Canadian Economic History: Post-World War II Recession - Term Paper Example

? Canadian Economic History: Post-WWII Recession of the of the Number Table of Contents Table of Contents 2 Introduction 3 Critical Analysis of Literature 3 Key Findings 17 Conclusion 18 References 19 Introduction Canada is a developed country well known all over the world for its high-tech industrial sector. The country not only experiences high economic growth rates but also depicts an excellent living standard for its individuals. The economy of Canada has various special features, which makes it way different from many other economies in the world. This term paper would focus on the economy of Canada after the recession during World War II (WWII). The researcher would elaborate on the desired topic of discussion on the basis of several academic journals and scholarly references. Then, the researcher would stress on the empirical validation of the literature review. The learnt from the paper would help to analyze the history of the economy of Canada after WWII. WWII The WWII was a global war that had lasted from 1939 to 1945 (CIA, 2013). It is also known as the Second World War. The war took place between the Axis Powers (Germany, Japan and Italy) on one side and the Allies (France, United States, Soviet Union and part of China) on the other. There were various social, political and religious reasons that had caused this historical warfare. However, it would be interesting to note that the war had brought in various changes in the economy of these countries. For instance, there was a hike in the rate of work force participation of women in these economies after the WWII. However, the paper will only consider the economical history of Canada after the incidence of WWII (Graham & Smith, 2013). Critical Analysis of Literature It is always believed by the economists that wars are harmful to the economic system of any country. It is true that the emergence of a war in a country not only drains out its financial reserves but also dampens the economic growth of the nation. This is the reason for which severe wars are always associated with heavy recessions in the global economies. Thus, at the first instance, it can be stated that WWII has caused a severe recession in the economy of Canada (Brian & Vane, 2002). The economy of Canada had faced a blow through the low levels of production, job losses, public budget deficits and bankruptcies after the WWII. Figure 1: Volatile Performance of the Economy of Canada (Source: Yalnizyan, 2009) The economic performance of a nation can be analyzed by the level of its Gross Domestic Product (GDP). It is the value of the final goods and services produced within the domestic territory of a nation. The above graph shows that the GDP of Canada has always shown a steep decline at times of economic recession. Thus, after the recession in the economy of Canada, the gross domestic product of the country had fallen down sharply. This means that all the other national income aggregates of the nation had also dampened at this point of time. About ten years before the WWII, in October 29, 1929, the New York Stock market had crashed suddenly. This had also diminished the performance of the Canadian stock market. The underlying causes for this exponential fall in the share values in the stock markets were: Extensive speculation in the stock prices. Stocks purchased on credit. This is the reason for which the productive business investors in Canada had become highly cautious about investing money in the country. Thus, post-WWII, many risk averse investors did not desire to invest money in the nation for their various types of productive business projects. Figure 2: Falling Private Investments in Canada (Source: Graham & Smith, 2013) The above line graph clearly shows the falling amount of private investments in Canada after WWII. The private investors in the nation became lesser of risk lovers. They feared that the stock value of their invested projects could drastically fall at any point of time. Thus, the increasing uncertainty in the stock market for the country was responsible for the fall in the level of its private investments. The fall in the level of investments had negatively influenced the national income aggregates of the nation. This was because a lower level of investments made in the nation, in turn lowers the aggregate amount of national products produced in the country. However, it should not be ignored that the government of the country had started to take active measures to improve the affected economy of the nation. The government of Canada had incorporated active expansionary policies in the country to foster its dampened economic situation after WWII. Figure 3: Rising National Expenditure in Canada (Source: Case Study) The above graph viewed from the academic perspective, clearly shows that post-WWII, the government of Canada had taken active measures to widen the level of expenditures of the country (1945 onwards). In order to undertake the strong expansionary fiscal policies, the government of the country has to adopt three ways through which it could acquire higher revenues. These were: Borrowing Taxing Printing Money It was found that during the periods of wars and recessions, the national debt of Canada had increased sharply. However, after the recession during WWII, the national debt of the nation had started and continued to fall until 2009. Figure 4: National Debt of Canada (Source: Graham & Smith, 2013) The above line graph clearly shows that the national debt of the country had started to decline after the period of recession after WWII. In Canada, the war had pushed up the level of government expenditure from about $566 million to about $4.9 billion in 1944. However, after the war, the fall in public debt in Canada was caused by the decline of the gross level of government expenditure from $12 billion to about $1.4 billion. It was found that after the war, the majority of investments in Canada were made by the government in the capital formation sector. From 1944 to 1954, the level of infrastructure of Canada had developed by almost ten folds. It was also found that the level of exports in the country started to fall after the occurrence of WWII. The main reason for this was the growing domestic demand of the country then. The level of domestic demand in Canada had started to increase because of the rising population of the country over the time span (Ansari, 1993). The monetary authorities of the nation had lowered the level of interest charged on the loans sanctioned for the investments by the private sectors. It can be stated that the uncertain situations and crises in the economy of Canada during the WWII was responsible for the growth of its economy in the later stage. With the benefits of the low interest rates, the productive capacity of the private investments had actually started to grow at this point of time. The thresholds of income, employment and infrastructure in Canada had started to improve after the recession. It was also found that the economy of Canada then had experienced a higher level of social welfare expenditures that was incurred by the government. Even the healthy status as well as the level of unilateral payments in the country had started to rise up sharply after WWII. At the time of the Vietnam War, the productive resources and materials level in Canada was able to expand by associating with the U.S. economy that also desired to expand at that time of war. In 1970s, the economy of Canada had experienced a rise in its level of unemployment and inflation associated with the rise in the price level of most of its goods and services produced in the nation. The underlying cause was the oil price shock in the nation. It was found that the economy of Canada had started to expand with respect to the impending inflation, ignoring its rising level of unemployment. The proportion of women in the aggregate labor force in the nation had also started to rise then. After the WWII, the contribution of women in the aggregate income level of the country had started to rise in Canada. It was a point of time when the private sector of the country had begun widening and the level of exports in the nation also increased from 22% in 1970 to 28% in 1980. In the later stage from 1980 onwards, it was found that the economy of Canada was facing high double digit inflation. This inflation was associated with the rise in the interest rates and a high control on the wage rates in the country. As a result of the inflation and the lower wage rates, the gross consumer spending in the economy of Canada had also started to fall. At this juncture, the high expenditures by the government and the lowering level of income thresholds were responsible for the mounting budget deficit of the country. As a result, the long term growth of the country that was experienced after the WWII had declined by almost 6% after 1980s. The country had fought for its recession in 1980 through the introduction of the Free Trade Agreement with U.S. Then with the emergence of globalization in 1990, the fiscal and monetary policies of Canada were altered and it could place itself as a developed country in the global market. Thus, by only focusing on the economic situation of Canada after WWII, it can be briefly stated that the economy of the nation had improved on lines of productivity and technology. Figure 5: Imports and Exports of Canada after WWII (Source: Yalnizyan, 2009) It can be stated from the above line diagram that the level of imports and exports had started to fall in the economy of Canada after the WWII. However, after 1961, the level of gross exports and imports of the country also grew. The underlying cause was the high value of the currency of the country and the high prices of oil produced in the nation after the war. However, it should be noted that 1991 onwards, there had been a steep rise in the level of trading thresholds of the nation, which is due to the emergence of globalization and liberalization (Wisman, 2005). Figure 6: Household Spending in Canada after WWII (Source: Yalnizyan, 2009) The level of household spending in a nation is a perfect indicator of its per capita income levels and its per capita savings rate. Again, the aggregate savings rate of a nation explains the growth of investment levels in a country. It can be said the lines of household spending in figure 6 and that of private investment levels in figure 2 in Canada, do share common trends. It can be observed that the level of household spending in the economy of Canada had fallen sharply after the war. This is due to the low level of private investments and the lack of overall finances in the country then. Over time after 1946, the gross households spending in the country have increased. However after 2008, the spending of the Canadian consumers on non-durable goods and services like, rents and food has declined. On the other hand, interestingly after 2008, the level of durable goods consumption has increased significantly in Canada. This shows that over time, the country have augmented the level of living standards of its individuals (Tome, 2004). Figure 7: Unemployment Structure of Canada after WWII (Source: Yalnizyan, 2009) The above graph states that the level of official unemployment in Canada was high during 1926 to 1936. This was due to the collapse of the stock market in the country. The contraction in the level of gross production in the country (due to lower level of investments) was responsible for the fall in the nation’s total job opportunities. However, it can be observed that after the period of 1936, the level of unemployment in the country had started to fall due to the rising government expenditures in the national productive projects. After this period of time, the gross level of unemployment in the country was highly volatile but it did not rise like before again (Boothman, 2011). Figure 8: Labor Force of Canada after WWII (Source: Yalnizyan, 2009) It was found that the high level of unemployment in the economy of Canada then was due to the small labor force of the nation. The nation experienced a small labor force because of low female participation in the job market of the nation. “The Reserve Army” was the large pool of female individuals in the nation who had proper educational skills but contributed nothing to the gross national income the country (Yalnizyan, 2009). At the end of WWII, about 340000 soldiers who were in the war front had begun to work and augment the level of labor force in the nation. However, with time, the aggregate amount of labor force in Canada had started to fall and the primary reason for this was the rising wage rates (Armstrong, 1998). Figure 9: The Male-Female Contribution in the Workforce (Source: Yalnizyan, 2009) In the later stage in the Canadian economy post-WWII, it can be observed that the proportion of women in the gross workforce of the country had started to increase and in contrary, the proportion of male labor force was seen to fall significantly. This shows that female workers were more interested to work productively in Canada than the male workers. Figure 10: Imperative Work (Source: Yalnizyan, 2009) The situation was exactly the same (as stated in the above context) in the economy of the country on the grounds of imperative work field. However, 2000 onwards, the workforce participation rate of men as well as women in the country had started to increase in Canada. Figure 11: Personal Savings in Canada after WWII (Source: Yalnizyan, 2009) In Canada, the level of personal savings had fallen drastically after the WWII, which was due to the fall in the employment levels and disposable income levels. The low level of savings in the nation was also responsible for the falling private investment levels in the country during this period (Oberholster, 2010). Figure 12: Rising Thresholds of Self Employment (Source: Yalnizyan, 2009) After 1970, there has been a rise in the percentage of self-employments in Canada (Ge & Peng, 2012). This was because the opening of the economy of the country in the global market had encouraged the individuals to promote new self-owned businesses (Blyton & Goodman, 1990) Figure 13: Proportion of Unemployment with no Jobless Benefits (Source: Yalnizyan, 2009) In Canada, it was found that the number of individuals who had benefitted from the government was more than the total number of unemployed individuals. This is because many employed individuals in the nation had received benefits from the government. Considering the above graph, it can be stated that the fraction of folks with unemployment benefits has never been low in the economy of Canada after 1945 (Samuels, Biddle & Emmett, 2005). Key Findings The key findings that can be summarized after conducting a research on the brief history of the economy of Canada after WWII are: GDP: A sharp fall in the GDP of the country in 1945 (WWII). After this period, the GDP of the nation has experienced long term stability, with fluctuations in the short term. Private Investments: A steep fall in the level of private investments after 1945 (WWII) till 1975. With a rise in the level of investments till the early 20th century, the investments of the nation start rises post-2010 again in the country. National Expenditure: The levels of expenditure by the government of Canada have increased significantly over years. National Debt: From a level of 122% in 1946, the national debt of the country has fallen and again reached its peak in 2012 with a debt burden of 105%. Imports and Exports: Imports and exports of the nation fall till 1960 after WWII. In the later stage with the benefits of international trade, the level of imports and exports in the nation has risen. Housing Consumption Expenditure: Here the level falls till the end of WWII. After the war, the household expenditure in the economy rises and exhibits long term stability with short term fluctuations. Unemployment: After the WWII, the economy of Canada had experienced a high rise in its level of unemployment. Labor Force: The gross labor force of the nation had started to rise after WWII. However, the rise was subjected with high fluctuations in the short run. Male-Female Contribution in Work: The proportion rate of females in the workforce had started to increase in relation to the male work force participation rate (Cardinali, 2002). Personal Savings: The level of personal savings in the economy had fallen till 1960s but then had experienced a growth until its collapse after 1980. Self Employments: The strength of self employed individuals in the country has increased with time. Unemployed with no Jobless Benefits: The number of individuals with zero jobless benefits had not been low in the nation. Conclusion The economy of Canada have experienced various recessions since WWII but the strong public sector of the nation has undertaken strict strategies which has helped it to prevent the collapse of its economy. The private sector of the nation has significantly reduced its contribution after the WWII. However, the expansionary fiscal and monetary policies of the nation had helped to regain the confidence of the investors in the economy of the country. The wars had caused the biggest down turns in the country but they were the underlying factors which had facilitated the strong growth rates of the nation in the later stages. For instance, during global financial crisis, when many economically affluent nations were facing severe economic slump, Canadian economy was the only one who could survive the critical situation. The financial sector of the country had even endured the Subprime Meltdown of the global economy. The Canadian economy has been subjected to almost eleven recessions over time. Despite all the turmoil in the external markets, the economy still stands as a prominent market system in the contemporary world. References Ansari, M. I. (1993). Testing the Relationship Between Government Expenditure and National Income in Canada, Employing Granger Causality and Cointegration Analysis. Managerial Finance, 19(7), 31 – 46. Armstrong, S. (1998). Work, Womanpower, and World War II. Reference Services Review, 26 (1), 31 – 36. 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