Canadian'American Studies &Genter for Economics andBusiness Research
,.MUTUAL GAI N STRATEGIES:A GOOD NEIGHBOURPOLICY"
J.G. MATKINCEO BUSINESS COUNCIL OF BRITISH COLUMBIASept. 18, 1987
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The timing of this conference is propitious on the eve of the October, 1987 deadlinein the historic free trade negotiations betureen Canada and the United States. As the"crisis point" is reached in the present negotiations we are reminded of thelandmark periods of the past, such as the Reciprocity Treaty of 1854, CanadianPrime Minister Wilfred Laurier's election defeat of 1911 because of his support forfree trade, ffid the signing of the Auto Pact of 1965.
Canada and the United States have the largest and fastest growing tradingrelationship in the world and yet they have failed during the past century to go thatextra step and create an international free trade area,primarily because of theemotional influence of Canadian nationalism.l
Whether a new trade deal succeeds in this round of the international negotiationsthe reality is ttrat the economy of the Pacific Northwest is becoming moreinterdependent because of the globalization of trade. This phenomenon sofinterdependence deserves our scrutiny.
While the State of Washington and the Province of British Columbia share much incontmon, with a balance of trade very much in Canada's favourbecause of thesignificant exports of electricity and natural gas, yet there is very little evidence ofany direct co-operation between the govemments in this region. Informal:urangements are apparent and very constructive, such as are found in policing andlaw enforcement, but there are simply no direct legitimate channels ofcommunication or administration.2
A key reason for the scarcity of micro-diplomatic relations in the Pacific Northwestis the widely shared view that ttre economies of the trvo jurisdictions are incompetition and that competitors should not co-operate. 3
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The Port of Seattle competes with the Port of Vancouver. Lumber companies inWashington compete with lumber companies in British Columbia for Califomia andEastem US and Japanese markets. The tourist business in each jurisdiction offersvery similar attractions, such as the fruit orchards of the Interior, ttre Gulf Islandretreats, the Rocky Mountain ski resorts, and the picturcsque guest ranches andalpine villages. These truly world-class tourist attractions often compete for thetravel dollar of the same Japanese customer. The agriculnrre industry competes forthe same markets in raspberries, bluebenies, beef and lamb, etc.
While it is quite accurate to see substantial competition in the economies of thePacific Northwest region, the issue is whether there is also an opportunity forco-operation. Mutual gain strategies work successfully even among businesseswhich are in strict competition.4
Richard P. Nielson writes persuasively in a recent issue of the Mckinsey Quarterlyabout the increasing importance of co-operative strategies due to the trend ofglobalization in many industries.S Ni.lron describes the four rypes of genericco-operative mutual gain strategies as follows:
. Trading different resourcese.g. IBM successfully traded products and advertising with Lotus 1-2-3.
Pooling similar resources and riskse.g. The Microelectronics and Computer Technology Corporation (MCC)pooled the R&D expenditures of Boeing, Control Data, Rockwell,Sperry et al.
Expanding total demande.g. Matsushita Co of Japan, which invented the VHS, made its technologyavailable to competitors in order to increase world demand. By contrast, Sonymaintained a strictly competitive strategy with BETA.TM
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Increasing the number of mutual gain playerse.g. adding new companies to the MCC in the example above or bringingmore competitors into the VHS technology"
My experience suggests that there is a fifth generic mutual gain strategy thatbusinesses frequently use and that is:
Sharing management strategy, particularly regarding employeerelations
There is a business tradition of disclosing successful management strategies,especially about new methods of handling people. These aspects of business are
almost never protected as intellectual propetry, e.g. the disclosure of successfulJapanese management practices is widespread and frequently studied by NorthAmericanbusinesses. See Pascale and Athos,The Art of Japanese Management,Applications F or American Executive s.6
I propose to look at the above generic mutual gain strategies to see what applicationthere is to the growth of the British Columbia and Washington State economies.T
By way of introduction, I am reminded of a Rocky Mountain bear story about thetroubles of Pierre and Henry who were camping in a remote corner of the Rockies.They were accosted by a menacing gruzly bear. Pierre immediately started tochange his hiking boots for running shoes. Henry was amazed and said," Pierre,you should know ttrat a bear can run much faster than any man." Pierre retortedthat was all right because he didn't plan to race with the bear!
The problem with Pierre's competitive strategy is that even if he wins the race withHenry he still loses if this large bear wants more. Mutual gain strategies maytherefore be a more practical approach for both Pierre and Henry.
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Likewise, in the competition between the British Columbia and Washington Stateeconomies, it may be shortsighted to look for solutions where one jurisdiction winsand the other loses. Both economies will gain more if they pursue mutual gainstrategies.S
Think of growth in the forest products industry, for example. ff this industryfollows the five generic mutual gain strategies of trading different resources,pooling similar resources and risks, expanding primary demand, increasing thenumber of players and sharing management strategy, the potential for success
multiplies.
It is clear, from the briefest comparison of development in ttre nvo jurisdictions,that Washington State and British Columbia share a similar heritage.g For example,our common geography and distance from established eastem markets made thecreation of an efficient transportation system a priority. Interestingly, the firstCanadian Pacific Railway steam engine reached Vancouver in 1886, which was thesame year that rail service first linked Seattle with Califomia and the US industrialheartland. The race to improve our transportation services has continued for morethan 100 years.
However, before the trains arrived in the Pacific Northwest ,the gold rush of the1850's brought fornrne-hunters up from Califomia and from the eastem part ofthe continent. These gold-diggers and the services that followed them unwittinglystarted to tame the "Wild'West"as they established local communities throughout thenew frontier.l0 As there was no intemational boundary line dividing the territoryat this time, people and goods easily flowed back and forth along the naturalcorridors of the North American continent.
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After the success of the free trade negotiations, ttre Pacific Northwest could wellmove "back to the future" with fewer impediments to the natural tradingopportunities of the North American continent.ll Ind.rd, the potentialoppornrnities for economic growth in this region may well depend upon howsuccessfully both jurisdictions apply mutual gain strategies!
TRADING RESOURCES
We have some past experience with co-operative behaviour from which we canglean ideas for future action. For example, we have frequently proven that there isa high return from "trading resources" as a mutual gain strate gy.lz An outstandingexample of trading resources is the Skagit River International Treaty officiallysigned in 1984 by President Ronald Reagan and Prime Minister Brian Mulroney.13The deal was negotiated by the Province of British Columbia and the City of Seattlewith the able assistance of the International Joint Commissior.l4 As the deputyminister of intergovernmental relations for British Cotumbia, I participated on thenegotiating tqlm and the experience makes me an avid supporter of mutual gainstrategies.
The Skagit River transborder issue arose because of the desire of the City of Seattleto create more electrical power by raising the High Ross dam which would haveflooded into the province of British Columbia and buried the scenic Skagit Valleyon both sides of the border.
This issue festered for more than four decades, but was finally resolved through anintricate trading of resources between the two jurisdictions, including an historiclong-term sale of British Columbia electrical energy to the City of Seattle for thesame price as the city would have paid to raise their own Ross dam.15 As the mayorof Seattle concluded at the end of the negotiations, "The deal is a fair one. . . The cityreceives the energy it would have produced from High Ross at today's cost of HighRoss. Both sides win. It is good value received for good value given."16
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POOLING RESOURCES
The Skagit Treaty not only resulted from unique trading of energy rcsources butalso from the pooling of resources with the creation of a "joint commission" tooversee an environmental fund aimed at enhancing the recreational value of theSkagit Valley. Indeed, in the analysis of the agreement, Monahan and Atperdescribe this pooling of resources as "the frosting on the cake" that made a"significant contribution" to the resolution of the regional conflict because itprovided benefits beyond the specific issues in contention.lT It was a mutual gainsmtegy that made a difference to the outcome of the negotiations.
Another recent example of this strategy is found in the marketing action of a BritishColumbia group of leading high-technology electronics companies: MacdonaldDettwiler, Microtel, Glenayre Electronics and Mobile Data Intemationat IncGVIDD. They pooled their resources to create an attractive brochure aimed atenticing skilled technical professionals to come to BC because of the explodingdemand forthese kind of workers.lS This advertising campaign emphasizes thevery attractive amenities of the West Coast life style and will surely benefit the sameindustry in Seattle.
EXPANDING TOTAL DEMAND
The main difference between the other strategies and the strategy of expanding totaldemand is breadth of outlook. As Nielson explains in the Mckinsey article, "Thespecific purpose of the expand strategy is to increase primary demand -- to expandwhole industries." 19 There are many examples of the "expand strategy" whererather than marketing a particular brand the advertising is expanded to ttre industrylevel.
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Tourism is a logical area where people from the two jurisdictions would gettogether and increase primary demand for the whole industry. Both jurisdictionshave great potential to be attractive to ttre increasing pacific Rim tourist trade.Visitors need not choose between visiting Seattle or Vancouver. Rather, they shouldbe encouraged to enjoy the attractions of both vancouver and seattle and victoria!Tourism in the Pacific Norttrwest could be marketed as a whole industry.
The very successful E)(Po 86 in vancouver is an outstanding example of onejurisdiction investit g it a tourist attraction that also benefited the tourist industry ofthe other jurisdiction by increasing "total demand" for travel and entertainment.
The Council of Forest Industries in British Columbia, representing the major forestcompanies, frequently uses the "expand shategy".2l Arecent example involved theobjective of encouraging companies in Great Britain to use West Coast hemlock andlodgepole pine in manufacturing fumiture. The BC industry, through coEI,gratuitously supplied green Pacific Coast hemlock to ttre students of theBuckinghamshire College of Higher Iraming as an incentive to use this produ $..22obviouslY, the effect of this promotion will also benefit the forest industry ofWashington State. A similar promotion of timber frame construction in Japan bythe US industry benefits Canadian forest producers.23
ADDING PLAYERS
An intriguing idea for creating mutual gain by adding more players arises from thecurrent bilateral free trade negotiations. The potential exists to expand the initiativeand create a Norttr American Pacific Accord. As Don Etchison explained in arecent article in the Chicago Tribune: "The idea of a North American accord wouldbe to open up [ade, commerce, invesfinent and educational opportunities among thenations of Norttr America. The first step would be to focus attention on our twomajor neighbours, Canada and Mexico, and establish a high-level tripartiteconsultation body charged to work toward the idea of creating a North Americanaccord."24
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There is doubt about the success of bringing Mexico into a North American Accord.It may be more feasible to expand the bilateral Canada AJS trade agreement into amultilateral deal embracing some of the Pacific Rim nations. There could be majoradvantages forboth Canada and the United States in the pacific region if theyformed the core of a new economic community of the burgeoning pacific Rimcountries' While the increasing friction of Japanese trade with North American is aserious concem, it is also evidence that "a single extensive economy is begiruring to€rnerge." 25
The Pacific Rim, defined as Japan, ASEAN (Indonesia, Malaysia, philippines andThailand), Asian MCs (Hong Kong, Korea, singapore, and raiwan) and oceania(Australia and New 7*aland),is the most dynamic region in world trade today.26
Because the Pacific Rim is the economic wave of the future, if we grasp theopportunity to expand the successful bilateral initiative benveen Canada and theUnited states into a broader North American Pacific Accord we will indubitablyenhance our markets for forestry products, minerals and other goods and servicesfrom this Pacifi c region.z7
SHARING MANAGEMENT STRATEGY
When the premier of British Columbia meets with the governor of WashingtonState, they have the oppornrnity in confidence "to share management strategy,,regarding issues common to both jurisdictions. The agenda for these meetingscould include, for example, a discussion of new technology in forest-firesuppression, tuition fees of cross-border students, wheeling problems with theBonneville Power Cotp for electrical sales to California, possible employmentadjustrnent measures resulting from a free trade agreement, privatization and fiscalarrangements, etc.28 TM
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A continuing area of concern to British Columbia is the struggle to improve ourlabour-management relations chrrate.Z9 Washington State enjoys a much morestable reputation in this field. Here is an opportunity to share management strategyand find a better way to handle industrial relations problems.
Another opportunity to gain from sharing management strategy arises in theknowledge industries. The phenomenal success of the high-tech industry to createnew businesses that generate more jobs than we can fill is very encouraging.3o"Sharing managment strategy" among the various innovative enterprises is vital tothe success of this kind of business. 31
CONCLUSION
To summarize, while British Columbia and Washington State have economies thatcompete, there is an opportunity for grcater co-operation by adopting from thebusiness community's experience the idea of munral gain strategies. In particular,we could strengthen the Pacific Rim if we attempted trading resources, poolingresources, expanding total demand, adding players and sharing managementstrategy.
The global economy enhances the value of mutual gain strategies because of theincreased interdependence in the Pacific Norttrwest. Our challenge is to forgea more co-operative economic climate, drawing on our cornmon heritage and on themutual gain strategies.
I ttrank you for this oppornrnity.
t987 09 16
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FOOTNOTES
1 ln tracing the history of the issue of free trade between Canada and theUnited States, J.L. Granatstein concludes, *The western farmers in1911 thought they had made gains in the draft Reciprocity Treaty ofthat year, but the central Canadian manufacturers feared itsimplications. The 1947-48 negotiations posed a threat to Canadianmanufacturing, as John Deutsch and Hector McKinnon knew, but theybelieved (even if Prime Minister Mackenzie-King did not) that theprotections they had negotiated would certainly allow the strongindustries to adapt, to survive and to have clear benefits for Canadianconsumers. ln that particular case, the political leadership weighedthe bargain and fount it wanting. ln terms of his political calculus,Mackenzie-King was probably right to have acted as he did inscuppering the customs union. To King, the politics and emotions of theissue took precedence over the economic implications, in substantialpart because he remembered what had happened to Laurier in 1911when the economic implications had been allowed to outweigh thepolitical. There is a lesson there. Reciprocity or customs union orsectorat free trade, whatever its name, is very much an emotionalpolitical issue, and there seems little reason to believe that the 1980shave altered this fundamental fact.' Denis Stairs and Gilbert R.Winham, The Potitics of Canada's Economic Relationship with theunited Sfafes, (Toronto: University of Toronto Press in co-operationwith the Royal Commission on the Economic Union and Developmentprospects for Ganada and the Ganadian Government Publishing Centre,Supply and Services Canada, 1985), pp 11-54, at page 50
2. G.F. Rutan, Micro-Diptomatic Relations in the Pacific Northwest:Wash i ngto n State- Briti sh Co t u mbia I nteracti ons, American PoliticalScience Association, 1986
g While the conventional wisdom is that "The American mind in particular hasbeen trained to equate success with victorY, to equate {ging-weltyift beatingsomeone." yet ironicatly, it is the Canadians in the Pacific North West who havebeen less supportive of any cooperation with their U.S. neighbours. See, AlfieKohn, Competing: How to Succeed Without Even Vying, Psychology Today,September 1 986, at Page 22
4 Michael Porter, Competitive Strategy
5 Richard P. Nielson, "The Case For Co-operative Strategies", TheMcKinsey Quarterly, Spring, 1987, at page 41TM
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6 Warner Books, 1981
Note: Footnotes incomplete.
16 Joint News Release, Province of British Columbia & Office of theMayor, City of Seattle, 'Skagit Details Released", April 14, 1983
17 Donald K. Alper & Robert L. Monahan, RegionalTransboundaryNegotiations in the Skagit River Treaty: Analysis and FutureApplications, 1985
18 "The five companies behind the brochure employ a total of 3,400people. They will have 500 more highly skilled jobs to be filled in thenext year and local supply simply can't keep up with the demand. Thereare roughly 2 and 1/2 jobs for every one high-tech graduate fromBritish Columbia's universities and technical institutes; that is whythe brochure is aimed at graduates and soon-to-be graduates in otherparts of Canada and in other countries who are unaware of BC'srocketing high-tech industry and its seemingly limitless potential."John Kirkwood, 'High Tech in B.C. The New Challengers: A fresh breed ofentrepreneurs takes aim at Asia', Asia Pacific Business, Summer,1987, at page 32.
19 Supra note 5
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One-Text Process and the Camp David Accord
President Carter, Prime Minister Begin, and President Sadat Celebrate the Camp David Accord A dramatically successful example of one of the Harvard Negotiation Project's techniques used regularly by CMI Concord–the "One-Text" process–occurred during the Camp David Accord negotiation. On September 17, 1978, Prime Minister Begin and President Sadat, with the facilitation of President Carter, concluded the historic agreement that has brought over a quarter century of peace between Israel and Egypt.
Prof. Fisher's initial involvement in the Middle East peace process began many years earlier in a visit to President Sadat's predecessor, Gamal Abdel Nasser. In an interview with President Nasser, Fisher explored the long list of demands Egypt had made of then Israeli Prime Minister Golda Meier. He then asked President Nasser what would happen to Prime Minister Meier if she said "Yes" to them all. Fisher reports that President Nasser laughed and said "Boy oh boy, would she have a problem!" Then President Nasser became more thoughtful upon recognizing the barrier to agreement that his own demands had created. It was one of the first steps in getting the parties to understand that success would only come about by crafting a choice to which the other side could say "yes."
On Martha's Vineyard, years later and two weeks before Sadat and Begin met at Camp David, Fisher met with his neighbor and tennis partner U.S. Secretary of State Cyrus Vance. They talked about the upcoming negotiation. Fisher described in detail a "one-text" process for managing complex negotiations. This process allows a neutral mediator to create a working "draft" that the parties criticize and improve, without making commitments. The goal of the process, Fisher explained, is to keep the parties from locking into rigid positions from which they would not back down and which would ultimately stalemate the mediation. The mediator controls and continuously improves the draft until he or she believes it satisfies the parties' interests as well as possible. Then and only then are the parties asked to commit. The process also minimizes the back-and-forth "haggling" that often plagues mediations.
Despite personal enmity that kept Begin and Sadat in separate Camp David quarters throughout the negotiation, President Carter and Secretary Vance used the one-text process, along with their many other resources TM
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and personal qualities, to produce the Camp David Accord. Although neither Prof. Fisher nor the partners of CMI Concord were present for this negotiation, it illustrates the motivation and skill of those involved in CMI Concord's heritage, the power of good process, and one of the many effective methods by which CMI Concord serves its clients.
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wBC
Prcvince ofBritish GolumbiaMinistry of EnvironmentHon. Stephen Rogers, Minister
Qffice-Qf The MayorCrWof SeattleCharles Royer, Mayor
JOINT NEWS RETEASEApril L4, 1983
SKAGIT DETAILS RELEASED
Environment Minister Stephen Rogers and Seattle MayorCharles Royer today announced details of a framework agreementreached between British columbia and the city of seattle forresolution of the long standing Skagit Va1ley,/Ross Dam issue. Theframework will form the basis for a formal agreement, and follows anannouncement March 30 by the International Joint Commission that anagreement on principle elements had been reached within the one yeardeadline established by the f.J.C. on April 28, Lge2.
Under the terms of the agreement, flooding of the Skagit Valleywill be prevented in return for a guarantee by B.c. to suppry thepower which would have been generated by raising the Ross Dam. Inaddition, it will provide for the establishment of an EnvironmentalEndowment Fund to manage and develop the Ross Dam/Skagit Valley areafor recreation and environmental conservation purposes.
"Shifting energy demands, increased costs of construction andhigher interest rates have combined to create the opportunity for ?solution which meets both British Columbiars needs and those ofseattlerrr said Rogers. 'An agreement that benefits all parties isone that will endure."
Said Royer, rThe deal is a fair one in return for money,energy, a valuable surplus market and the lasting safety of theSkagit Va11ey. The city receives the energy it would have producedfrom High Ross at todayrs cost of High Ross. Both sides win. ft isgood value received for good value given. n
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.Theframeworkagreementwasreachedfollowingl0monthsofnegotiations under the auspices of a consultaLive bOard Consisting
ofrepresentativesofthernternationalJointCommission,theprovince of B.c. and the city of seattle, External Affairs and u's'
State.ThisboardwasestablishedfollowinganordermadeinApriloflgS2bythelnternationalJointCommissionforaoneyearmoratorium on the raising of Ross Dam tO allow the development of an
agreement between the two parties'
BothSeattleandBritishColumbiahavenowbegunnecessarysteps for formalizing of the agreement and for the development and
ratification of a canada - united states treaty to confirm its
terms.Inseattle,publichearingsontheissuewillbeginbeforecity council on May 18, while in British columbia the agreement will
gobeforecabinetforapproval.AfurtheragreementisbeingsoughtbetweenB.C.andtheFederalgovernmenttoimplementthetreaty.Bothpartiesanticipatethatthetreatywillbeineffectbytheendof this Year.
In summary, the terms of the agreement are as follows;
I. Seattle will not flood the Skagit ValIeY'
z. British columbia wirt supply seattle with electricalcapacity and energy which is roughly equivalent to that
which would have been produced by High Ross Dam'
3. Seattle will PaY Britishfor 35 Years, beginninghave Paid to build HighDecember 1982.
British Columbiacosts from Blaine
Columbia $21r848r000 (us) Per Year
in 1986 t oY the same as it would
Ross had it borrowed moneY in
is to pay wheeling (Power transmission)to Seattle.
4.
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5. British Columbia can raise Seven Mile Dam on the
pend droreirre River near Trail and frood seatt'Ie-owned rand
withoutcomPensatingseattle.Thisisequivalentto50tofHigh Ross energy' and will cause 140 acres of flooding in
B.C. and 60 acres in Washington State'
The agreement is fot B0 years; 1986 2066' Funding over
the first 35 years is substantially in excess of energy
costs. The B.C' energy surplus in early yearsr the
investment options using Seattle paymentsr and the Seven
t{ile availability throughout the agreement are considered of
sufficient value tO compensate B.c. OVer the 80 year term'
The parties will review the terms and conditions of the
Agreement at future intervals'
Thepartiesmayarrangeforelectricitysalespriortol9S5if to mutual advantage'
5.
7.
8.
o may terminate the agreement by giving 5 years
It would then forfeit any right to flood the SkagitSeattlenotice.Va11eY.
British Columbia may terminate the agreement by giving 5
years notice. Seattle would then be permitted to flood the
Skagit valley without paying compensation to British
Colunbia other then the continued right to flood U'S'
territory behind the Seven t{ile dam' If Seattle chooses not
toflood,BritishColumbiamustprovideSeattlel.05tvlWascompensationforSevenMile(apProximately5tofadditionaloutput);BritishCo}umbiawouldretainfultrightstoSevenMile. If Seattle chooses to flood' British CoLumbia will
returntoSeattleasumsufficienttoconstructHighRossatthat time, less the capitalized value in that year of
seattle's unpaid paymentsi B'c' retains fulI rights to seven
Mile' " "'/4
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IO. A treaty wilL provide the mechanism for termination of the
agreement' and compensation in the event of default'
ll.ThesametreatywillprovidethenechanismforresolutionofdisPutes'
L2.SeattlewillbethemaincontributortoanEnvironmentalEndowment Fund' Total init'ia} funding wilI be $5'000'000
withSeattlecontributing4'O0O'000;alargenajorityofexpenditureswillbemadeonB.C.sideofborder.Thefundwill be enhanced annually by both parties'
13.SeattlewillcedetotheProvinceitsprivate}yheldlandinBritish Columbia (640 acres)'
14. The agreement' will be inplemented with an I'J'C' order and a
treatY between Canada and the U'S'
For further information contact the I'linisterrs
of Environment, Victoria, B.c. , Go4/3g7-5r62 or the
Mayor, Seattler Washington' 206/625-4000'
Office, llinistrYOffice of the
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