March 10, 1939 (18th Parliament, 4th Session)


Ian Alistair Mackenzie (Minister of National Defence)


Mr. MACKENZIE (Vancouver):

To munitions entirely.
136. We do not propose to undertake the task of formulating specific methods for the restriction of profits in peace time. No doubt it is fraught with technical difficulty.
137. We do not think it 'would be sufficient for the purpose we have indicated to insure that the defence departments are themselves satisfied that the profits allowed to private manufacturers under particular contracts are
Defence Purchasing Board

fair and reasonable. Nor do we believe that a measure of taxation, such as the excess profits tax which was enforced during and after the last war will prove satisfactory to meet the essential object in view ... It should, in our opinion be an essential characteristic of whatever system of control be adopted that, while providing reasonable remuneration on a scale sufficient to insure the cooperation of private industry in the service of imperial defence, it shall be such as shall prevent excessive profit and at the same time satisfy the public that it does so.
138. But the control of profits in peace time is not enough. '
139. We believe that if it were known that in the^ event of this country being involved in a major war, industry generally would be conscripted, and that everyone in the country would be required at once to put himself at the service of the state, a considerable part of the objection to the private manufacture of arms would disappear. If the state could choose the staff they wished to keep in industry and those they required to join the forces, and if, in addition, everyone from the head of a business down were given similar positions and pay, according to the work they were doing, to those serving in the forces, it would make it still more unlikely for those engaged in supplying the requirements of the state in peace time to agitate for war.
Just one or two comments on these various paragraphs. With reference to paragraph 136, it is to be noted that even the British royal commission, after extensive study, did not undertake to recommend specific methods for the restriction of profits in peace time, neither did the United States senate committee. Both commissions went on record, as would the ordinary man on the street, to the effect that profits on the production of peace time requirements of departments of defence should be restricted. The British royal commission considered that the practice was fraught with technical difficulty. With regard to the specific problem that has confronted the Department of National Defence, neither of these two formidable inquiries produced concrete suggestions that were of assistance to the minister or the government or departmental officers. What has been accomplished has been done as a result of the foresight of the government itself and the earnest devotion of the public officials who had to deal with the problem.
With reference to paragraph 137, it is suggested that it is not enough for the defence departments themselves to be satisfied that profits allowed are fair. This was recognized in Canada when steps were taken to set up an interdepartmental finance committee to consult with and advise the department on this very problem. Since early in 1937, all contracts placed other than those where competitive bids were available, have been taken up with the interdepartmental committee; all possible advice and suggestions from that committee have been obtained for the guidance

of the department, and valuable suggestions emanating from the committee have found their way into the text of the contracts let.
With reference to paragraph 137, the last sentence refers to the necessity of assuring the public that excessive profits are prevented; and this was the desire and policy of this government. At the last session more than one offer was made to refer all these contracts for complete analysis by the standing committee on public accounts, and when public controversy developed in regard to one contract, only two or three days elapsed before a royal commission was established to ensure that all the facts were made available to the public of Canada.
In regard to paragraph 139, the royal commission here calls for a declaration that more drastic regulation will be enforced in time of actual war, holding that if this were done a considerable part of the objection to the private manufacture of arms would disappear. The Prime Minister emphasized the same point, speaking in this house on April 2, 1937, as reported at page 2501 of Hansard. He said:
The line upon which we have been proceeding is to attempt to draw a distinction between war materials produced in times of peace and what may be necessary in times of war. Unquestionably special legislation would be required in time of war.
Then, in regard to the general argument with reference to private manufacture of armaments-and I am not stating my own opinions here-may I point out that appendix No. 1 of the British royal commission's report summarizes the arguments of those who are in favour of retaining private manufacture. They say:
It has been claimed,-
(1) That to prohibit private manufacture would deprive the country of an essential part of its war potential which could not be entirely made good in other directions even were the country prepared to face the considerable additional expense that would be involved;
(2) That under the existing system reserve equipment is maintained by the private firms and a reserve of skilled labour is available that can be utilized immediately to augment existing supplies of war material on an outbreak of war;
(3) That the export trade maintained by the private films in peace time provides a reserve for war purposes and meanwhile reduces the overhead cost of reserve maintenance;
(4) That nationalization of armament production would involve the government in responsibility for the maintenance of this reserve, a reserve moreover which, under national ownership, would be largely maintained in idleness having regard to the objections that would be raised against the entry of the government into an export trade in armaments or the manufacture of alternative non-armament products in competition with private industry;

Defence Purchasing Board
(5) That maintenance of reserve manufacturing capacity by the government would be costly even mating allowance for the fact that under the existing system the government already pay for it, to some extent in the prices paid to the armament firms and by reason of certain direct subsidies paid to ensure the maintenance of plant which could not otherwise be maintained by the private firms;
(6) That maintenance of reserve capacity by the government would still not ensure the availability of the essential reserve of skilled labour which the private firms are able to retain by the utilization of their employees on export orders and non-armament work;
(7) That in many branches of armament work, e.g., in the chemical and aircraft industries, experience gained on civilian work of a similar category is beneficial; and
(8) That to deprive the aircraft firms of experience in the manufacture of military aircraft would prejudicially affect the development of civil aircraft.

Full View