Econ 2K03 PDF - Confederation and National Policy

Chapter 10 - Confederation and the National Policy The Road to Confederation  Prior to Confederation, the Canadas (Ontario and Quebec) functioned like a customs union with a common external tariff but no unified tariff structure among the colonies.  Nova Scotia (NS) and New Bru...

Chapter 10 - Confederation and the National Policy The Road to Confederation  Prior to Confederation, the Canadas (Ontario and Quebec) functioned like a customs union with a common external tariff but no unified tariff structure among the colonies.  Nova Scotia (NS) and New Brunswick (NB) were pro-free trade, while the Canadas and Prince Edward Island (PEI) were against it, fearing loss of trade with the U.S.  The Maritimes were opposed to the high tariff structure in the Canadas and proposed their own union before the Canadas joined.  All colonies were in deep debt due to expenditures on canals and railways.  Britain began losing interest in defending the colonies, while the colonies wanted to secure the west before the U.S. did.  Newfoundland showed little interest in Confederation, while merchants in the Maritimes feared higher tariffs and neglect of their needs.  Central Canada was the main driver of Confederation, with businesses confident they could capture the Maritimes markets and develop the west.  Promises made to the Maritimes included a railway and the assumption of provincial debt by the federal government.  A series of conferences led to the drafting of the British North America (BNA) Act, establishing Canada as a nation, with Quebec and Ontario as the new provinces alongside Nova Scotia and New Brunswick.  On July 1, 1867, Canada became a Dominion with Sir John A. Macdonald as the first Prime Minister. The BNA Act  The BNA Act created a federal system of government with powers divided between the federal government (Ottawa) and provincial governments.  Section 91 outlines federal powers, including trade, taxation, postal services, defense, currency, and criminal law.  Section 92 outlines provincial powers, including property rights, education, and direct taxation.  Section 95 grants concurrent jurisdiction over agriculture and immigration, while Section 132 gives Ottawa power over treaties. Influences on the Early Canadian Economy   British precedents and the influence of Central Canada shaped early economic regulations.  The new tariff system followed the Canadas' structure, with duties on manufactures but reduced rates to appease the Maritimes.  The Bank Act of 1871 granted banks the right to issue notes of $4 or more, establishing national branch banking.  Ottawa had the power to tax through both direct and indirect means, with provinces limited to direct taxation.  Ottawa agreed to assume the provinces' debts at Confederation and make annual grants to offset fiscal gaps.  The goal was to create an economic union out of the BNA colonies, ensuring fiscal equity and economic development despite limited geography. Expansion  In 1870, Britain transferred the Hudson’s Bay Company lands to Canada, leading to the creation of the Northwest Territories.  Manitoba became a province in 1870 after an armed uprising led by Louis Riel, which resulted in the establishment of a new province with protections for the Métis.  The Dominion Lands Act of 1872 offered settlers land at $10 for 160 acres, but the land was often too far from transportation routes.  In 1871, British Columbia joined Confederation, with Canada promising a railway link to the east within ten years, completed in 1885.  The Klondike Gold Rush in the 1890s sparked population growth in the Yukon, which was separated from the Northwest Territories in 1898.  In 1873, PEI joined Confederation, after Ottawa took over its railway project. The National Policy 1879  By the late 1870s, Canada faced economic slumps, bank failures, and a lack of revenue, leading to the adoption of high tariffs as a solution.  Macdonald’s National Policy of 1879 aimed to protect domestic industry, build a railway, and settle the west through land and immigration policies.  The tariff system provided protection for Canadian manufacturers by keeping out foreign goods and lowering customs duties on raw materials and semi-processed products.   The railway was crucial to facilitating trade and settlement, with tariffs helping to fund railway deficits. Tariff Protection and Railways  Tariff protection created an east-west trade pattern, ensuring railway traffic and tariff revenues supported the economy.  The construction of the Canadian Pacific Railway (CPR) was critical for connecting the west to the rest of the country, with Chinese laborers contributing significantly to its construction despite dangerous working conditions.  Tariffs were linked with western expansion, encouraging domestic industry and facilitating the railway’s construction. Settling the West  The Canadian government adopted policies to settle the west, including land grants, railway land, and school lands.  Homesteaders could pay $6 an acre for land outside a 10-mile belt along proposed rail lines.  The government also promoted immigration from Europe and the U.S., with many settlers from Eastern Europe and the U.S. heading to Saskatchewan and Alberta.  By 1911, western Canada was producing over 90% of Canada’s wheat. The Prairie Wheat Boom (1896 - WWI)  The prairie wheat boom began in 1896 and was driven by lower transportation costs, increased international capital, new technology, and government support for land, immigration, and railway policies.  Ottawa subsidized rail rates to encourage settlement, and new wheat varieties like Marquis increased crop yields.  By WWI, the prairies were fully settled, and wheat became a central economic driver in Canada, with the production of wheat, oats, barley, and flaxseed growing rapidly.  The wheat industry’s success linked Canada’s economy, with Central Canada supplying goods and services to the west. Impact of Wheat and National Economy  Wheat exports helped pull Canada out of a recession and contributed to the development of a national economy.   The growing wheat industry created demand for machinery, consumer goods, and services, benefiting industries across the country.  The federal government’s grain policy ensured that grain moved east, rather than south, fostering trade within Canada.  Some scholars argue that wheat exports contributed only modestly to the increase in Canadian per capita income during the boom. Creation of Saskatchewan and Alberta (1905)  In 1905, Saskatchewan and Alberta became provinces, with the Dominion retaining control over their natural resources.  Wheat production created strong economic linkages to other industries, leading to a national economy. Chapter 11 - Manufacturing in the National Policy Years  Shipbuilding: o Peaked in 1864 (Maritimes), declined by 1896 due to the shift from wooden ships to steam and iron. o Shipbuilders stuck with wooden ships to cut losses.  Forestry Products: o 1873 international slowdown impacted exports to the US. o Increased domestic demand due to urbanization and industrial growth. o 1890s shift to unprocessed log exports, particularly to the Upper Great Lakes. o Embargoes on unprocessed logs (1891 in BC, 1898 in Ontario) boosted lumber exports. o Shift to paper production using cheap, plentiful spruce, ideal for pulp and newsprint.  Iron and Steel: o 1870: Iron production used imported iron or scrap. o Nova Scotia established blast furnaces, and 1899 saw the first steelworks in Sydney. o Ontario saw first steel production in 1900; Stelco formed in 1910. o Early 20th century: Four major steel firms dominated (Algoma, Stelco, Scotia Steel, DOSCO).  o Industry concentrated in Ontario and Nova Scotia.  Agricultural Implements: o National Policy tariffs spurred domestic production, with Ontario becoming a hub. o Major producers: Massey Company and Harris Company, which merged in 1891. o US-based International Harvester set up in Canada in 1902.  Minerals and Refining: o Post-1897, British investment focused on minerals, especially in BC. o Fuels (coal, petroleum) were key commodities, but coal dominated. o Nickel became important for steel production; International Nickel Company (Inco) formed in 1902. Issues in Manufacturing After 1870  High Costs and Inefficiency: o National Policy tariffs resulted in an inefficient manufacturing sector.  Replicating the US Model: o Canada's industry mirrored US production but with a small domestic market.  Foreign Ownership: o US firms set up branches in Canada to bypass tariffs. o Foreign ownership was not a concern until the 1970s.  Regional Manufacturing: o Manufacturing concentrated in Central Canada (Ontario), while outlying areas focused on primary resource processing. The Service Sector  Retail and Wholesale Trade: o Rise of specialized stores and department stores (e.g., Timothy Eaton's in 1869). o Department stores benefited from economies of scale, often bypassing wholesalers.  Banking and Finance: o Banks controlled over 70% of total assets by Confederation.  o By 1896, life insurance companies gained prominence. o Emergence of large branch banking systems and consolidation in the early 1900s.  Hydro-Electricity: o Development of hydroelectric power, including Niagara Falls projects. o By 1905, Ontario Hydro Electric Power Commission was formed as the world’s first publicly owned power authority. o Hydro development attracted industries and provided cheaper electricity, spurring economic growth. Government Services and Finances  Welfare: o Minimal government assistance; unemployment hardship seen as a moral failing. o Sickness insurance by friendly societies, and families supported aged members.  Government Finances: o Federal revenue mainly from customs duties (~80%). o No federal sales or income taxes during this period. o Provincial governments introduced taxes; BC introduced personal income tax in 1876. Labour  Unionism: o Early unions were local; from 1859, Canadian unionism became more international. o Knights of Labor, founded in 1869, became influential but eventually declined. o The Trades and Labour Congress of Canada (TLC) replaced the Knights in 1886, lobbying for labor reforms. Chapter 12 – WWI Canada During the War Pre-War Challenges  Economic slowdown by 1914, with wheat yields dropping due to drought.  50,000 job losses in railway-related sectors by 1915.  Decline in construction due to lack of capital. Wartime Economy  20% of Canada’s pre-war labor force joined the military (~600,000 men).  Labour shortages arose despite increased war production.  Canadian exports surged to 41% of GNP by 1917.  Government spending rose from 10% to 14.5% of GNP during the war. Financing the War Borrowing  Pre-war debt was small; domestic bonds raised $2 billion by war’s end.  Turned to Britain and the U.S. for funding but relied heavily on domestic savings. Taxation  1916: Introduced business profits tax.  1917: Temporary income tax; low collection due to limited payers.  Additional taxes on goods like tobacco and alcohol. Money Supply  Finance Act of 1914: Allowed increased banknote issuance and took Canada off the gold standard.  Money supply growth contributed to inflation but kept the Canadian dollar stable during the war. Manufacturing & Agriculture Manufacturing  Early struggles to meet British military standards.  1915: Imperial Munitions Board (IMB) streamlined production, creating a million shells monthly.  Shipyards produced submarines; airplane parts manufacturing expanded. Agriculture  Western farmers benefitted from high wheat demand and government price controls.  Eastern farms thrived on cattle, dairy, and bacon production.  Machinery and trucks improved efficiency; land values appreciated, especially in Ontario. Social & Long-Term Effects Workforce  Real wages rose; women entered clerical roles and war industries.  Women gained the right to vote federally in 1918. Economic Impact  Regional industrialization disparities: Central Canada grew while the Maritimes declined.  Urbanization and new infrastructure projects surged post-war.  Wartime debt led to persistent federal taxation to service pensions and allowances. Labour Unrest  Winnipeg General Strike of 1919, driven by unemployment, inflation, and poor working conditions.  Government crackdown on strikers, with arrests and violent suppression ("Bloody Saturday"). Chapter 13 – The Great Depression What Was Happening in the U.S.  1928: Contraction of money supply; high interest rates slowed construction and durable goods spending, leading to a mild recession.  Stock Market Crash (1929): o September/October: Disappointing corporate results led to falling share prices. o Black Monday (Oct 28): 13% decline in share prices. o Black Tuesday (Oct 29): Another major collapse. o Falling share prices eroded confidence and consumer wealth, causing reduced spending.  Banking Crisis: o By late 1930, 744 U.S. banks failed. o Bank runs and failures spread panic and drained savings. o The collapse of the banking system is viewed as the most significant cause of the Depression. Causes of the Depression in Canada 1. Overproduction and Expansion: Businesses overextended; demand couldn’t keep up, leading to layoffs. 2. Dependence on Primary Exports: 80% of Canadian exports were farm, animal, or forest products; declining resource prices caused economic contraction. 3. Dependence on U.S.: o Over 1/3 of exports went to the U.S. o U.S. tariffs on goods devastated Canadian trade. 4. High Tariffs: Efforts to protect local industries failed due to lack of export diversity. 5. Overuse of Credit: Canadians purchased on credit, leading to widespread debt when the market crashed. 6. Exhausted Investment Opportunities: Overinvestment in sectors like pulp and paper resulted in excess capacity. 7. Heavy Debtloads: Accumulated debt from the 1920s worsened under deflationary pressures. 8. Wheat Dependency (West): o Wheat, Canada’s largest export, faced collapsing prices due to overproduction. o Drought and dust storms destroyed Prairie crops, bankrupting many farmers. Global Spread of the Depression  Gold Standard: o Fixed exchange rates tied nations to U.S. monetary policies. o U.S. raised interest rates, causing global money supply reductions. o Global commodity gluts depressed prices further.  Impact on Trade: o Protectionism and tariffs worldwide hurt exporters like Canada.  Recovery Tied to the U.S.: o U.S. left the gold standard in 1933, stabilizing its economy. o Canadian exports began recovering in 1932. Government Response in Canada   Provincial Limitations: o Provinces bore responsibilities (e.g., welfare, education) but lacked resources. o Federal government lacked constitutional jurisdiction but provided ad hoc grants.  Bennett’s Conservatives (1930-1935): o Tariff hikes, public works projects, Unemployment and Farm Relief Act (1931). o High federal deficits led to spending cuts, layoffs, and slashed wages.  King’s Liberals (1935-): o Focused on budget balancing. o Conservative policies hindered major economic interventions.  Bank of Canada (1934): Established to centralize monetary policy and address economic instability. Social Costs of the Depression  Unemployment: Over 20% in Canada (higher in the West), unevenly impacting blue- collar workers, men, and older individuals.  Poverty: Savings exhausted; minimal social support systems; demeaning and inconsistent relief efforts.  Relief Camps: o Federal camps for single, unemployed men offered 20 cents/day for labor. o Harsh conditions sparked protests like the On to Ottawa Trek (1935). Economic Perspectives 1. Monetarist View: o Blames the U.S. Federal Reserve’s failure to maintain the money supply. 2. Austrian View: o Emphasizes the 1920s credit boom and banking system failures as root causes. 3. Keynesian View: o Lack of aggregate demand caused prolonged depression. o Advocated government intervention through public works and deficit spending. 4. Marxist View:  o Saw the Depression as evidence of capitalism's instability. Impact on Canada’s Recovery  Exports Recovery: Began improving in 1932, driven by U.S. stabilization.  Challenges: o Domestic investment lagged due to weak business confidence. o Export dependency left Canada vulnerable to U.S. economic fluctuations (e.g., 1937 slump). Chapter 14 – WWII (1939-1945) Causes of WWII  Treaty of Versailles (1919): o Imposed harsh reparations, territorial losses, and military restrictions on Germany. o Created economic instability and hyperinflation in Germany. o Forbade annexation of Austria, Poland, and Czechoslovakia.  Rise of Fascism: o Reaction to perceived failures of free markets and fear of communism. o Emphasized militarism, nationalism, and strict central control. o Nazi ideology included racial purity and German expansion ("Lebensraum").  Hitler's Actions: o 1933: Appointed Reich Chancellor. o Violated Versailles Treaty by rebuilding the military and reoccupying the Rhineland. o Staged the invasion of Poland (1939) to justify war.  Economic Causes: 1. Global Depression: Economic blocs and trade barriers forced resource-scarce nations like Germany and Japan to consider military conquest. 2. Agricultural Weakness: Hitler viewed expansion into Eastern Europe as essential for German agriculture and resources. Key Events Leading to WWII  1938: Annexation of Austria (Anschluss).   1939: Invasion of Poland on September 1 prompted Britain and France to declare war on September 3. Canada’s Role in WWII  September 10, 1939: Canada officially declared war on Germany.  Initial hesitancy due to the lingering Great Depression and fears of overcommitment.  Wartime Challenges: 1. Securing goods/services for the military. 2. Shifting production from civilian to military output. Economic Efforts in Canada  War Measures Act: Gave government control over wages, prices, industries, and strikes.  Financing the War: o Sold bonds, raising $9 billion. o Introduced new taxes and rates. o Resisted printing money.  Department of Munitions and Supply (1940): Managed production, employed 830,000, and established 28 Crown corporations. Impact on Canadian Society  Labour: o Labour shortages arose as more Canadians enlisted. o Temporary increase in women workers, supported by government-provided daycare. o Unionism increased under sympathetic government policies.  Rationing and Scarcity: o Food, gasoline, and imported goods like sugar and coffee were rationed. o Luxury items and silk hosiery became rare; creative substitutes emerged. Economic Growth  End of Depression: o Unemployment dropped to 4%.  o Capital investment in manufacturing quadrupled between 1939-1941.  Industrial Boom: Heavy manufacturing, steel production, and aircraft building flourished, particularly in Central Canada.  Agricultural Recovery: Western farming rebounded; forestry and naval industries grew in the Maritimes. Post-War Planning  Goals: 1. Smooth transition from war to peace without economic shocks. 2. Reshape social and economic systems to avoid another Depression.  Initiatives: o Veterans Affairs Department for returning soldiers’ benefits. o Department of Industry for post-war investment. o Family allowances and tax reductions to boost aggregate demand. Bretton Woods Conference (1944)  Established the International Monetary Fund (IMF) and pegged exchange rate system.  Fixed currencies to the U.S. dollar (tied to gold) with adjustable pegs.  Goals: Avoid monetary chaos of the interwar period and ensure global economic stability. Key Domestic Developments  Transportation: o Road-building paused for wartime needs (access to munitions plants, camps, etc.). o Began planning major infrastructure projects, like the Trans-Canada Highway (1950). Chapter 15 – Post WWII to Present Post-War Recovery and Growth (1947–1960s)  1947: GATT signed, fostering international trade. Oil discovered in Alberta.  1949: Newfoundland joins Confederation. Supreme Court becomes the final court of appeal in Canada.  1950–53: Korean War spurs economic growth through resource development. Natural gas and petroleum sectors grow.   1954: St. Lawrence Seaway established, revolutionizing trade logistics.  Baby Boom: High marriage rates, increased housing and automobile sales, and rise of a child-focused consumer economy. Infrastructure and Development  Trans Canada Highway: Major post-war project.  GO Transit (1967): Launched as a commuter rail service, expanded later with bus services.  1965: Highway 401 officially named the Macdonald-Cartier Freeway. Economic Changes and Trade Agreements  1965: Auto Pact signed with the U.S., making vehicles and parts duty-free and spurring the Canadian auto industry.  1980s–90s: Shift to Monetarist policies, focus on debt reduction, and privatization.  1989: Canada-U.S. Free Trade Agreement (FTA) signed.  1994: NAFTA replaces FTA, adding Mexico to the agreement. Cultural and Political Shifts  1965: Canada adopts its current national flag.  1967: Centennial celebrations and Expo 67.  1970s: Rise of Quebec separatism, War Measures Act invoked during FLQ crisis.  1982: Constitution Act and Canadian Charter of Rights enacted. Energy and Indigenous Issues  1970s–80s: National Energy Program (NEP) creates tension between Eastern and Western Canada.  1970s: Indigenous groups push for land rights and cultural preservation.  2021: Discovery of residential school graves raises global awareness of Canada's treatment of Indigenous peoples. Modern Era  2005: Same-sex marriage legalized.  2015: Justin Trudeau elected PM; marijuana legalized (2018).  2020s: COVID-19 pandemic and emphasis on Indigenous reconciliation. Social and Lifestyle Milestones  Growth in education and training: Post-WWII prioritization of skilled labor and higher education.  Baby Boom: Shifts in consumerism and demographics.  Suburbanization and rise in automobile dependency.