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Defence Policy

The Influence Of The Environment On The 1964 Defence White Paper

by Lieutenant-Colonel Ross Fetterly

Introduction

The 1964 White Paper on Defence was a critical policy statement during a period in which Cold War policies and assumptions were under review. This defence policy was considerably different from that of prior post-conflict eras where defence expenditure had declined significantly and remained at a low level. The influential Royal Commission on Government Organization stated succinctly, in 1962, that greatly increased federal expenditures in preceding years were the result of both “the broad enlargement of social services and the development of a peacetime defence organization on an unprecedented scale.”¹ The emphasis in the 1964 White Paper on Defence on framing Canadian defence policy within the Western alliance system and the recognition that Canada had only a modest capability to produce modern weapon systems in the international marketplace, leading to support for international sharing of development and production of advanced weapon systems, was a pragmatic and realistic approach to the Canadian defence policy conundrum.

The 1964 White Paper is an important document as it acknowledged a significant departure from Canadian defence policies of previous post-conflict eras, which effectively commenced following the Korean War. The 1963 Report of the Ad Hoc Committee on Defence Policy observed that, since 1959, “to the extent that if there is a national consensus, it is that Canada’s defence policies are grossly inefficient, and in need of revision.”² The 1964 White Paper on Defence was a considered response by the federal government to bring Canadian defence policy up to date. The details of the 1964 White Paper on Defence have already been well covered in Canadian literature. This article takes a different approach and focuses on the environment within which the governing Liberal party had to make decisions on a new defence policy. It will also attempt to demonstrate the complexity and multitude of factors that influence and shape government decisions regarding Canadian defence policy. It will begin with a historical review of Canadian foreign and defence policy from 1945 to 1963 in order to provide the context in which decisions were made by the government in 1964. The 1963 Canadian Defence Budget report by the Ad Hoc Committee on Defence Policy was given directly by the Committee Chairman, Dr. R.J. Sutherland, to Defence Minister Paul Hellyer, and the conclusions in the report painted a bleak picture. The main findings of this report will be covered in detail, and this article will also provide an overview of the strategic environment, and will consider Canadian domestic issues and the federal fiscal environment. It will also outline problems facing Defence. The Canadian government has only infrequently penned defence White Papers. A careful examination of the circumstances in which the 1964 White Paper on Defence was developed will give Canadians a better understanding of the factors affecting development of a new defence policy.

The Historical Context

The focus in defence following the conclusion of the Second World War was demobilization. In 1947, priorities consisted of reorganization, the training of officers, training of the reserve force, research and industrial organization. By 1949, the Canadian military had transitioned from a sophisticated wartime footing to regular peacetime duties. However, on 21 July 1950, the domestic focus changed when the Canadian government committed an air transport squadron to support the United Nations (UN) Command in Korea. This signaled the end of isolationism and established the precedent that “when subsequent international crises arose there was no question of standing aside.”³ Indeed, by 1953, Canada had committed substantial forces to the western Atlantic, to north-west Europe and to North American air defence. Significantly, “these involved forces in being, rather than mobilization potential; in strategic terms, the equivalent of a transference from credit to cash.”⁴ Also at this time, “the supply of World War II stocks to NATO began to be supplemented, on an increasing scale, by equipment from current production.”⁵ The change in focus for defence from 1949 to 1963 was dramatic. However, through this time of rapid change, the Canadian government did not issue any defence White Papers. The importance of a formal codified review of defence policy was recognized by Prime Minister Pearson in 1963. In this dynamic and changing environment, the government studied the issues in significant detail, and, led by an energetic and ambitious defence minister, tabled a new defence policy in 1964.

The Strategic Environment

The security of Canadians in the early 1960s continued the historic trend since 1814 of being largely derived from external factors. This apparent paradox arose because, for Canadians, “their degree of national security had relatively little to do with Canadian defense (sic) policy.”⁶ This was due to the fact that the threat to Canada derived from the ideological, political, and military East-West divide, which characterized the Cold War. Reliance was placed upon a combination of national military forces, the protective umbrella of strategic United States military forces, and the North Atlantic Alliance, the objective of both East and West military forces being to hold each other in check through deterrence. Finally, there was the Western policy of containment. Soviet conventional forces constituted a threat to Western Europe. This threat provided a linkage for both Canada and the United States to the defence of Western Europe, a posture Canada had maintained through both World Wars. However, the Soviet development of nuclear weapons brought a direct threat to North America. Notwithstanding the international nature of the military threat to Canada, Canadian defence policy was strongly influenced by certain invariants. These included “geography, economic potential and broad national interests.”⁷ The White Paper on Defence acknowledged these invariables, yet focused on changes to “the nature and the magnitude of the threat to peace and security and the development of weapons and weapon technology.”⁸ The period from 1945 to 1963 has been characterized by “rapid changes in strategic policies owing mainly to revolutionary developments in military technology and in political circumstances.”⁹ These changes naturally led to the obsolescence of both military strategy and equipment, and became a significant concern of Western governments. Notably, changes in the early 1960s were led by the American Kennedy-McNamara doctrine, which included the principle of flexible response, and this doctrine was meant to regulate general war and arms control. Flexible response was developed by the United States as an alternative to nuclear attack. This provided the possibility for an American conventional response to a Soviet conventional attack in Western Europe. Although Western European nations never fully endorsed the concept of flexible response, the Europeans finally accepted it later that decade as a political compromise. One response to the increased emphasis on conventional forces was the concept of Allied Command Europe (ACE) Mobile Forces announced by the Supreme Allied Commander Europe (SACEUR) in May 1961, which would act as a reserve to reinforce front-line NATO forces where required. This would influence the later emphasis by the Liberal government upon force mobility.

The threat of long-range bombers from the Soviet Union, and subsequently intercontinental ballistic missiles, brought the potential for war to the continent of North America. One significant result was increased interaction between Canadian and American governments on defence issues. This relationship had its origin during the Second World War, with the gradual shift by the Canadian military from British to American military leadership. While the NORAD agreement, signed on 12 May 1958, was the most visible evidence of this alignment, the close working relationship between the Canadian and American navies was clearly evident during the lead-up to the Cuban missile crisis in 1962. The NORAD agreement was in place to protect the American deterrent from a first strike, thus enhancing the credibility of American nuclear counter-strike capabilities. The Cuban missile crisis also showed that while cooperation with the United States was indeed close, in an emergency the Americans would take whatever measures they felt necessary to protect themselves.

European security remained an important consideration, given the significant Warsaw Pact alliance threat facing Western Europe. The White Paper on Defence continued the stationing of Canadian military personnel in Europe and emphasized NATO as the centrepiece of Canadian defence policy. Yet, from the ashes of the Second World War, European member states of NATO had emerged, by 1963, as vibrant economies. The Cold War had, in fact, brought a certain level of stability to an inherently uncertain international strategic environment. The Soviet threat presented NATO defence planners with a well-defined threat, and planning against that threat could proceed in a relatively orderly and unambiguous manner. Although the Soviet threat figured prominently in American and Western European policies, in Canada, domestic issues predominated.

Domestic Issues

Domestic issues in 1964 were focused upon economy and social programs. The weak state of the Canadian economy since 1957 and the demand from Canadians for more comprehensive social programs brought pressure to defence funding and also against other departmental budgets. Expansion of the resource sector of the economy, together with growth in private and public sector capital investment, fueled expansion of the domestic economy from 1955 through to the middle of 1957. The subsequent 6 percent decline in industrial production in 1957 and growth of unemployment to 7.5 percent foreshadowed six years of weak economic performance.¹⁰ During this period, both inflation and unemployment were noteworthy, which highlighted the considerable structural economic change that Canada was undergoing at this time. To a considerable extent, the Canadian economic downturn was patterned after an anaemic United States economy. It did, however, also illustrate the sensitivity of Canada to the global economy. Although economic growth returned in 1961 and gradually brought about a decline in the unemployment rate, persistent high inflation was to have a damaging impact on defence. The Ad Hoc Committee on Defence Policy, in its August 1963 report on the Canadian defence budget, was influenced by these factors, and so was the Liberal government in its lead-up to tabling the White Paper on Defence in 1964.

The redistribution of income to Canadians through federal social programs has become an important aspect of the modern welfare state in Canada. A comprehensive system of social programs developed in the 20th century, and the benefits are felt directly by Canadian recipients. Indeed, whereas a number of government policies, such as defence, affect Canadians for the most part indirectly, social programs affect citizens directly. As a consequence, when considering social programs, “no other area of public policy has such a direct and powerful impact on individual Canadians.”¹¹ The growing support for government funded social programs in the mid-20th century was the result of a number of factors, including the effects of increased industrialization, a greater desire to reduce poverty, and changing social values. The growth in the number and cost of social programs and their competition for funding against existing federal programs was a major factor in bringing the significant cost of defence to the attention of citizens and their governments. However, in fact, the increasing budget deficits that started in 1958-1959 resulted from significant growth in non-defence related programs, whereas defence expenditure remained fairly constant throughout the early 1960s.

The demand by Canadians for social programs started with a limited child benefit system during the First World War, which then expanded into a universal family allowance program in the 1940s. A similar approach was taken towards the pension system with passage of the Old Age Pensions Act in 1927, which provided a limited pension, determined through a means test. It was superseded by a universal old age security pension program in 1952. This social legislation was complemented by passage of the Unemployment Insurance Act in 1940, which had the objective of providing specific classifications of Canadians with insurance against temporary loss of income during defined periods of unemployment. To that date, however, social legislation was only brought forth in an uncoordinated manner. It was not until the 1960s that the social policy platform of the Liberal Party brought about a more focused approach to implementing a Canadian welfare state. The social policy agenda of the Liberal Party had its genesis following its election defeat on 10 June 1957. Plans for rebuilding the Liberal Party in the late 1950s focused on social policy, which “proved to be the issue around which allegiances were formed”¹² within that political party. The trend was solidified by both the Kingston Conference in September 1960 and the subsequent Liberal Rally in January 1961. Nevertheless, despite the substantial social security agenda of the Liberal Party, it was not the main focus of the 8 April 1963 federal election. One of the predominant issues in that election was the acquisition of nuclear weapons for the Canadian military.

The Federal Fiscal Framework

Pressures to reduce defence spending predated the 1964 White Paper on Defence. In 1963, the defence budget represented the most significant non-statutory federal expenditure. With this in mind, the Minister of National Defence observed that “the government was very much aware of the overall financial position which faces it. A series of large deficits have increased the size of our national debt and the annual cost of servicing that debt.”¹³ Nevertheless, in the fall of 1963, the defence and finance ministers negotiated “a defence appropriation of some $1.5 billion rising by two percent annually for inflation, and which the Government had indicated approval of this level over the next three years.”¹⁴ The House of Commons Special Committee on Defence tabled its Third Report to the House on 17 December 1963, noting with concern that “the Federal Government finds it hard to meet constantly increasing budget requirements”¹⁵ and also provided a financial table, which highlighted the significant percentage of defence expenditure in overall federal expenditure at that time. This funding pressure continued and was also present during Cabinet discussions in the drafting of the White Paper on Defence. At an informal meeting on 21 February 1964 of the Cabinet Defence Committee (CDC) to discuss the draft White Paper on Defence, the finance minister “suggested cutting defence expenditure by an additional $500 million and giving the money to the provinces.”¹⁶

Defence was in the precarious position of having to address external pressures to reduce funding, yet internal pressures demanding increased funding were equally intense. The responsibility was placed upon Paul Hellyer to ‘square that circle.’ Accordingly, he established ministerial study groups in 1963 to undertake an examination of Canadian defence as part of preparations for the drafting of a new Canadian defence policy, of which the most significant study group was the Ad Hoc Committee on Defence Policy. The committee completed a number of reports. However, their report, entitled The Canadian Defence Budget, was of particular importance. It came to several dramatic conclusions. First, maintenance of the status quo in Fiscal Year 1964-65 would require rapidly increasing levels of defence expenditure. Second, a baseline defence budget of $1.6 billion at current levels of effectiveness would require the government to make significant choices in the immediate future. The options were considerable reductions in personnel in order to fund equipment purchases, or the maintenance of personnel levels and acceleration of the downward spiral of capital procurement even further. Reduced manning levels would necessitate a corresponding sharp drop in commitments, and maintaining personnel strengths at current levels would increase the rate at which capital equipment was becoming obsolete. Finally, the report concluded with the observation that, although it did not cover the period after 1967-68:

It is apparent, however, that if existing Canadian defence commitments are to be maintained after that time, extensive re-equipment will be necessary, including replacements for the Centurion tank, the CF104 and probably the CF101 aircraft. It is evident, therefore, that defence budgets in the post-1968 period would be at a high level if present defence commitments are continued in that period.¹⁷

Internal departmental documents in 1963 suggested that dramatic increases would be required to fund current defence commitments and address the growing backlog of capital procurement requirements, making the need for prompt decisions concerning future years a necessity. Quite simply, the government could not have delayed making significant decisions on defence that would have a long-term impact. The figures provided in Table 1 were used in the Canadian Defence Budget report by the Ad Hoc Committee on Defence Policy,¹⁸ to emphasize the enormous near-term cash demands of existing internal DND estimates.

The August 1963 Canadian Defence Budget report by the Ad Hoc Committee on Defence Policy, submitted to the MND on 4 September 1963, also highlighted the percentage of defence expenditure in overall federal expenditure and noted the recurring federal deficit.¹⁹

The government found itself on the horns of a dilemma. Prior to the start of the Korean conflict, defence expenditure in Canada accounted for only 15.7 per cent of total federal expenditures in 1949-50. However, by August 1963, defence commitments had increased dramatically, re-equipment costs were growing at a much higher rate than consumer inflation, the government was running a substantial deficit, and defence expenditure hovered at approximately one-quarter of all federal expenditures.

Problems Faced by Defence

Despite the significant social agenda of the Liberal Party, and the pressure this brought to the federal fiscal framework, the demand upon federal funding for defence was also significant and needed to be addressed. In particular, the need to replace obsolete equipment in a timely manner was predominant. This was in part due to the limited procurement of weapon systems since 1957. The issue was summarized by the Ad Hoc Committee on Defence Policy Canadian Defence Budget report statement as follows:

The reduction in expenditures on equipment during the last five years has resulted in a backlog of postponed equipment procurement in the order of $500 million. The current rate of spending on equipment is insufficient to make good depreciation and obsolescence. Equipment holdings are therefore becoming increasingly inadequate.²⁰

Timely replacement of equipment was constrained by the extraordinarily high cost of new weapon systems, and was also impacted by the increased complexity and growing cost of advanced technology. This resulted in an extensive list of requirements for new equipment. Paradoxically, rapidly growing manpower costs were encouraging the technical substitution of capital for labour.

Governments, in funding defence, effectively have to consider both the allocation of resources to forces-in-being and the allocation of resources to the military force of the future. Although both are important from a strategic perspective, resource limitations require choices. Resource allocations can favour either current or future operations, each of which has implications for military forces. Allocation of funds to personnel and operating costs supports the current force, at the expense of future operations. Defence funding that allocates a significant percentage of resources to capital procurement favours future operations at the expense of current operations.

Democratic governments usually have a mandate only lasting up to five years. As a result, capital procurement contracts signed in one mandate would only benefit military forces in a subsequent government’s mandate. Consequently, in terms of making political mileage, governments tend to favour forces-in-being at the expense of future forces. The result following a period where expenditure has favoured current forces is that the average age of equipment has increased, the cost of maintaining that equipment has multiplied and the backlog of required replacement equipment has increased. This was the situation within which the government found itself in early 1964. The Canadian Defence Budget report highlighted the problem by stating that, “measured in constant dollars, the funds provided for equipment in the 1963-64 Estimates are only one-quarter of the amount spent on equipment in 1952-53.”²¹ In effect, the government had been mortgaging the future to fund current operations, but in the context of the Cold War, the strategic and political significance of Canadian participation in current operations was not inconsiderable.

The problems then confronting defence can be summed up by the combined impact of the sharply declining purchasing power of the defence dollar compounded by rapidly increasing equipment costs. Inflation and rising equipment costs meant that, “in terms of real purchasing power, for every five dollars which were available in 1952-53, only three were available in 1962-63.”²² During the same period, personnel, operations and maintenance costs increased from 45 per cent of the budget to 77.6 per cent, and even more alarming was the combined impact of reduced allocations to capital and equipment price increases, which resulted in an effective decline of 75 per cent in the capability to procure equipment.²³

The shrinking expenditure on new equipment compounded the inequities in funds allocated to the Canadian Army, the Royal Canadian Navy and Royal Canadian Air Force. The army, in particular, was adversely affected since the percentage of its funding allocated to capital expenditure had been consistently kept in single digits since 1957. The following information, presented to the House of Commons Special Committee on Defence on 2 June 1964, highlights this imbalance.²⁴

The imbalance between procurement for the army, navy and the air force becomes even more pronounced when examined over a longer time frame. During the period from 1950 to 1963, the Department of National Defence (DND) procured capital equipment at a cost of $5.5 billion.²⁵ Expenditures on aircraft alone accounted for more than half that total, and the principal expenditures are listed in Table 4. This is in part due to the decision made in the early 1950s to emphasize air power, especially in the European and North American theatres. These expenditures contained additional economic incentives, in that the aircraft were being built in Canada.

Measured in constant dollars, expenditure on personnel, operations and maintenance had remained relatively stable from 1955. Nevertheless, actual expenditure in this area increased each year. This problem is highlighted by the fact that salary and payroll expenses accounted for two-thirds of personnel, operations and maintenance costs in 1963-64. The higher cost of military and civilian pay since 1952-53 was primarily attributable to increased rates of pay, not increases in personnel strengths. In terms of material and supply costs, cost savings had been expended and procurement was now based on present demands. This had the potential to place significant near-term pressure on the defence budget. One area of reduced cost was equipment maintenance resulting from fleet rationalizations, reductions in the number of different types of RCAF operational aircraft.²⁶

Conclusions

Policy documents tabled in the House of Commons by Canadian governments are the end result of a lengthy decision making process involving government members, the Canadian public, the Canadian Forces, DND, the Department of Foreign Affairs and International Trade, and various interest groups. During times of peace, even during the Cold War and wars against terrorism, defence must compete against a variety of popular social programs for funding. The circumstances of time surrounding the 1964 White Paper on Defence were unique, as is the case for many such policy documents. Nevertheless, an examination of the relevant circumstances provides the opportunity to view how a variety of factors interacted and resulted in the formulation of a distinctive Canadian policy on defence in 1964.

The significant factors that brought forth the 1964 White Paper on Defence included an international security environment dominated by American and Soviet Cold War confrontation, increasing support for Canadian social programs, entrenchment in a system of collective defence, escalating defence costs, more realistic and modest defence objectives, as well as the move to a more formal defence programming and budgeting system. When combined with the goal to unify the armed forces in order to increase administrative efficiencies – with the subsequent objective of increasing expenditure on the procurement of new weapon systems – the White Paper on Defence stands out as an important historical document. The government, faced with a limited direct threat to Canadian security, needed to maintain defence forces, not to defend Canadian territory, but, paradoxically, to support Canadian diplomacy and add substance to Canadian initiatives in NORAD, NATO and the UN. Clearly, the pull of North American integration with the United States proved to be a most important consideration to the Canadian government. The result of all these factors was a significant level of peacetime defence expenditure and the maintenance of substantial Canadian military forces. This was achieved through the acceptance of a more modest military force, together with relatively stable projected funding. Although funding levels for defence may have been higher than advocates of increased spending for social programs may have liked, the government compromised by establishing clear roles and priorities for defence, accepted a lower baseline funding and reorganized to direct administrative savings to capital expenditures. The circumstances are different in 2004, yet funding demands from Canadians for a variety of social programs remain. Defence White Papers are the result of a lengthy process involving a multitude of different parties. An appreciation of the environment in which governments make defence policy will enable the Canadian public to better understand why and how decisions are made. With an updated defence policy anticipated in the near future, examination of the circumstances under which previous Defence White Papers were developed could help in this process.