A 75 Year Love Affair

An Address by John F Bulloch CM
45th Anniversary of CFIB

Although we are celebrating 45 years of service at the Canadian Federation of Independent Business, my personal small business odyssey is an adventure that expands a period of more than 75 years. What I want to do today is tell a story of people, experiences and ideas that influenced not just my life but the nature of CFIB as one of the world’s great advocacy organizations. My direction was set in 1931 before I was born, when my father, a high end custom clothing salesman at the Eaton’s College Street store in Toronto was dating a young Jewish girl in the linen department. It was a huge shock when he was told by his boss that if he married my future mother he would never get a promotion. He was angered, of course, and made the decision to strike out on his own when he was 30 years of age in 1938. My parents married in 1932 with my mother putting her ring on a string around her neck where it could not be seen. I was born in 1933. Father followed Hitler’s rise in Germany during the 1930s and feared the Commonwealth countries would be drawn into war. During the period 1931 to 1938 he went to night school and laid plans for opening his own clothing store with the potential of selling officer’s uniforms. He assiduously made contacts with all the clothing manufacturers in Toronto, who were almost exclusively Jewish. And together they all agreed to help this young Irishman who had married the nice Jewish girl. When my father opened his store in 1938, David Dunkleman the founder of Tip Top Tailors gave him a huge harvest table for his showroom, and Ben Hillman of the Schiffer-Hillman Clothing Company gave him a sewing machine and a retired alteration tailor. I often visited the Schiffer-Hillman factory with my father, which was in the Balfour Building on the corner of Spadina and Adelaide. It is now a heritage site. When war broke out in 1939, father had everything lined up and he spent Saturdays calling at the camps and taking orders for officers’ uniforms. And I always went with him. I was only seven when this adventure began, but the memories are powerful and have lasted a lifetime. While dad and I were on the road, mother came down to the store on the streetcar with my baby brother and cleaned the place just as she would clean the house. Mother also did the books. After only two years and dramatic growth, my father decided to open his own factory and all of the Schiffer-Hillman suppliers, with Ben Hillman’s blessing, became his suppliers. By the end of the War my father had made 80% of all the officer’s uniforms across Canada. At the age of 12, instead of going to summer camp, as did so many of my friends, I worked in the family business. I was so careful to spell the names properly when giving customers their receipts. Father introduced me to officers who had survived the war and were now buying their first civilian tailor-made suit. And one by one my father brought four of his brothers to Canada and gave them jobs in the store. They had all served in the British army and air force. The lessons are powerful, and point to the emotional glue that small firms spread throughout their communities, something economists cannot measure because every small business has its own history steeped in personal business and family relationships.

Although my family experiences gave me good small business instincts, my first job as a lubrication engineer helped me understand the economic role small firms play in the economy. Engineers create magic when they add chemical compounds to mineral oils to create special properties that will offset the friction between metals under pressure. I had nine months of technical training with Imperial Oil and had to deal with over 200 complex products: all different kinds of oils, greases and cutting oils. I dealt with engineers concerned with the lubrication of their specialized equipment in a range of large manufacturing organizations such as auto, steel, cement and pipeline. But I had about 20 small business competitors and they mostly serviced firms that I could not even afford to call on. And they had developed specialty products for small markets that the large oil companies could not service economically. I finally figured it out. The rationale for small scale enterprise is differentiation. And as I became involved at CFIB with the promotion and development of small scale enterprises I always asked myself what policies encourage differentiation. Well over time I figured it out and it is policies that promote growth and change, and policies that encourage the development and application of new technologies. And today the real revolution in differentiation can be found in the application of communication technologies that link firms together. What we call the global economy is the result of the fracturing of enterprises of all sizes. Today, about half of world trade is production sharing, effectively companies selling to themselves. But in most cases it is not traditional sub-contracting or out-sourcing, where a large firm transfers its labour-intensive components to a subsidiary in another country; but rather the transfer of all or part of its manufacturing to what is called ‘contract manufacturers’ with facilities in India, China, Mexico and around the world.

During my teaching years at Ryerson in the 1960s, I was the elected representative to the Ryerson Advisory Council, the senior academic body that approved all changes in curriculum, and with this appointment came a conference travel budget. One friendship that influenced my life was meeting Dr. Alfred Gutterson, a Professor of Applied Economics at the Research Institute for Small Business and Entrepreneurship at the University of St Gallen in Switzerland. He made the point that, in his comparison of the economic systems of Europe and the U.S., the fundamental difference is that Europe puts the producer ahead of the consumer and the U.S. puts the consumer ahead of the producer. During the 60s and 70s, there was never any serious discussion about the dominant role small businesses play in providing jobs. The small business debate was around entrepreneurship, new venture formation, family enterprises and community development. It was not until 1979 that the role of small business in job creation was exposed by CFIB research. But what has become interesting in comparing international job creation in small business today is that European economies are more dominant in small business job creation than North American small firms. But the big difference, and again I reference Alfred Gutterson, is that in North America the consumer is the big winner. Another part of my experience linked to my friendship with Dr. Gutterson came later when I had started the CFIB. His position was that support for building small business should have nothing to do with political philosophy. He directed me to focus on the fundamental weaknesses of small scale enterprise which are universal. Things like providing debt and equity in small quantities; coping with the complexities of the modern state; and competing for resources with large corporations and governments. He specifically referred to universal health care in Europe that makes it possible for small firms to compete with large firms in attracting skilled labour. Our successes in achieving business investment loss provisions and the tax free capital gains provision for investing in shares of small business corporations can all be traced back to Dr. Gutterson’s direction. It is now possible for small business to raise capital in small quantities from family and friends, or what is called the non-institutional equity market.

Something none of us fully understood in the 1960s was the explosive growth in subcontracting by large corporations to small corporations. A lot of this was pushed by aggressive labour unions who raised labour costs and imposed strict work rules. But the end result of this process is a small business sector everywhere that is heavily labour-intensive and a large corporate sector that is heavily capital intensive. It is easy to see that as governments impose hidden taxes in the form of payroll taxes that the burden falls disproportionally on small businesses.

Another small business academic who influenced my life was Dr. Alfred Shapiro of Ohio State University who was a global leader in the field of entrepreneurship research. He had studied this matter around the world without the use of national statistics. He instead asked people who they admired and this turned out to be an accurate measure of the entrepreneurial culture of their tribe, their region or their family. If you asked the Chinese in Malaysia, for example, who they admired they would state family members who owned their own businesses. If, on the other hand, you asked people in slow growth regions of Canada or the US who they admired it would be professional or government people. He determined that entrepreneurs are made and not born and that it is a cultural phenomenon. I was interested in how we could influence the entrepreneurial culture in Canada and he said to focus on the education system. And that is why in the 1970s CFIB distributed hundreds of thousands of booklets on small business to public schools, high schools and colleges. It was all about making entrepreneurship and new venture formation a credible process psychologically—something that comes naturally for people raised in a family business. And anything we did to promote entrepreneurship and small business to young people was a huge winner with our membership.

I left Ryerson on a leave of absence to fight the White Paper on Tax Reform in January 1970. That I read the White Paper in the bath tub is true and it made a great cover story in Weekend Magazine. But the adventure into the unknown really started when I asked my father to post a letter I had written to Finance Minister Benson in one of his Globe and Mail advertisements. For a period of about four days the phone never stopped ringing at the store from people agreeing with my position. I had essentially opposed the plan to tax small business corporations at a rate of 50%, which on paper was the rate that large corporations would pay. But the effective rate large corporations paid with all their special tax provisions was in the order of 25%. The staff at the tailoring shop put a special mark beside those that seemed the angriest callers, and one of them was John O Hull, the President of Public Relations Services Ltd. I met with the angry callers and we all agreed to speak with our advisors and meet again. I suggested we all bring $1000 to our next meeting but at the second meeting only John Hull and I showed up. We agreed to do something to fight the White Paper and we created the Canadian Council for Fair Taxation. A key decision we made was to never take more than $500 from any source. Rallies across Canada, high profile speaking engagements and massive media support won the battle of public opinion and the White Paper was withdrawn. The White Paper battle was a great learning experience. If anyone has tried to read the Epistle to the Ephesians backwards in the Greek, they will have some comprehension of what it is like to work through the Income Tax Act. And what you discover when governments try to change something complex and technical is that our political Institutions are not really up to the job. Firstly, the political debate will deal with only those issues that can be explained publicly. The other issues are essentially secret discussions between experts. It was a little discouraging to attend the debate in 1971 in parliament when the changes to the Income Tax Act where being approved. A tax expert in the gallery sent questions down to the Finance critic of the Progressive Conservative Party and the Junior Minister of Finance for the Liberal Party waited for another expert in the gallery to send him down his response. CFIB history is important here, because we continue to debate technical issues like trade agreements and climate change in which the public debate only deals with about twenty percent of the subject matter. The other 80 percent is technical and complex. The lesson from the tax battle of 1970 is that complex public policy changes always come with hidden agendas.

The early days getting the Canadian Federation of Independent Business up and running is a special story. The money that financed the start-up was $50K in the bank of its predecessor organization, the Canadian Council for Fair Taxation. Our first office was 400 square feet on Mt. Pleasant. I asked some of our supporters for furniture and a number of old desks and tables arrived. My office was only four inches wider than my desk so I had to crawl over the top to get into my chair. My dad guaranteed the lease. We shared the floor with Leslie Rebanks, the architect who designed our present building at 4141 Yonge Street. I sat there by myself without any doubt that within six months, when my present cash would run dry, I would have created a viable venture. But it took 12 months to break even and the period from November 1971 to April 1972 where the most difficult in my life. We just could not hire District Managers who could make a living. I could not figure out what we were doing wrong. I started selling memberships on Fridays and when I had a bad day my father would slip me $200. Some evenings when I came home I was not only exhausted but frightened for the first time in my life. One evening at 3:00 AM, restless, sitting up and thinking about my challenges, Mary woke up and asked me what was wrong, And I remember saying, “If we could just figure out how to get our revenues up to $2000 a week, I believe we will have created a viable venture.” Well we did finally figure it out and never looked back. The first thing I did when we broke even was to ask my father if he could have his accountants do our books. When they started to look at our ledger I heard a junior accountant in the next room say he would take over our account as long as that f….ing engineer keeps away from these books. Well I was the f….ing engineer. Besides taking off the trial balance, Mary and I washed the windows, cleaned the toilets and vacuumed the rugs. It was just like the way my mother and father started the family clothing business.

There was one other strategic influence in my life and it is related to a friendship with Dr. Takaturo Yamanaka, President of Hitosubashi University in Japan. We met at a world conference in Tokyo, Japan in 1975 where he was the Chairman. This was a strategic period in our history. We were closing in on our 25,000 member goal and I had finally figured out how we were going to build a 50,000 member organization. But I could not see how we were going to shift from being just fighters to becoming fighters and builders. Yamanaka gave me the focus I needed. He was the author of a PhD paper on small business that compared Germany, Japan and the United States in the 1960s, and it showed all three small business communities to be significantly different. Now as an MBA graduate of the Rotman School of Business at the University of Toronto and a staff member of Ryerson University, this was a huge surprise. Small business issues to the North American academic community were always related to entrepreneurship and new business formation. But Dr. Yamanka’s paper revealed how the small business dominated sectors like brewing and baking in Germany were so large compared to the US and Japan because of their apprenticeship system. And he showed how the huge subcontracting sector in Japan is a product of legislation that encourages sub-contracting and provides training facilities and special financing through their structured small business cooperatives. And he explained how the high percentage of small business formations and closures in the US economy creates competition and lower consumer prices. The lessons were powerful because for the first time I could envisage CFIB as a powerful development instrument; changing public policy on a long-term basis with all that implies for small business development, the building of families and communities, and for the stimulation of job creation and economic development. Our future was in focus. CFIB would help build a better country. It was one of the most exciting periods of my life.

And that is what my life has been about: excitement and development. Exciting to meet members across Canada that were just like my dad. Passionate about their work, focused on their customers, looking after their employees as family, and believing in their communities and their country. Exciting, as well, to meet so many heads of state around the world. Humbled that they wanted to meet me because of their respect for Canada. And exciting to see the CFIB with a powerful future under the leadership of Dan Kelly. And thrilled to continually meet all the outstanding people that work at CFIB. Proud, as well, of the quality people we attract to serve on our Board of Governors. Most importantly, I am especially thankful to have had my great love, my wife Mary, at my side during good times and bad. And now together celebrating over 60 years of marriage. And as long as we have life and breath, we will stand proudly at your Annual Meetings celebrating all we do together to make Canada a better country.