engaged in public life for the long periods of time that some members of this house have. I therefore submit quite respectfully to the Prime Minister that this legislation having been introduced by the Minister of Railways in a most non-partisan address,

inviting on behalf of the government a discussion of the legislation, that it is our duty to present to the Minister of Railways and to the government the views that we hold with regard to the railway situation in Canada, and to suggest amendments which we, the members of this house representing the people of Canada who are the shareholders of this road, think are in the interests of Canada and the shareholders and to the advantage of future generations.

Mr. Speaker, if I might be permitted briefly to refer to the railway situation in Canada I should like to preface my remarks by saying everyone realizes that in new countries railway construction is usually in advance of requirements. In no country has this been more true than in Canada. We have only to turn the pages of Hansard for the period following the building'of the Canadian Pacific railway to find many evidences, from those of little faith at that time, that the railway could not be made a success. True, the Canadian Pacific Railway passed through many years when the earnings did not justify the faith of the original builders, but eventually that faith was justified and the Canadian Pacific railway became great and prosperous. During the years between 1896 and 1911, due to an expansive policy of immigration, Canada grew and prospered. And the men of those years had just as much faith in our dominion as had Sir John A. Macdonald and the builders of the Canadian Pacific railway.

What the Prime Minister said yesterday may be quite true; looking at events from the vantage point of 1933 it is quite justifiable to criticize what happened between 1896 and 1911. But we all admit that hindsight is much better than foresight. In fact, if our foresight was as good as our hindsight we would not have to work; we could make all our money at the race track. Between 1896 and 1911 Canada enjoyed a period of expansion, and hon. members on both sides of this House of Commons were entirely in agreement with the expansive program carried on in those years. When Sir Robert Borden took office in 1911 no man foresaw or foreshadowed in this house the disastrous events that were to occur between 1914 and 1918, or the catastrophe which in those years upset the calculations of the legislators of earlier days, and retarded the growth of Canada to an extent which no one can calculate. Therefore I say any remarks critical of previous legislators, or their plan for serving Canada with railways, are not founded upon fact. They are not fair criticisms, because the intervention of the war utterly destroyed the calculations made previous to that time.

2890 COMMONS

C.N.R.-C.P.R. Bill-Mr. Malcolm

If on this continent we had not built railways for the pioneers I doubt very much if we would be a country of 10,000,000 people. If we had not built our railways in order to take our pioneers into those vast open spaces I doubt very much if Canada would be the prosperous country it is to-day. Possibly we might write off to national expansion and promotion, and the development of Canada, some of the moneys which undoubtedly we lost on railway construction. I do not feel nearly as much alarmed as did the Prime Minister in his speech yesterday concerning the financial situation in which we find ourselves to-day. Hon. gentlemen who sat in this chamber in 1922 following the close of the war, will recall that the picture at that time was not very much better than it is to-day. We were faced with a $60,000,000 operating deficit on the Canadian National Railways, when we took into account the interest we owed to the outside bondholders. We were owners of a system which the Right Hon. Mr. Meighen had tried to coordinate in 1917, and which coordination was only completed in 1923. The system was run down. Without going into detail, with which the Prime Minister dealt so ably yesterday, may I say that it was a disjointed system, and it was not in good shape. The question arose in this house whether or not the system should at that time have been sold to the Canadian Pacific Railway for the sum of one dollar, to relieve the future taxpayers of Canada. However the houses of parliament decided otherwise, and a management which had before it a tremendous task was put in control of the railway. I am going to say that I believe, in future years in the light of better perspective, men will have an entirely different view concerning what Sir Henry Thornton did for the national system during the time he was president. I shall prove my statement and my opinion by utterances from hon. gentlemen opposite during the years Sir Henry Thornton held office.

What happened between the years 1922 and 1930 concerning the operation of the national railway system? No one will deny that the system was coordinated; no one will deny that the trackage was tremendously improved; no one will deny that -new equipment was purchased, both rolling stock and other types of equipment,-all of which brought the railway to the forefront of railway systems on the North American continent. If one wants proof of that he has but to look up the references made with regard to the two Canadian systems by American railwaymen. Indeed, it is true that the state of efficiency into which

TMr. Malcolm.]

the national system and the Canadian Pacific had got themselves by 1929 was the envy of most transportation systems on this continent. What I say with regard to the management of the Canadian National Railways, to which in a moment I shall refer, was just as true with regard to the management of the Cana-[DOT] dian Pacific. During that time not only was the system coordinated, the trackage improved and new equipment purchased, but for the sake of the greatest industry in our country, namely the wheat industry, we restored the old Crowsnest pass freight rates, giving lower rates on grain. During the years from 1926 to 1932, as shown in the Duff report, we managed not only to pay operating expenses, but to contribute the sum of $210,000,000 towards the payment of interest to outside shareholders.

Let me say that in view of an accomplishment of that kind, I do not blame the Minister of Justice (Mr. Guthrie), who was then in opposition and speaking in the budget debate, for claiming that no party had any right to take credit for the successes prevalent at that time. I think the Minister of Justice was quite within his rights in stating that the success was due to the good offices of the management of the road, and Sir Henry Thornton and his officers and loyal staff should be given full credit. I do not think the Minister of Justice would want to retract the statement he made on that occasion. Therefore I do not believe anyone can say there was not reasonably efficient management of the national system during those years.

In the Duff report at pages 15 and 19 are given certain figures which I think hon. members should take into account when comparing the efficiency of the national system with that of the Canadian Pacific during the years of prosperity and ample tonnage. The figures showing mileage of the two systems indicate that that of the Canadian National railways was 23.8S0, while that of the Canadian Pacific railway was 16,886. Of the total railway mileage in Canada the national system had 58 per cent and the Canadian Pacific 42 per cent. There is a direct relationship between mileage and capital expenditures. How do they compare? The capital expenditures on the Canadian National system are given as $456,345,456, whereas those on the Canadian Pacific are only $348,776,855. Or, of the total capital expenditures on the railways from the years 1923 to 1931, inclusive, the Canadian National expenditures were 57 per cent and those of the Canadian Pacific 43 per cent. So we see how closely the capital expenditure compared with the actual mileage. On operating expenditure found at page 15 .of the Duff re-

C.N.R.-CP.R. Bill-Mr. Malcolm

port, that of the Canadian National in these years amounted to 58 per cent of the total railway operating revenue in Canada, and that of the Canadian Pacific to 42 per cent, exactly the same percentage as obtained in mileage. In otheT words these two roads ran side by side with their total mileage in capital expenditure compared with operating expenditure.

But let us come to the all important question of revenue. On page 15 of the Duff report you have the figures. The total operating revenue of the railways in Canada was divided, Canadian National 57 per cent, Canadian Pacific 43 per cent, exactly the same ratio as the capital expenditure, and only one per cent difference from the mileage. Does not that prove that during that period when tonnage was ample, when the Canadian Pacific and the Canadian National both were building up power, equipment and rolling stock, and rock ballasting their roads, they ran hand in hand on expenditure; therefore, any credit or criticism applicable to one road is also applicable to the other.

My remarks in that regard are made for a certain reason. The Minister of Railways in his speech a few days ago gave the decline in the revenue of the publicly owned system as being from 8394,000,000 to, I think, $162,000,000, if I remember rightly.

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CON

Robert James Manion (Minister of Railways and Canals)

Conservative (1867-1942)

Mr. MANION:

To 8161,000,000.

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LIB

James Malcolm

Liberal

Mr. MALCOLM:

I would ask hon. gentlemen in this house who have been associated with business and financial enterprises if there is anything unusual about the decline that the Minister of Railways is called upon to face. Is it not just about comparable to the decline in other business on this continent? Is the railway problem in these times of international stress any more difficult to solve than the problem that faces the pulp and paper industry, the lumber industry, the coal mining industry or manufacturing industry? I think not. The problem which we as guardians of the national railway and representatives of the people who own it have to face is just the same problem which every board of directors and every manager of business is called upon to face to-day. I do not think that it is a much worse problem than faced us in 1922. In 1922 we w'ere facing the destruction of our previous hopes caused by the great war. In 1933 we are facing the difficulties which have arisen not through any action of hon. gentlemen present, not through any action of the people of Canada, but through the breakdown of the economic system of the world. For my part I prefer to look at this national problem in the same way as I look at a business problem

when I sit with my associates in business trying to solve the problems which come before us.

There was an interesting statement made by the minister with regard to the economies which have been effected. The minister said that S40,000,000 had been saved by efficient management on the Canadian National system during the past year. I want to say to the minister that for whatever part he had in that I congratulate him. I want to congratulate the management of the Canadian National system on being able to meet the conditions with which they are faced by so reducing expenditure as to save this amount of money. But in fairness I want to say to my friend the minister that he is hardly right in saying that had these economies been effected in 1928 we could have paid

840.000,000 on the interest on our obligations to the bondholders.

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CON

Robert James Manion (Minister of Railways and Canals)

Conservative (1867-1942)

Mr. MANION:

Mr. Speaker, I did not

make any such statement.

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LIB

James Malcolm

Liberal

Mr. MALCOLM:

I am glad the minister

did not. I understood that he said if the same efficiency had obtained in 1928 as to-day that would have been the result.

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CON

Robert James Manion (Minister of Railways and Canals)

Conservative (1867-1942)

Mr. MANION:

I know my hon. friend

does not wish to mislead. I quoted Mr. Hun-gerford as saying that if the same economies were in force and with the same amount of business as in 1928 it would have increased the net earnings by $19,000,000.

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LIB

James Malcolm

Liberal

Mr. MALCOLM:

With regard to that I

want to say that the expenditures of 1928 were predicated upon the demands of the public for service. They were predicated on the demands of members of this house for branch lines. Can we not recall the brilliant speech made by a member of the Senate who was then a member of the House of Commons in which he advocated a very extensive and very expensive immigration project for the Peace River district. Opinion in this house was divided, but mostly supported the then member for North Vancouver in his desire to improve the conditions in Canada by an extensive immigration policy to fill up the Peace River country. I remember at that very time Sir Henry Thornton made the statement that we should go slowly. He said, there is a limit to what the national railway can carry, and the Peace River railway may be the last straw that will break the camel's back. Whatever we may say about the extension of branch lines in the dominion during the prosperous years up to 1929, I think it is only fair for hon. gentlemen to admit that we were all looking at things through very rosy glasses, and regardless of political affiliations we in

CJV.R.-CR.R. Bill-Mr. Malcolm

this house were all anxious to see the Canadian Pacific and the Canadian National give the very best service possible, in fact we were demanding super service, we were demanding branch lines which in the light of recent events were probably not at all justifiable, but which did look to hon. members then to be quite worthy of consideration. I do not think it is fair to criticize former parliaments for their optimism at that time. No member of this parliament who sat in the last parliament ever anticipated to the slightest extent the economic collapse which has fallen upon us in the last four years. Does anyone here recall a single speech of warning in this house in the years 1928 or 1929 by which we were told that we were going to have the greatest economic collapse that the history of the world has ever recorded? I think not. So in dealing with what we did in previous years I do not think anything is gained by crying over spilt milk. We are just in the position to-day that other business men are, we are faced with a problem and that problem must be solved. The Minister of Railways has introduced a bill to that end. Members of this house are entitled, indeed it is their duty, to express their opinions as to the best method of solution in the light of existing circumstances and not in the light of recriminations for anything that past parliaments have done.

May I say with regard to the expenditures which were made during the period of prosperity, that we are benefiting by those expenditures now to an extent of which we little dream? We could not save money to-day on the Canadian Pacific or the Canadian National if we had not built our rock ballasted roadbeds up to their present fine condition. We could not save money on power if that power had not already been provided on both systems, if the equipment was not in good shape for many years to come. We are now relying on the fat that was built up during those years on both railway systems. We can now economize and benefit from the expenditures of former years, until things revive.

There has been a great deal of criticism to the publicity of both railway systems. But hon. gentlemen who have had some experience with advertising, know perfectly well that advertising has a continuous value, indeed, it has a cumulative value, and the prestige which the Canadian Pacific has built up for itself throughout the nations of the world, and so largely in Europe, is not going to pass in a day. If a man is a good advertiser, he probably has to continue it to some extent, but he can easily curtail his advertising in times of stress and reap the profits of previous publicity which brought his goods or his system into the public view. So I think the expendi-

tures made by the old administration, Sir Henry Thornton and his board of directors, are of distinct value to us at the present time in effecting economies which never could have been effected if the roadbeds had not been built up and the equipment had not been purchased.

I have read the Duff report with considerable care, Mr. Speaker, and I am disappointed in one feature of that report. It makes a most careful analysis of the financial situation of these roads; it deals with many phases of transportation, but I think it fails in one respect. It does not provide what the Minister of Railways referred to in his speech the other day; it does not give any assistance by telling the railways or telling us as trustees of the Canadian National Railways, how the railway systems in Canada are going to secure more tonnage. It is on more tonnage that the systems must rely for any future prosperity. I think perhaps hon. members are quite fed up on discussions with regard to the problem of motor car transportation as it affects the earnings of the railway system, but may I respectfully submit a thought which I think has been overlooked in this regard. The minister pointed out that from 1923 to 1932 the number of motor cars in Canada had increased from, I think he said, a half million to a million, and that during the same period the decline in passenger traffic on the railway systems was equal to the increase in motor car traffic. In other words, the passenger revenue declined by about half. Based on that statement of fact one would be inclined to say that motor car traffic injured the railways of Canada to the extent of about half their passenger traffic, but is that true? I do not think it is. When one begins to consider what the motor car industry has meant to the railways of Canada in the tremendous tonnage they have carried for the motor car industry'one hesitates to say that this industry has been such a detriment to the railway systems. When one considers the tens of thousands of car-loads of road material, cement, asphalt, crushed stone and so forth that have been transported in Canada for the construction of good roads, entirely due to the advent of the motor car, one must realize the tremendous tonnage that has accrued to the railway systems of North America due to the very fact that roads had to be built for these cars to run on. I have discussed this problem with two or three very good railway economists in the United States, one of whom informed me that he did not know of a man on the North American continent who had made a satisfactory calculation to prove exactly what motor transportation had cost

CJV.R.-C.P.R. Bill-Mr. Malcolm

the railway systems if, indeed, it had meant any cost at all in total earnings.

I do submit, however, that our railways are open to some criticism. I believe the operators of all railways in North America have been so busy watching their opponents that they did not consider what might result if only they thought of themselves as transportation men rather than as railroad men. Today they see it; to-day we have the advent of the single unit, gasoline-propelled car in Germany. It is now coming into use in the United States, and I believe two or three of these cars are being built for use in Canada. By this means a good service may be rendered on branch lines without the expensive rolling stock or the heavy operating crew needed on a steam train of three or four cars. If ten years ago the railway companies had seen, as they see to-day, the possibility of using motor transportation on their own rails I believe much of the expense of maintaining heavy services on branch 'lines could have been avoided. In the second place, had the railways realized that they were the transportation principals of this dominion and that anything that had to do with transportation was in their field probably ten years ago they would have done what they are now doing under necessity; namely making use of the trucking system in order to feed their terminals and division points.

I enjoyed listening to the remarks of the minister because of one particular point stressed, namely, that the decrease in railway operation had lessened the consumption in coal, I think he said, from 59,000,000 tons to

29,000,000 tons.

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CON

Robert James Manion (Minister of Railways and Canals)

Conservative (1867-1942)

Mr. MANION:

Dollars.

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LIB

James Malcolm

Liberal

Mr. MALCOLM:

Yes, dollars, and the minister went on to say that this had a very serious effect upon the earnings of the coal miners of Canada. That only shows, as the minister pointed out, .the far reaching effect of anything that is detrimental to our transportation sys-stem. When the minister said that an additional 50 per cent tonnage would solve our problems I just wondered to myself why any man in the transportation business, a business whose very life blood is the movement of commodities, should support any policy which has to do in any way with the restriction of trade and the movement of commodities. To-day we have this situation, Mr. Speaker, that many commodities are being diverted into other channels. Recently I asked a question of the Minister of National Revenue (Mr. Ryckman) with regard to the shipment of silk from Japan through the Panama canal. I was informed that it was cheaper for the Toronto raw silk user to buy his silk in New

York rather than in Tokyo, because of some ruling with regard to exchange. There is a case in point. I know that the movement of silk from the port of Vancouver across the continent was one of the most profitable operations carried on by the railways. Silk tonnage was almost better than passenger traffic; silk trains were given precedence over passenger trains. I think everything the minister can do should be done in order to increase tonnage, because tonnage is the life blood of the railways and is the one thing that will bring them back to prosperity. Therefore I say that the success of the railways, which as the minister has pointed out affects so many other lines, is entirely tied up with the fiscal policy of this dominion. We cannot divorce the two problems. If in this house we consider the movement of tonnage over our railways when we are framing our tariffs we will do as much to relieve unemployment and lessen the financial burden of this country as we can do in any other way.

I should like to make an observation now on the principle of this bill, which is one of central control. I have been wondering during the past two or three months whether or not central control is the answer to our problem. Personally I do not think it is. Could we solve our lumber problem by creating a dictator over our lumber mills? Could we solve 'our wheat problem by merging our wheat growing areas in the west into collective farming areas, thereby destroying the rights and liberties of the individual by making one great productive system? I do not think we could. Could the pulp industry be rejuvenated by compelling the amalgamation of all the pulp mills in Canada? I think not. The farming industry will be rejuvenated when we have a broader market, when the nations of Europe are prepared to buy more of our wheat at better prices. The lumber business in this country will be revived when we begin to have faith that Canada is not down and out, and start some substantial construction. The pulp and paper industry will be revived when conditions improve in the United States and a better market for newsprint is found with the large United States newspapers. Nothing but increased business, Mr. Speaker, is going to revive these businesses which are not doing well to-day. I do not believe centralization of authority or the amalgamation of businesses is the answer. In fact the view is largely held by many of the best business economists in the United States that much of our trouble has come from the worship of bigness. We have thought that if a thing was big it must be good, but to-day the trend is more towards decentralization than towards further amal-

2894 COMMONS

C.N.R.-C.P.R. Bill-Mr. Malcolm

gamations. One must realize that there is a limit to the capacity of man's mind, and that tremendous corporations can be administered only by system. A system that is devised to operate a very large business must be predicated upon a certatin set of conditions. If it is to work it must be planned for a given set of conditions, and when, owing to a great war or owing to an economic crash such as we have had, the conditions are entirely altered, then the system fails just as completely as anything has ever failed in the history of the world. Then we have to call in the genius of some one man to set right the conditions under which the system can operate, because it failed to operate under the changed conditions.

I believe, Mr. Speaker, that there is much to be said for decentralization. I think that one of the biggest problems that will face the Prime Minister if this legislation goes through is to find a superman who will be capable of handling the system alone. We in this house are handing over to one man complete control of a system which owes the public $1,300,000,000. It is the greatest single asset of this dominion.

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CON
LIB

James Malcolm

Liberal

Mr. MALCOLM:

My hon. friend says that there is no equity. I differ "from the hon. member for Lincoln; I will tell him that there is very little equity in any business at the present time. Earning power, as my hon. friend knorvs very well, is after all the best basis of equity.

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CON

Peter McGibbon

Conservative (1867-1942)

Mr. McGIBBON:

They are in the red ink from an operating standpoint.

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LIB

James Malcolm

Liberal

Mr. MALCOLM:

If the railways are in

the red ink from an operating standpoint they have plenty of company at the present time in other businesses.

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CON
LIB

James Malcolm

Liberal

Mr. MALCOLM:

Of course not; but the

fact remains that the Prime Minister will be faced with considerable difficulty in finding a man big enough to administer the system; a man who will deal adequately with a system comprising over 30,000 miles of trackage and the number of employees engaged by this railroad will have to be a superman. I say without fear of contradiction from anyone in this house that there is one thing that has impressed itself on the minds of the people of the North American continent, not only the people in Canada but the people in the United States, and that is that the

so-called idols of the years 1927 and 1928 have pretty well proven that they have feet of clay, and that has been particularly true throughout this financial crisis. It has been true of the management of most big companies. I for one have ceased to believe very much in supermen. I believe more in the collective wisdom of a group of men such as I have the pleasure of speaking with this afternoon.

We are planning for a board to economically administer our railway system; yet at the same time we know perfectly well that we are also planning to set up a waterway, state-owned, to compete with that road on one side, and to build highways to compete with it on the other. If we have transportation over a free waterway and transportation over free highways, it seems to me that we are very blind if we think that the Canadian National Railways and the Canadian Pacific are not faced with serious financial problems.

I cannot quite understand the Prime Minister's lack of courage in the matter of rail transportation; he is extremely alarmed about the financial position of the national railways. He said yesterday that the situation was as serious as it could well be, or words to that effect; yet the right hon. gentleman has courage enough to obligate this country, or the taxpayers of future generations, to the extent of hundreds of millions of dollars in the construction of a transcontinental highway and the St. Lawrence waterway. His policies are very inconsistent, for these various means of transportation are going to be in direct competition. I do not think that the railways have failed so utterly as some people seem to think. The Minister of Railways (Mr. Manion) said the other day that economies amounting to $40,000,000 had been effected. This is amazing; it is a very good showing. Mr. Beatty made the statement that amalgamation rvould save $75,000,000. I say to the Minister of Railways that he has saved more than his half already we may now expect Mr. Beatty to save the remaining $35,000,000.

There was one other remark, the Prime Minister made yesterday with which I want to take exception, and it is practically the one difference I have with this legislation. The Prime Minister made the statement that this measure is virtually placing the national railways under a receivership. He said that if it were a private business it would be in liquidation-that it was practically insolvent. Possibly it is, viewed in the light of to-day's values. I do not differ a particle from my hon. friend from Lincoln when he says that to-day's value is not equal to the bonds that

C.NJI.-C.P.R. Bill-Mr. Malcolm

are outstanding. It certainly is not there viewed in the light of to-day's values.

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CON
LIB

James Malcolm

Liberal

Mr. MALCOLM:

Well, comparatively. I

believe there is every reason to say that if the national railways were a private concern and owed $1,300,000,000 to bondholders the

bondholders would feel that it was about time they were taking some action to secure their investment. But, Mr. Speaker, what is a receivership for? As every hon. gentleman knows, a receiver is appointed for one of two purposes: either to liquidate the property or to operate it until it is in a sufficiently successful position to be handed back to the shareholders. But that is not what this legislation provides. This legislation provides that the receivers, whom the Prime Minister describes as trustees in lieu of receivership, are to be appointed permanently. They are not being appointed to deal with the emergency that exists. My one objection to the legislation' is the permanence of the trustees. The Prime Minister says that they are to be appointed like judges. May I point out however that they are not judges. Judges are appointed to administer the laws enacted by this parliament; these men are being appointed as business managers to spend the money of the country in the administration of the country's greatest national institution.

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March 10, 1933