Canadian Economic Growth - Essay Example

INTRODUCTION According to Aitken (1959), in modern Canadian history, the periods of rapid growth have been three in number; the decade of the 1850's, the years from 1900 to 1913, and the period from 1939 to 1959. The author asserts that Canadian economic growth has always resulted from external pressures and opportunities such as colonial relations with Britain and rivalry with France and Spain on the European side and the United States on the North American continent. Taking this observation further Innis (1956) says that Canada is an ideal location for export of primary products or "staples" to Europe. However, this paper will examine the period between 1870 and 1914 in its entirety when Canada, bearing the fruits of a century old network of waterways augmented by the introduction of the Grand Trunk road and railways, experienced phenomenal economic growth despite many hurdles like the depressions of 1870s and 1890s, severe drought early twentieth century and the World War I. Canadian economy in general flourished during the period in question and even later on because it realized and responded positively to external opportunities and pressures; on the domestic front it improved inland transportation, allowed immigration developed an atmosphere for enterprise and imported technology from Europe leading to a steady growth of an economic infrastructure. One may argue that compared to Europe, the Canadian economic structure had peculiar characteristics comparable only with Australia. Canada has a small population living in an area which is endowed by the nature with plenty of raw material in high demand in Europe. Since there was no government emphasis on and efforts to developing the manufacturing sector, the Canadian entrepreneurs could focus on staples export to Europe and America. After the Confederation was announced in 1970, Canada found itself in the throes of breaking away from British political influence yet having to depend on it for the sale of its staples and import of manufactured goods. It had to set its own policies as a quasi-independent country even when it cannot shrug off the mainly European heritage. This was also a period when Europe itself was passing through the epochal period of industrialization and attendant socio-political change. The cultural difference between the people who ran Canada (such as British and French) and the changing geographical aspects impeded a uniform growth in economy. For instance, if the growth was propelled in some regions by the export of staples to Europe, in other regions domestic progress fueled the economic growth. Also, the progress at the national level varied from one period to the other. One aspect of Canada's economic growth is also stated to be a combination of dependent and independent progress working in coordination yet historians have been able to distinguish periods when economic growth was dependent and when it was independent. Therefore, studies of Canada's economic history revolve around H. A. Innis who proposed the development of staples export dependent on Europe and John Rae who was in favour of an independent model of growth. There are many versions of the staple theory proposed by Innis during the nineteenth century and of course many off-shoots of the independent John Rae's economic theory including the Nationalist School in the nineteenth century. But according to Neill, "the political fractionation and geographical expansion that constituted Confederation eventually tipped the balance, for Canada as a whole, in favour of growth dependent on primary product exportshowever, between 1866 and 1896, the central Canadian economy grew at a steady pace, unaided by any significant expansion of staple exports." (Neill, 1991) At a time when Canada enjoyed good relations with Europe especially in terms of trade, it was faced with a threat from the United States which viewed Canada as a weak British colony. Table 1: TRADE OF CANADA WITH VARIOUS COUNTRIES DURING 1886-1955 Year Total($ millions) U.S. U.K. 1886 96.0 44.6 40.7 1901 177.9 60.3 24.1 1911 452.6 60.8 24.3 1921 1,247.2 69.0 17.3 Source: Canada Year Book, 1956, p. 968. "The nation that today is Canada has never been master of its own destination; a satellite staple-producing economy, it reflectedin its rate of development the imperatives of more advanced areas." (Aitken, 1959) It has been argued elsewhere that the American fear of taking over Canada was an important motivating factor which did not happen immediately after the Confederation, but the post-World War II relationship between Canada and America clearly shows that the former is now heavily dependent on America in terms of investment and business. Consider the pulp industry where Canada is the only major supplier to the American paper industry. Thus, one may argue that the US threat was an important factor which also served as a healthy competition between the two countries. Normally the Canadian reaction to external pressures has been defensive in nature; the creation of a Canadian nation and of a Canadian economy in the second half of the nineteenth century was in fact the result of deliberate policy decisions taken to counteract the threat of absorption by a larger political and economic unit, in this case the United States. (Aitken, 1959) The civil war in the United States created a huge demand for Canadian raw material especially wheat and timber and the development of Canadian railway facilitated easy transportation to US destinations. The Canadian American Reciprocity Treaty signed in 1855 by Britain on behalf of Canada proved profitable in the sense that on the one hand it enhanced Canada's export and on the other hand it counterpoised the threat of American take-over. For decades afterwards Canadian economists saw the period following the treat with the United States as the golden years for the Canadian economy. Canadian exports to the United States grew by 32 percent after the treaty, while Americans exports only grew by 8 percent although later one trade doubled between the two countries. Classic Canadian political economy, often called Innisian political economy, is marked by Harold Adams Innis' key studies The Fur Trade in Canada (1970) originally published in 1930 and The Cod Fisheries (1954) originally published in 1940. Innis' (1956) so-called "staples thesis" contended that Britain developed Canada basically to exploit the raw materials for export to metropolitan nations mainly including Britain, France and Spain. Canada as a colony did not have a manufacturing base that could make use of the abundant raw material and pose a threat to European nations as exporter of manufactured goods. The Canadian staples were divided into commercial (fish, fur, placer gold and square timber) directed to the European market and industrial ones (pulp and paper, minerals, energy) directed to the United States. Staples required infrastructures such as transportation (canals, railways, ports, and pipelines), financial infrastructures (banks and insurance companies) and an active state in promoting these commercial developments. According to Clement (2001), Innis' insight was into linkages between staples and other developments, most notably backward linkages to the instruments of production, forward linkages to resource processing and demand linkages with servicing society. Among other factors that contributed to Canadian economic growth, low population levels right from 1871 up to 1921 offered the administration to focus on export and import. In 1871, the Census of Canada recorded a population of around 3.7 million scattered all over the country and only 20 percent concentrated in urban centres. (See Table 2 below) Table 2: CANADA'S POPULATION (1871 - 1921) Year Total Population DISTRIBUTION (Percentages) Urban Rural 1871 3,689,000 19.5 80.5 1881 4,325,000 25.6 74.4 1891 4,833,000 31.8 68.2 1901 5,371,000 37.5 62.5 1911 7,207,000 45.4 54.6 1921 8,788,000 49.5 50.5 Sources: Census of Canada, 1951 and 1956. One of the important factors that led to the development of the prairies in west of Canada was clearly the Dominion Lands Act of 1872. It was based on the United States Homestead Act with a difference that while the Canadian system allowed farmers and developers to buy the neighboring land, the United States system did not thus the result was that the Canadian system proved successful compared to the United States. Under the Act any farmer who agreed to cultivate at least 30 acres and build a permanent dwelling could buy land around 160 acres for an extremely low price of $10. According to historian, large scale migration to the western prairies began only in 1896 probably because when the recession hit Canada soon after Confederation which impacted on the urban centres as well as the transportation which had become the main source of income for many Canadians, most migrants moved to the United States. Also, the Act was discouraging for many farmers who saw the 20 miles distance from the rail track clause as an impediment to profitable business. They moved in large-scale only when the government reduced the distance to 10 miles eventually removing the clause altogether. Transportation has been of basic importance to Canadian economic growth so that it determined the type of growth paradigm and the political structure. The waterways offered Canada a unique setting whereby it was able to export badly needed raw material to highly industrialized Europe, especially Britain of which it was still a colony and import on manufactured goods. Below is a general introduction of Canadian transportation in historical perspective highlighting its peculiar characteristics compared to Europe. According to Innis (1956), it was the waterway network and the types of vessels which facilitated the economic shift to staple export. Of greater importance was the development of ships adapted to cross the Atlantic from the European ship-building industry which had gained significance as a result of pursuing a competitive colonialism particularly of Britain. It must be mentioned here that these adaptations or developments in ship building are not related to the period under study, but it is related to events in the sixteenth century when longer voyages in open and uncharted seas were crucial for discovering commodities for trade and selling them in Europe was deemed to be one way of economic growth. While the European ships sailed as far as India and China in search of tea, spices and opium, their ventures across the Atlantic resulted in "importing" cod fish, fur, lumber and wheat. As the dry fish trade developed and the English traders penetrated into the land beyond the shores they discovered fur which was again in great demand in Europe. However, transportation from the land source to the shores of Canada required another mode of transportation and in-land waterways such as lakes, tributaries, canals and rivers were developed which were really facilitated by the favourable terrain, for instance, the Precambrian formation which offers a steady level. The main water courses are the St. Lawrence waterway and the Mackenzie. The three modes of transport ships, boats and canoes allowed traders to penetrate deep in the entire North America. "Water transportation established over decades facilitated the trade of furs throughout the Precambrian area and beyond, but the efficiency of technique determined the routes to be used. The ocean ship to Quebec, the large boats to Montreal, the canot de matre to Fort William, and the canot du nord to the interior, assisted in the later period by the vessels on the lakes, proved unable to withstand the competition from the ocean ship to Nelson and the York boat to the interior." (Innis & Innis, 1956) The disappearance of fur around 1821 from the St. Lawrence basin was accompanied by the rise of lumber as a staple export. Sail ships were largely replaced by steam ships which effectively increased the up-stream transportation of manufactured goods and labour. But when steamships did not fulfill the demands of trade, roads came along including the grand trunk in 1858 and railways: the first railway was plied between Toronto and Collingwood in 1854. National Policy introduced by the then government in 1872 aimed at extrnsive growth and economic diversification. It was basically in reaction to the US threat of expansion and as a result taking over Canada. What this policy sought to achieve was an attempt to emulate the American industrial paradigm. Another aspect of the National Policy was to expand the territory of the country thus the settlement of the prairies of the west which came through as a result of the Land Dominion Act and extension of transportation in those regions which were taken over from the First Nation people. This policy later followed by successive government also came to be know as "Defensive Expansionism." The three main tenets of Defensice Expansion were increase in tariff, improvements in the infrastructural facilities (including transportation) and an open immigration policy. Canada encourage immigrants from many European as well as the United States. In 1871, soon after Confederation which one may argue was effected by the economic success, a uniform currency replaced the various currencies and the barter system which was popular among traders. "The first person to make paper money was said to be a captain at Detroit, who issued small bills and agreed to pay them years after date. During the Revolutionary War, a number of trading houses issued money." (Innis, 1935). And a year later, Prime Minister John Macdonald's parliament passed the Trade Unions Act followed by the formation of the Canadian labour Union. This heralded the beginnings of an organized labour force and a working environment at par with the advanced society of Europe. Just before the World War I Canada's economy was already drained by lower wheat yields because of drought. More than 60,000 people had lost their jobs in the railways because of massive debts. The construction industry shrank because of lack of capital. However, the overall economy improved in the later years of the war as favourable weather resulted in better wheat yields which was exported to Britain in large quantities and a large number of people found jobs in the military as soldiers and nurses. The government under the War Measures Act created the Imperial Munitions Board which by 1916 became the largest employer. Maritime shipyards manufactured submarines and over a hundred plants across Canada produced airplane parts. The result ran in full swing to manufacture submarines, and there were more than 100 plants across the country producing airplane parts. As a result unemployment virtually disappeared, and shortages of labour were felt bringing in a large number of women into the work force. However, the war impacted on the financial resources of Canada mainly derived from customs duty on imported goods, in that, one year into the war the government was spending its entire budget on military efforts. In order to bridge the deficit, government adopted measures like issuing bonds and posing taxes which became a permanent feature of Canada's economy. When the war ended in 1918, the auto plants prospered but the chemical and steel factories were forced to shut down because of low demand for goods and services. Overall, Canada's economy returned to pre-war level after the war ended. During the late 1850s thousands of people from different countries rushed into the remote areas of British Columbia lured in by the discovery of gold thus prompting the British government to create an administrative setup. By 1863, some 33,000 miners majority from California discovered gold worth four million dollars. A miner could make several hundred dollars a day, when the average daily wage was few dollars. The British Columbian gold Rush brought an increase in population as well as wealth which in turn spurred development of wagon roads, the first bridge and related services industry. Gold rush played an important role in the creation of the province of British Columbia. As discussed earlier, Europe offered a huge market for Canadian staples for the reason that at that time it was in the throes of an economic instability in terms of the rise of Marxist ideology leading to the formation of socialist and communist parties and a shifting loyalty from monarchy to the nation-state. This in turn also changed the socio-economic conditions in that the new awareness that came as a result of the renaissance altered workers' and peasants' attitudes towards owners and the whole economic system. The events leading up to the Bolshevik Revolution and its impact all over Europe may have had a devastating effect on the economic growth of many European countries. In that sense, Canada was so far away from the effects of change that it could concentrate on developing the new paradigm for its economic development. In other words, the political stability which one may argue was affected by its relations with America which viewed Canadian territory as essentially British territory, provided an ideal situation for the economic achievements gained by Canada. Conclusion Canada experienced high growth rate in the late nineteenth and early twentieth century because of the following factors: a) a positive response to external opportunities offered by European nations: high demand for raw material or what some historians have called "openness" b) economic focus on export of raw material, or staples (fur, cod, lumber, wheat and pulp) rather than development of manufacturing industry whereby Canada could earn more profit but it would invite restrictions from the European manufacturing nations. c) dwelling on the waterways developed over decades, it invested on further improving them to transport the raw materials to sea ports. the overarching reason for the successful export of commodities to Europe is arguably the development of inland transportation and communications which included the railroads and steamships but also the rivers which augmented the system. This seems to be the most important reason for Canada's economic growth. According to Innis (1959), an effective transportation network was crucial for the new economic paradigm to succeed and it was dependent on the evolution of ships adapted to crossing the Atlantic. Water transportation, which had been the first priority in the growth of European civilization in the sixteenth century, made it possible for trans-Atlantic transportation of goods. These voyages in the late 19th and early 20th century continued for the acquisition of staples from Canada where they were initially available in large quantities within short distances from the sea shore and later on with the help of the inland transportation, raw materials far into the inlands also became accessable. d) demographic factors such as low population and the government's decision to allow migrant labour which bolstered the local labour force facilitated the collection and transportation of the staples e) fear of American take-over served as a motivating factor. f) Canada experienced political stability throughout the period. Two phases of rapid growth are identified as the 1850s decade and the years 1900 to 1913. The periods in between were those when the country made adjustments to the changing environment. References Aitken, H. G., Deutsch, J. J., Mackintosh, W. A., Barber, C. L., Lamontagne, M., Brecher, I., et al. (1959). The American Economic Impact on Canada. 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