What Kind of Economy Does Canada Have?

In these days when we have heard so much debate about private enterprise, it is interesting to observe that Canadians have gone in for public enterprise much more than we have.

When the Dominion was first formed, the federal government undertook to build and operate a railway that would unite the Maritime Provinces with Central Canada. As a business proposition it did not pay, it could not pay, and it was never intended to pay. It was a great public work to draw the country together.

Similarly when the Dominion acquired the country west of the Great Lakes out to the Pacific, the federal government undertook to provide a railway that would tie the West to the East—the Canadian Pacific Railway. It too was started as a government concern, and though later turned over to a private corporation, it had to be heavily subsidized by the government. Otherwise private capital would not touch it.

In both these early ventures the Canadian people and their government were giving bold recognition to the fact that the profit motive was not sufficient to meet the needs of the nation.

Today there are only two railway systems in the country, both operating from the Atlantic to the Pacific. One is the privately owned Canadian Pacific (17,058 miles). The other is the Canadian National (22,586 miles), which is owned and operated by the federal government.

You may have heard this railway cited as convincing proof that public ownership does not pay. But one can just as truthfully argue that it proves the failure of private enterprise. Most of it, the rest being what the federal government had built and operated, is made up of the wrecks of private undertakings: railways that had become heavily mortgaged to the government and then had gone broke. Not from choice but out of necessity—national necessity—the government undertook this enormous extension of public ownership.

Moreover, the Canadian government owns and operates one of the two telegraph systems of the country, one of the two big hotel chains, and a fleet of steamships. They were all taken over when the railways were nationalized—for Canada, in contrast to the United States, has not believed in divorcing these lines of business.

They seem to like it

Public ownership and operation of other utilities is also common in Canada. The “Hydro” Commission of the Ontario government has long supplied at cost most of the power consumed in the province. Its success stimulated the development of provincial and municipal power systems throughout the country, particularly in the West. In that part of the country the telephone systems have also been commonly public enterprises from the time they were first installed. The same has been true of municipal transportation.

Perhaps stranger still to us is what happened when prohibition was repealed in Canada—a decade before we repealed it, because in Canada the constitution was not involved. The Canadians refused to restore the old private liquor traffic. Instead, each of the provinces established a public monopoly, with conveniently located government stores selling liquor only in containers for consumption off the premises. Unlike most other government businesses in Canada, which have been operated to serve the public at cost, this one has been run for profit—and the profits have been very large.

During the 1930’s the Dominion government entered two other fields which we Americans also usually regard as within the proper domain of private enterprise: radio and air transportation.

The Canadian Broadcasting Corporation (CBC) of the federal government owns and operates the only national chain of stations in the country. There are still 100 private stations; but these are supervised by CBC, and their total power is scarcely more than a quarter that of CBC stations. There are also private airlines in Canada, but the only national system, operating from Atlantic to Pacific is the federal government’s Trans-Canada Airlines.

The motive behind these latest government enterprises was the same as that which had prompted the federal government to build railways. National unity had to be promoted in the face of the sectional pull exerted by our country. Canadians believe the result has justified the effort.

Our major political parties may differ somewhat on the issue of government versus private enterprise, but the corresponding parties in Canada do not. The Conservatives have been just as responsible as the Liberals for all this development. As a rule, Canadian public enterprises in the economic field are kept out of politics.

What did World War I do to Canada?

The depression taught the United States, rather painfully, how much our economic welfare is bound up with that of the rest of the world. But Canada is three or four times more dependent upon foreign trade than we are. It cannot help itself. Nature is responsible for the situation.

During the opening years of this century, the mainspring of Canadian prosperity was the rapid development of the Prairie Provinces. People were rushing in to build a whole new society on a foundation of wheat. It was a fat land, best suited to the production of this king of all grains.

Industrial Europe was willing to pay a profitable price for all that the Canadian prairie could supply. Wheat poured out of the West and across the Atlantic. The Dominion became one of the world’s chief exporters of wheat.

When World War I jumped the prices of food fast and far, the Canadian West almost doubled its wheat acreage and increased its livestock by a third. War demands caused an unprecedented exploitation of the country’s forest and mineral resources also-in British Columbia, in northern Ontario and Quebec, and in the Maritimes. Yet of all the extractive industries, agriculture still supplied the great bulk of Canadian exports.

Another industry, however, was catching up and at the end of the war accounted for more exports than agriculture. It was manufacturing. World War I made the Dominion one of the leading manufacturing countries in the world and transferred to Canadian ownership much of the foreign capital invested in the country.

World War I had yet another important effect. Up to this time the external economic relations of Canada had been chiefly with Britain. Thenceforth they were with the United States. We got more than half the Canadian trade, and New York replaced London as the money market in which Canada was most interested. It was then that American investments in Canada began to be heavy.

Between the wars

The 1920’s saw further important changes in the national economy of Canada. British Columbia became a great exporter of lumber. Much more important was the gigantic expansion of its pulp and paper industry to meet the demands of the Orient as well as of the United States. Greater still was the development of mining and smelting in that part of the Dominion. The immense power required by these new industries was got by harnessing the tumbling rivers to provide electricity.

The same kind of development, only much more of it, took place in northern Ontario and Quebec—on the Pre-Cambrian shield. This development was highly important to the prosperity of Central Canada, which then became more industrialized that ever. It supplied these provinces with a new mainspring to replace the old one that was pretty well worn out—the expansion on the prairie. The products of the new North were almost all exported, and most of the income they brought back was spent in the protected domestic market.

The new pulp and paper plants, smelters, and hydroelectric developments required huge capital expenditures. Where did the money come from? Some from the United States, but relatively little. Most came from Canadian savings. The ownership of the country’s wealth was more than ever concentrated in Central Canada, and there chiefly in Montreal and Toronto.

Centralized financial control did not mean a greater unification of the economic life of the Dominion, however. When the prairie was the one great area producing for export and the market was across the Atlantic, the main movement of the country’s trade was transcontinental. It bound eastern and western Canada together. Now there were two new important export areas. Their trade flowed north and south, for their principal market was in the United States. So the new movement of trade made for regional independence instead of the interdependence that the old movement had promoted.

In one fundamental respect the Canadian economy was still the same. Though the country had added two baskets (pulp and paper, and metals) to its one (wheat), all three baskets still had to go to market outside the country. Canada could not escape from its vital dependence on foreign trade, and in a way this dependence was greater than before. It was extended beyond the prairie, where the alternative was wheat or subsistence farming, to other big regions, where the alternative was worse. There it was lumber or nothing, pulp and paper or nothing, nonferrous metals or nothing.

The depression which began in 1929 hit Canada much harder than the United States, for the prosperity of Canada was much more tied up with international trade. The provinces that suffered most were the Prairies, for the collapse of the grain market shattered the foundations of their economic life. A great readjustment then began, at first slowly and then more rapidly. It was a shift from wheat to mixed farming. The result was that western Canadian farmers got a lower income than before. But they were also less dependent on world conditions.

Canada's Production

Agriculture : $742,020,000 (1938)...... $1,691,540,000 (1942)

Forestry: 244,564,571.....429,079,260

Trapping: 6,572,824.....23,801,213

Fisheries: 35,593,009.....64,821,702

Electric Power:  142,320,725.....200,345,240

Mining: 374,415,674.....514,109,951

Manufactures*: 1,428,286,778.....3,309,973,758

Construction: 176,661,077..... 310,917,190

Custom & Repair: 99,086,100.....139,349,000

Total: $2,974,673,454.....$6,258,464,613

* Includes sawmills, pulp and paper mills, etc., which are included in the other headings above. This duplication amounts to $274,847,304 in 1938 and $425,472,701 in 1942 and is eliminated from the grand total.

What now and in future?

By the time World War II broke, Canada, like our country, had pretty well recovered from the depression. As the first war changed us from a debtor to a creditor nation, so the second World War changed Canada into one of the three or four creditor countries of the world. Once again the prairie prospered greatly. This time, however, barely a third of its total production was wheat. Feed grains took its place, for there was a great swing to livestock (beef and pork), dairying, and poultry.

As before, however, most of the production was for export. This of course revived the problem of markets at the end of the war, for Canada cannot begin to consume the food that its West is capable of producing.

This is equally true of other main lines of production. The war caused an enormous expansion that put Canada in top position among the nations of the world in production of nickel, newsprint, asbestos, platinum, and radium; second in gold, aluminum, wood pulp, hydroelectric power, and the building of cargo ships; third in copper, lead, and zinc; and fourth in the production of war supplies for the United Nations—that is, in manufacturing.

Most of us have little idea of the huge size of some of these Canadian industries. Take newsprint, for example. Canada has a mill capacity four times that of any other country. It is equal to the combined capacities of the United States, Britain, Norway, Sweden, and Finland. Canada can use only a small percentage of the newsprint turned out by its mills. We produce no comparable surplus, not even of cotton. And newsprint is only one of many surpluses that Canada must export if it is to maintain its standard of living.

All this means that Canada is very much more interested than we are in getting the freest possible international trade in peacetime. We talk of that as something desirable, but Canadians see it as a necessity.