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History Table of Contents
1997 Summer Conference
 
Summer Conference 1997
Canada and the Asia-Pacific Promise: Hope, Hype and Reality
Closing Keynote Address

William A. Macdonald,
Past Chairman, Japan Society in Canada

I don't know what possessed me to think that I could deal with the hopes, quite apart from the hypes and realities, of 60 per cent of the world's people in three-quarters of an hour.

However, I regarded that task as only impossible. Therefore, I thought I would give it a try.

But, after listening to the earlier proceedings it's clear the task goes way beyond that, because it seems to cover everything in Heaven and earth. And that is hopeless, clearly. However, the nice thing about something being hopeless is there's nothing you can do about it.

It is a hopeless task, but I've come up with a story that may help put a perspective on it.

I don't know how carefully you read the program, but the program is essentially a series of questions. You may not think a series of questions is not a culturally-loaded thing. I'm here to tell you that it's very loaded.

About 30 years ago, I was in New York and I opened The New York Times and Russell Baker had a piece that started off:

"My 10-year-old son has asked me two questions that are subversive of America. The reason they are subversive of America is that Americans believe that if you can ask the question, you can answer it."

Now that is the culturally-loaded character of this particular conference. There is an implicit belief in the West that if we can ask the question, we can answer it.

It became clear to me listening to the people here that there's certainly a sense that we're beset by problems. The odd person felt that there was some opportunity in it all. And some people even thought that there was some achievement around. But, basically we were beset.

I just want to help you put this in perspective. We're not the only people with unsolvable problems.

Maybe we shouldn't be surprised we've got some problems we can't resolve. Let me tell how I've approached what started as an impossible task and ended as a hopeless task.

I'm not that smart, but I am too smart to try to recapitulate what a bunch of articulate people have said. They've said it. You've heard it. And you're not going to hear it again from me.

What you're going to hear from me is the way I think I approach just about everything. I like to put things inside a frame that may help me understand a little better the particular things that are going on. I'm going to give you my frame and then going I am to apply it in a more or less sequential way to the sessions, but not with any reference to what any particular person has said.

I should maybe start off by saying that I think the most important thing about the conference is that it was held. That is, I think we needed a focus in this country on Asia Pacific.

If you asked me what do I think the two most important determinants of our future are going to be, I would say how socio-cultural developments in the United States unfold and how the process of the inclusion of China in the inclusive global order unfolds.

I can't think of anything else that will have anything like the impact of these developments on all our futures. So that's my basic context.

If I were in Ottawa, I'd say that Canada's primary interest in what's going on the Asia Pacific must be the successful inclusion of China in the global order. And only to the extent that that proves unachievable, then we have to contain whatever destabilizing and destructive forces to the global order flow out of that absolute or relative failure.

Our secondary interest is, obviously, to fit ourselves for what goes on in the Asia Pacific.

For reasons that I can get into a little later and on which I can be challenged a little later, I put human rights and democracy — the direct promotion of it through the state; that is through the government. I don't eliminate it, but I place it as secondary to the inclusion of China process.

Similarly, I hope — and I still think — it's premature to think of a new security framework. But, I don't say we should assume that will always be the case.

There are four framing positions that I have that may help you evaluate my observations.

First, I believe that everything — all the major developments in the world today inside and outside Asia Pacific — are taking place in the context of what I believe to be a truly New World in all history. We're seeing a shift in which our institutions, which have always been primarily producer-dominant because of scarcity, have become consumer-dominant. That is pervasive. And it's hitting different countries in different ways, because different countries are at different stages.

And at the same time as this is happening, also for the first time in history we're looking at a single, inclusive global order.

I think those are the two dominating realities of a truly new world. I've found it helpful to place other things that are going on inside that frame.

The second thing is that when you see countries that haven't had democracy or had free markets struggling with their introduction, you realize they need something more than just their introduction.

I've concluded that what you need are underpinning structures of integrity and discipline. Without them free markets and democratic systems don't work. And that's as true of our society as it is of emerging industrial societies.

I think also the existence of institutional processes and a culture for the peaceful, mutual accommodation of differences, is an underpinning element that's essential if rights, democracy and markets are going to work. So, I'll talk a little bit about that.

I'd like to talk, particularly after what I've heard, more about Canada. Canada, after all, is in the title of this (conference); that is, Canada's role in relation to what's going on. I don't think we can think about that if we don't have a better understanding of what I regard as some very fundamental advantages we have in this country relative to the rest of the world.

I'm only going to touch on one. The recent achievements of the last half dozen years and, of course, the remaining challenges.

We can't really talk about how we're going to relate to something as major as what's going on in the Asia Pacific if we don't have a better understanding of the basic advantages, achievements and remaining challenges.

I think also that the major structural issues confronting Japan have significant implications for the different Asia Pacific development models. The problems that we now see in Japan took quite a while to develop. It will take less time for those problems to develop for those Asia Pacific countries that follow the Japanese model, than it did for Japan.

Let me turn to my concept of the new world.

I'm going to be cryptic. Essentially, we came into the 1990s and first we had a recession and that didn't go away. Then, we began to realize we had something I came to call a great structural transition. I put 12 years on it. That's about what it's going to take in Canada to get through it on the public and private sides.

It became apparent there was even something more. I call it the great historic transformation of the late 20th century.

I think it became more visible after the collapse of communism in the Soviet Union. But it's obviously something that started with Europe and the Industrial Revolution and it's obviously something that's going to stretch forward a long time into the future.

Two elements are the ones I mentioned: First, the fact that for a bunch of reasons we could talk about at considerable length, scarcity for about one billion of the four billion plus people of the world is no longer the dominant issue that it was.

What that has done is shifted the nature of our institutions from producer-dominance to consumer-dominance. Consumer- dominance is a world in which the kind of walls that used to protect producers no longer exist. And that makes the world different for everybody.

And, of course, the other one I mentioned is the emergence of a single world order.

These developments are not easy for us to cope with. [They're] very stressful. I think the Anglo Saxon countries, interestingly enough, are doing better than anybody else. I think when you look at Germany and Japan, including the continent of Europe, they're finding it very difficult to handle.

To give you an idea, Europe basically has not created a net new job in a decade. Or, if they have, it's a handful in the last year. They've just seen their unemployment go up and up and up. They cannot structurally adjust. It's too hard. I'll come back to that in a minute.

I'm going to reframe a bit the kind of debate about the communitarian thrust of Asia and the individual rights thrust of the West.

If it's difficult for Japan, if it's difficult for Europe, think of how difficult it's going to be for the Asia Pacific countries.

They are still profoundly producer-dominant societies. Japan's problems derive from the fact that they are not yet able to get out from under. That's the heart of their problem. And I believe it's the heart of the European problem. I'm more optimistic about Japan, than I am about Europe.

Just on one, sort of a side issue, this single European currency business.

I've described it as putting a straitjacket on a rigid person and expecting it to make him more flexible. Only Germans would believe that. I wouldn't be so racist as to make that observation, if I hadn't heard a high official of the [German] Ministry of Economics say it.

But, this is not going to get them where they need to go. It's retarding adjustment, because it's creating all kinds of unnecessary pain and making them then unwilling to take on the necessary pain.

One of the aspects of how we got here is that we've got here because of the dominance in the West of an either/or approach to the world; it's either this or it's that. I think the Asian is a little more both/and. My own view is we need more of the both/and, a little less of the either/or in our world.

But if you look at it, producer-dominant societies are always vertical structures. And they've got a number of pluses. Everybody is in his place, everybody has a sense of where they stand, they have a sense that they matter to some greater or lesser degree and there are even elements of mutual caring involved in these vertical structures.

But, then there's a lot dysfunction and unfairness and repression associated with these same vertical structures.?What has driven us have been what I'll call the horizontal structures; the structures that really don't give a damn who you are. I sometimes go to the New Testament and say it's the rain falling on the just and the unjust. That's a horizontal structure. It doesn't matter who you are. It doesn't matter whether you're Hitler or Mother Theresa. The same rain comes down.

But it's hard to live in a world in which there's nothing special about you, which is what the vertical does for you or can do for you. Sometimes what's special about you is that you're to be relegated to the rear, but at least you're special.

So, the horizontal forces have been markets; they've been rights, they've been democratic majorities. We have to understand that these are not empathetic to the special characteristics, special needs of any particular individual. That's their strength. That's their weakness.

And I would say that a great deal of the discussion that we heard at earlier sessions really has to do with where you want to place your stress.

If you want to place your stress on the communitarian aspects, where the hairs of your head are numbered, where everybody is special. If you want to put your stress on we don't care who you are and we're not going to be there because it's you, it's just if you fit the right category you're all the same. If you don't fit, then you're all out the door.

My own view is that many of the kinds of stresses that the Asians can see in our society are related to the excessive dominance of horizontal forces.

I don't mean that they are bad in themselves. The problem is the failure to develop compensating, balancing vertical structures that care; that give people a sense that they matter, that there's a place for them.

I don't happen to believe, I think we are probably too hooked on government as a source of that caring and we will have to find other sources.

But, I do believe that while the Asian societies are going to be driven by what I call these forces of the New World into having, independently of what we think and independently of our values, they are going to be driven in the direction of these horizontal forces, because they won't be able to make their participation in global order work otherwise.

It won't be because we say it's good. It will simply be they will find they can't make it work. That's what's going to happen to them.

On the other hand, if we're not careful in our own societies we will undermine the communitarian basis, the fabric. And people do need to believe that on an individual basis they matter, not because they're part of a majority or part of a minority or whatever.

I find it more helpful to try and understand what's going on in this context. Thus, where they're very short on the horizontal forces, they're going to be driven towards them. There's no question.

What they're worried about is, as they're driven toward them, are they going to lose too much of their vertical structures and, then, find themselves in some of the boxes; particularly like those the Americans find themselves in where their inner cities have been abandoned. No other great society in history has abandoned its inner cities. America is a great society, yet it is abandoning its inner cities.

So, we need to be careful about understanding that there's a need for a balance and that the particular balance we have at this particular moment probably doesn't suit us; pretty clearly, I think, doesn't suit a lot of other people as well.

One of the things that I think is happening, and will again have a powerful impact on the Asia Pacific countries as they try to develop, is that we had the Protestant ethic of savings and work. Quite clearly that has taken hold in Asia Pacific and it's serving them well.

I've said that those are producer-dominant era ethics and they remain valid.

However, when you move into the consumer-dominant, I think there are four more. I call them the post-Protestant ethics: Value, openness, accountability and voluntariness.

I don't believe you can make our kind of post-industrial, consumer-dominant economy work without those values. Those values do not come, and cannot, come down from the top.

And one of the most interesting comments I've heard came from the top man of Chrysler, responsible for their new suppliers globally, and for all their procurement.

He was on a panel at an automotive conference organized by the Japan Society. He said, I guess what I'm trying to tell you people, is that we are surrendering corporate sovereignty in order to gain more control over the situation. This is the flip side. Karl Marx and Henry Ford would never have understood that! Neither of them could have.

The stability, I believe, because of what the horizontal forces are doing to this need for the strength of vertical structures that care...the stability is going to come far further down in society.

It's not going to come from the head offices of big corporations. It's not going to come from Ottawa or Queen's Park. It just isn't possible; that's why. It just cannot be achieved.

What the Chrysler man said is well worth reflecting on. The way we got more control over our situation (he said) was to surrender sovereignty, and that enabled us to get more stability and more control in our situation.

Moving on to the structures of integrity and discipline, processes and culture and mutual accommodation.

There's a kind of a view — more in the United States than elsewhere — that the Western model of markets, democratically- elected governments and individual rights is sweeping the global country like love in George Gershwin's Broadway musical of the 1930s, Of Thee We Sing.?This, then, leads naturally to the further view that the West should take quite direct measures to make sure that it sweeps it even faster.

I have say I'm a bit skeptical about the value or effectiveness of direct Western government action on this front most of the time.

I've got three reasons for that. One is that the great benefit of the horizontal structures, which we're promoting, will become increasingly under threat in our own societies if we don't achieve our own societal rebalancing.

So, no matter what we like to say, we have a vulnerable fallout that we have to address if we're going to preserve what we believe to be those values.

I think that it's also true that these horizontal forces are unquestionably too weak, both in value terms — but I also say in effectiveness terms — in East Asia.

But I think that the forces of the New World are too strong; that these countries are not going to be able to deny them. To the extent that they deny them, they're not going to be able to be effective.

But, they are going to seek their own balances. And I don't think it's likely that their balances will be a carbon copy of the particular balances we've achieved. I don't think we ourselves now want the particular balances we've got and I don't think the Americans like the particular balance they've got, but they're hooked on certain absolute principles that get in their way.

I think the second reason is that markets and democracies need something underpinning them.

I call them firstly, structures of integrity and discipline. They include: Monetary discipline, the rule of law, freedom of speech, access to information and low levels of corruption. They also need processes and culture of peaceful, mutual accommodation.

These things you don't buy in some free market democracy supermarket. You don't just pick them off the shelf and say, now we've got them. We should know that.

And in this country, think of where we might be if we hadn't had John Crowe at a moment in time, unhelpful as he was to governments that found it painful, or unhelpful as he was to Canadian exporters, bringing a structure of integrity around our money.

This then spread that discipline through the system. Gradually businesses had to reflect it, governments had to reflect it and we got integrity and discipline in our system, which is the basis of what we've achieved in the last seven years.

So, we need to be a little wiser in understanding that these things don't come off the supermarket shelf from the great democracy store and we just hand them to people and they hand them to their people and it's all going to work. It's not.

There has to be these underpinnings.

And mutual accommodation is a very important thing. One of the things my wife, who was in social work and from there to family therapy, taught me was that the strongest form of communication is fighting. Fighting is something we have to be able to do. If we're going to fight, we've got to know when to stop, we've got to know how to negotiate. That again is not something you pick up on a prescription at the drug store.

So, we need to have these thoughts in mind.

I want to say just one thing about Canadian advantages. I have developed a view that in the kind of world I'm talking about, culture, as I define it, will be dominant and increasingly decisive.

And culture, as I define it, is how a group characteristically responds to what's put in front of them. And I believe that there is no country in the world better placed on the cultural front than Canada.

I was going to give a quick rundown of what I believe to be the huge Canadian achievements of the last half dozen years in this country. And the challenges. But, that's for another day.

Instead, I want to emphasize our cultural advantages to a world in which culture is going to be one the driving forces. We're neither powerful, but we're not powerless, either. That's a very helpful position to be in. I believe that we are not culture bound. It was interesting to hear the different views last night. One of the things the speakers, in effect, were saying that they were coming up against is that we're not culture bound.

I say that in a world in which all identities are partial, that if we can live without a firm or rigid identity it's a strength, not a weakness. I don't say it's easy. But, if we can do it, it's a strength, not a weakness.

Because we're not powerful, there's a premium on having objective knowledge about what's going on. If you're too powerful, you can get away with less understanding.

I also think we tell ourselves the wrong things about ourselves.?We tell ourselves that we're tolerant. I don't know that we're so tolerant. But, what I do believe is that there's something better. We have a drive and an ability for mutual accommodation. That's hard. If it were easy, what would it mean?

It's the fact that it is hard, it's hard to be an immigrant. All these things are hard. But, the fact is we've got that drive. I don't know any other country in the world that has the same drive or ability for mutual accommodation.

George Shultz, the former U.S. Secretary of State, said that the issue of the 21st century is governance over diversity. No country has contended with that more than Canada throughout our entire history..

We could have given up. The French-Canadians could have said, how much longer can we live with these English guys who don't appreciate us? We English guys could have said, how much longer can we live with these people who are never satisfied? Yet, so far every day we decide we're going to live one more day.

So, it's not easy. It's not because we're the most tolerant people in the world, but it's because we realize something fundamental, which is mutual accommodation. We've got that drive. We have a greater reliance on persuasion over force, certainly relative to our southern neighbour. That, I think, is going to be major.

We're talking about socio-cultural values. Funnily enough, we have been able to achieve a convergence of socio-cultural values that co-exist with diverse socio-cultural expression.

Michael Adams of Environics has done a study over many years of socio-cultural values and behaviour in Canada and the United States.

You might say we have this crazy multicultural policy in which everybody's allowed to be what they want. We don't try to drive people into any Canadian approach. It appears we don't even expect them to speak English. Nonetheless, it seems that Canadians, by choice, have become more like each other.?The Americans are becoming less like each other.

Michael Adams says it doesn't matter where you are. You can take Prince Rupert and Quebec City. It doesn't matter, the differences are relatively insignificant within Canada and they disappear the moment you look outside.

In the United States, he said, the differences are huge and they do not diminish when you look outside.

So, here we have this crazy Canadian approach that apparently expects nothing from immigrants. You can be what you want. Yes, even including the French-Canadians; we've become like each other.

I don't say they've become like us; or we like them. We through the process of mutual accommodation have become, at the level of socio-cultural values and behaviour, like each other. That is an incredible thing; an incredible asset.

People are worried about globalization. We've got two great Canadians — Marshall McLuhan, who perceived the global village, and Northrop Frye, who perceived the globe of villages. They're both real. The global village is the world of the horizontal. It doesn't care about you. The globe of villages is the world of the vertical. It does care. We have not done so badly at reconciling those.

That's my take on Canada.

Just one word about Japan. People don't really fully understand the nature of what Japan has achieved and what it hasn't achieved.

In essence, what Japan achieved was a highly-competitive 15 per cent of its economy. And that is the source of oxygen for their nearly-asphyxiated domestic economy.

The problem they've run up against is that the rest of the world has run out of excess oxygen to give them oxygen transfusions. In other words, we can only accommodate trade surpluses up to a point. Then they start to deflate our economies. We can't handle it.

So, their basic problem is not what we say it is, which is they should take more exports from us.

They've got to open up their domestic economy. Any other country that had a export surplus of $100 to $150 billion U.S. dollars would be booming.

But not Japan. Why? Because their domestic economy has no oxygen. Why? Because they've got such a web of restrictive, corrupt and other practices that they can't get the thing moving.

One of the top Japanese management consultants told me once that if you deregulated Japan to the same degree as Canada and the United States — and if you did it overnight — they would have 40 per cent unemployment.

That's the degree of asphyxiation operating on their domestic economy.

Now, to the extent that some of new Asian countries that want to follow the Japanese model of export surpluses, they're following a model that's going to bump up quickly against the fact the rest of the world can't handle them. And, to the extent that they don't bump up, they're simply laying problems for themselves in the future.

So, to give you an arching overview, I think there are four major elements that are going to be at play in the area covered by the conference.

  • One is these New World forces.
     
  • The second is the challenge of the successful inclusion of China into the global order on a sustainable and constructive basis.
     
  • The third is the spectre raised by Ross Munro that the xenophobically-driven Chinese nationalist and ideologically- based aggressiveness could, at a point in time, force the need for an international policy of containment onto the United States, Japan and others within and beyond Asia.
     
  • The fourth is what I'll call the drive of an increasingly number of major countries — the preponderance of whom are in the Asia Pacific, but not all of whom are there — simply to catch up in terms of income and economic growth.

It's interesting that the former U.S. Undersecretary of State for Commerce, Jeffrey Garten, who is now dean of the Yale Management School, has written a book called, The Big Ten Emerging Economies.

The book came out of his experience in the U.S. Commerce Department, where what they've done is to identify the big 10 emerging economies and to say to themselves, these economies are central to the United States maintaining its pre-eminent economic position. Four of them are in Asia: China, India, Indonesia and South Korea.

We also know that Japan's in Asia, we know that Hong Kong, Singapore and Taiwan — those original Asian tigers — are also there. We know the new young tigers of Malaysia, the Philippines and Thailand are also there. That's a lot of dynamism and pretty big economies. Most of them are having their troubles, but they will continue to move forward.

One of the great hopes was that what's going in the Asia Pacific offers, beyond what it offers for them, is that it offers for us, is a major source of real economic demand in the global economy.

This is not stimulated by monetary policy or fiscal policy. This is real. In a way it's a bit like the post-war period in the West. It's real demand. They truly need a whole lot of fundamental things.

If things were to go badly with China, and this real source of demand were to significantly lessen, we would get a real demand shock in the Western economies. And I think we'd also get a confidence shock which would affect, among other things, our financial markets.

I certainly take seriously Ross Munro's caution that we should not simply take for granted that, because we have free markets in China, all is automatically going to go well.

We need to think of two or three things.

First, China has had two massive leaders. One who proved in the end to be massively destructive, Mao. One who proved to be extraordinarily constructive, Deng Xiaoping.

The leaders under them are unlikely, as we know, to have the same stature. They're unlikely to have the same position in the society. And they can't give what Deng Xiaoping gave. He was a very smart man. He recognized that 80 per cent of China lived in the country and that 70 per cent of them were in agriculture. So if he could free up that side, he could make 70 to 80 per cent of the people happy.

Gorbachev didn't realize that. Of course, he had a different mix. He had far more people in the city. But he was committed to the collective.

These new leaders are not going to be able to give the Chinese people what Deng Xiaoping was able to give them. And they're going to be up against all the stresses of the New World and the global inclusion process.?So, we need to realize there are dangers if these people do not have the same sense of security of their own leadership position inside China that their predecessor had; if the pressures of the New World forces are going to be bearing down on them increasingly, then we obviously hope they don't find themselves feeling they are being painted into some kind of a corner that will then make them do something foolish for them and foolish for us.

The Jeffrey Garten kind of U.S. thinking; that the U.S. must participate in the growth of China and the other big ten economies if it's to retain its superpower credentials on the economic side, is bound to be a powerful element in U.S. strategic thinking.

That may be good if China develops on a basis in which it becomes more and more included in the inclusive order. It may not be so good if it goes off in the kind of direction that Ross Munro identified as possible.

The United States is very important in all of this. We ought to recognize that in addition to this economic focus, it's possible that the United States is more politically fatigued than either they or we realize by effectively 50 years of war, hot or cold. It's a very long time for a society to be engaged in a serious external struggle.

I believe that we do have leverage in relation to China. We should be aware of it. I believe, not that these New World forces are automatically going to produce every value that we subscribe to, but I do believe they are very powerful and they're impersonal.

Take Japan as an example.

It hasn't, in fact, worked very well to have the Americans instructing the Japanese on what they should do in their own self-interest. The instruction's been excellent. There's no doubt the Japanese economy would be in an infinitely better state if they had accepted the American advice.

It was actually, probably better advice than we're giving to China and it's better advice than Harvard professors are giving to the former Soviet Union. But it didn't work, because basically people don't take to it.

So, these forces will do an awful lot of work. I don't say they'll do all the work.

And it's not a question of putting economics ahead of ethics. It's a question of putting effectiveness first. Just saying that you're for things doesn't do much if it doesn't, in fact, work. It's not really serious. It may make you feel better, but it's not a serious way to approach things.

So, I think we're into a longer game and I think we should be aware of our advantages.

First, and this is hard for us to understand, we're a truly legitimate society. We may hate our governments, but we know we can change them. We know we can talk about them.

We fail to realize how much governments that are not legitimate look to the outside world to give them legitimacy, whether it's at an Olympics or whatever.

We should never do anything to reinforce the legitimacy of a regime like the regime in Beijing. I don't say we should be out to undermine it. That could be incalculable. We should be careful not ever to do anything to reinforce legitimacy where that is not justified.

If China really wants to have its cake and eat it; that is it wants to be part of the inclusive order, while also working to destabilize it in the Asia Pacific, then I say that is something we can do something about.

The basic thing is not to be aggressive, but to make it clear there are no free lunches. We don't hand them victories, which is what U.S. President Clinton did with the human rights thing. On the other hand, he did the right thing on the Taiwan blockade.

There are other Western advantages.

I think only a very few countries will wish to be subject to increased direction and domination by China. I don't think

that is what people in Asia are looking for.

But, to avoid it, there will have to be clear leadership coming out of the United States. The U.S. still is a preponderant military power and it's got a lot of flexibility in deployment. And there's also preponderant financial, economic and technological strength in the West.

So, we should not be thinking that we are without instruments. But, we should remember what it is we are trying to achieve: we want China as a peaceful and constructive part of the inclusive order. That is the overriding thing. If we can't achieve that we are going to have a period of misery. So, we better be clear about what it is that we're after.

Questions

One of your themes that the critical issue is integrating China into the international system is critical to the future of everybody is important and interesting.

At the panel this morning there was talk about and the issue was rushed, about the loss of sovereignty due to multinational agreements, the GATT, the reference to the multilateral investment agreement, etc.

It does seem we are developing a governance on a global level simply through internationally-recognized conventions, whether it's in trade, the environment or human rights, etc.

But, that seems to me to be such a huge challenge. It's difficult for the United States to accept some loss of sovereignty, shall we say, to the supernational conventions. But, at least the Americans and Western Europe come out of truly democratic tradition, so they can understand the limits of power that leaders do have and governments do have within their societies.

But, it strikes me that the Chinese tradition is that there are absolutely no limits to power of the Emperor, of those who sit within the Hidden City, or Sacred City, in the centre of Beijing.

So, how is China going to accommodate itself to the fact that, if it does really want to become part of the world community and not be an outlaw, that it is going to have to surrender some of its sovereignty and its leaders' ability to rule even within China?

I'm going to start with the United States, because I think it's very important that so many of the issues — leave aside the balance of power issue Ross Munro raised — and we'll come back to that.

Let's deal with, as you call them, these international arrangements that ostensibly require a loss of sovereignty. It doesn't cut much ice with the American Congress, but the truth of it is that joining those agreements are an exercise of sovereignty. And, if you're unable to enter into agreements that otherwise are of net benefit to your country, then you really do have a restriction of your sovereignty.

I think the American problem and, therefore our problem, and it will have an impact on this process of including China, is: Can the United States at the end of the day, leaving aside sovereignty, per se, given its sense of itself, given its exceptionalism, really participate in a global order — not immediately — in which it is not predominant?.

That, I think, is going to be a very serious issue. And, if you were China, you could properly say to yourself, does this bird MacDonald talking about inclusion in the global order, really mean underneath it all inclusion in a global order dominated by the United States. That, I think, is a very serious issue.

Now, in talking with Alan Pearson who helped me a lot because I missed the first day and half, he pointed out to me that my view really involved a fourth option to the options that Ross Munro advanced. It's not a balance of power option, although I recognize that the balance of power may be significant in a transition period.

There could come a moment in which it would be very important for the United States to take a lead to be able to bring Japan on side in that lead to provide enough firmness and acceptability of purpose and enlist other countries and not make them feel that they were rendering themselves too vulnerable to China's wrath.

I recognize that, but I do believe that we have in fact moved beyond the balance of power, which is not to say that it is not still there, but that what has happened since the end of the Second World War is that we have built, initially without the Soviet Union and without China, an inclusive order.

In fact our policy, which people didn't really fully understand, our post-War policy had two elements. After two world wars and a great Depression, there was a recognition that we had to build a broader inclusive order and that was pillar one. And that included a number of international institutions; the GATT, the Monetary Fund, the World Bank, the United Nations, NATO and so on. These moved beyond the traditional balance of power. We were beginning to institutionalize order, rather than relying solely on a balance of power because balance of power, ultimately we know, is unstable.

And Europe today which, of course, was another of the great inclusive acts — the Marshall Plan leading ultimately to the European Union.

Europe isn't stable today because of a balance of power. Europe's stable today because of the institutionalization of an order that's shared. And that is really what we have to do.

So, the balance of power is going to significant as long as countries have nuclear weapons, and there are several of them that do. And pre-eminently until China becomes comfortably and constructively part of a global order.

But, back to the issue of sovereignty. I've already said that sovereignty and control no longer sit as well together as they once did in a consumer-dominant world.

I say to my friends in the business community, owning a business today isn't what it was. All you have now is a vulnerability and an opportunity. It doesn't have the reliable, enduring quality that owning a business used to have. And that's reality.

So, what we're talking about is coping capabilities. And owning a business gives you something to start with, true enough. But, control is going to be pushed further and further down and I'm going to give you one simple example.

When Henry Ford built the first Model-T as a mass car, he built it so that anybody in this room could repair it. And that meant that you could have a hierarchical control-driven organization. And because you could have that kind of an organization, you got unions to protect people against the abuse of that ability.

But, today the head of General Motors wouldn't know what to do if something went wrong on the assembly line. He is totally in the hands of other people. And that is increasingly the nature of the kinds of economies we're running. And it's going to be equally true for the Chinese, or the Indonesians or anybody.

It can no longer be done from the top. So that this sovereignty thing is in many ways going to be a stumbling block and it is, frankly, a hangover from the producer-dominant world.

I would like to invite you to express an opinion on two aspects on what you discussed. One of them is this distinction, this dichotomy between the production gestalt and the consumer gestalt and all that goes with it and the fairly clear delineation you made between these two patterns of economic activity and all the value systems that come in train with them, whereas in high consumption societies production is still required.

So, it's not that we have gone from one to the other, but both are simultaneously functioning... whether you really do see it as such separate worlds as that, or how they are integrated, these two sets of values and the economic systems that go with them.

The second aspect would really be in your fine enumeration of Canadian characteristics and values that you see as strengths, which we as Canadians embody and which our country benefits from, being neither a great power, but not powerless either.

We haven't talked a lot about some of these attributes that you spoke of and I'm wondering what you see in the near term that would be important for us as Canadians to recognize and reinforce these common attributes that would be a clearer basis for a lot of our action, both domestically and on the foreign affairs side of things.

You're obviously right that we still need production. The difference that I see is that for virtually the whole of mankind's history getting enough to simply survive, or survive with a little bit of a plus, has been the overpowering need. Therefore, society was structured around that and that put producer interests in a dominant position. You had, of course, military action designed to capture producers; to keep them on your side and not on somebody else's side.

So, the whole institutional basis of your society revolves around that scarcity dimension. What's happened is we've had a combination of technology, the enormous increase in the number of countries with educated or educable, trainable work forces that can use that technology, the ease of its transferability, the increasing number of societies with sufficient stability to receive it, the growth in savings, the transferability of those savings anywhere in the world.

All of these things have gradually accumulated to the point where for, if you like, 25 per cent of the world the scarcity of production is no longer the dominant reality. What has come up instead, is the demanding nature of the people who are paying for what you're producing.

To me, production was always for consumption. And if you want to be a producer today it's not whether you can get along with your government, or whether you can get along with the general, it's whether you can meet what consumers with alternatives demand.

Once you reach that, the whole basis around which your society is organized changes.

Now, we have problems, yes, around the producer and I've basically thought of it that if you're in business you have two products. You have what you sell to your customers and you have equity that you sell to your investors.

People classically think of the investor as the owner. He's really just a different consumer. Once you get that into your head, then if you're a producer your problem is to enlist people able to provide the consumer of the product or service with what they want and, at the same time, provide the consumer of your equity with what he wants.

It's a different kind of a world.

And, then, if you're going to have the best people to do that if they do deliver then you're going to have to reward them for doing so. But, it's a different paradigm than when you, as the producer, had the dominant position because you're to only person able to meet a certain need. That's sort of the line of thought there.

On Canada, given that I don't believe — as you've heard me — this is going to come from the centre, whether it's my office on the 37th floor on Canada Trust, or whether it Chaviva Hosek's office next to the prime Minister.

If I were the Prime Minister, Chaviva, which I am not [and] never will be, the one thing I would be thinking about and I would not be thinking about it for direct political gain. I believe that the cultural characteristic I described means that we should be pulling together and I think that this the natural role for a federal government within the public service and from without a cadre of people who would take advantage of the fact that we can be more objective about what's going on.

I'll give you a couple of examples.

I used to go to Europe and I'd go and I'd meet with the central banks and I can tell you that the greatest insight I got into how the European monetary system worked did not come from the Bundestag, did not come from the Bank of France, ir didn't come from the Bank of England. It came from the Bank of Belgium. Why? Because if they didn't understand, they'd get creamed. That's why they understood.

So, that is something that we have.

Who has probably the most influential group of financial analytic letters going around the world. It's a group of Montreal. Tony Boeckh. I believe it's because he's Canadian, because he's in Canada, he doesn't have the burdens of Imperial power of American exceptionalism laying their heavy hand on his back. Probably the leading international pension consultant — not pension consultant in the sense of investment, but in the sense of pension fund governance — is a Canadian, Keith Ambachtsheer in Toronto.

He's got a couple of hundred of the biggest American pension funds as clients. He goes twice a year to Japan.

So, what I'm saying is — one of the greatest advantages I didn't mention is that we're in North America, but we're not Americans.

That's a big advantage and this kind of advantage can be exploited more broadly if we can understand. I say we've got the greatest intangible resource base of any country in the world, it is infinitely renewable and developable, but it's like a natural resource base — if you don't identify it, if you don't develop it, it doesn't do you any good it just remains in the ground.

I'm going to put it very simply. Wilfrid Laurier 100 years ago said the 20th century belonged to Canada. I say if you could have known the whole of the 20th century in the year 1900, where would you most like to have lived, not visit, most like to have lived, your children and your children's children. I don't think it would be anywhere in Europe, I don't think it would be Japan. And I think given the kinds of social, cultural problems in the United States I don't think it would really be the United States.

I happen to believe — you didn't get my full list, you just got my cultural list. Even that was foreshortened. I happen to believe the advantages we have and what we've proven we can do collectively in the last seven years in terms of difficult adjustment, there's no other country that has had the scale of adjustment that we've gone through and we've done it.

In Germany, they send people to the banks who are trying to aid some restructuring and they have a mob scene. We don't understand the degree to which the achievements are the achievements of any particular government, or even of John Crowe, although I think he was central to us getting it started. This is a collective achievement of Canadians. We've done it. We've actually gone through these painful processes. They hurt. It wasn't easy and it wasn't certain, but we did it.

If I were the Prime Minister in the year 2000, I'd say the 21st century can also belong to Canada, for all the reasons I've given you.