Great Depression in Canada

Canada was hit hard by the Great Depression. Between 1929 and 1939, the gross national product dropped 40% (compared to 37% in the US). Unemployment reached 27% at the depth of the Depression in 1933. Many businesses closed, as corporate profits of $398 million in 1929 turned into losses of $98 million in 1933. Canadian exports shrank by 50% from 1929 to 1933. Worst hit were areas dependent on primary industries such as farming, mining and logging, as prices fell and there were few alternative jobs. Families saw most or all of their assets disappear and their debts became heavier as prices fell.

Food line at the Yonge Street Mission in Toronto in the 1930s

Pre-Depression

In the years between 1919 and 1929, Canada had the world's fastest growing economy, with only a sharp but brief recession during the First World War. The 1920s had been an especially successful period of growth, with living standards improving remarkably. Then suddenly, in the 1930s the economy took a severe and devastating turn for the worse.

Causes

Over-production and Over-Expansion - Canadian companies expanded their industries so they could generate more profits, but economic activity shrank, and companies were left exposed with heavier debt and a lack of cash flow.

Dependence on Few Primary Products - The decreased demand for natural resources created a significant drop in Canadian sales, leading to an economic depression.

Dependence on the United States - Due to the dependency Canada had on the U.S., when an economic depression hit the States, Canada was thrust into one as well.

High Tariffs - Canada's efforts to get out of a recession by raising export tariffs only backfired due to competition from other countries and Canada's lack of variety in its exports.

Too Much Credit - Canadians bought too much on lease and credit, including stocks. Therefore when the stock market crashed (partly due to the credit buying), Canadians were in debt and faced a trying time as they attempted to sell their personal belongings, which in many cases led to repossessions of partly paid-for purchases.

The Drought and Dust Bowl Years - The Prairies were hit extremely hard by several years of drought. Dust storms swept across the prairies, making it impossible for farmers to grow the copious quantities of wheat they needed to provide for the markets. The wheat that survived the dust storms could not grow tall and healthy due to a lack of rain. Thus, since the farmers had frequently bought their seed and machinery by using credit, when they couldn't pay off their debts, the farmers were often bankrupted. Drop in Stocks The population of Canada started to panic when they saw their stocks decrease in value. They all quickly went to the bank to get their money and the bank had no money left to give. People panicking was one of the causes.

Economic results

By 1933, 30% of the labour force was out of work, and one fifth of the population became dependent on government assistance. Wages fell, as did prices. Gross National Expenditure had declined 42% from the 1929 levels. In some areas, the decline was far worse. In the rural areas of the prairies, two thirds of the population were on relief.

Further damage was the reduction of investment: both large companies and individuals were unwilling and unable to invest in new ventures.

In 1932, industrial production was only at 58% of the 1929 level, the second lowest level in the world after the United States, and well behind nations such as Britain, which only saw it fall to 83% of the 1929 level. Total national income fell to 55% of the 1929 level, again worse than any nation other than the United States.

Impact

Relief Work on Highway

Canada's economy at the time was just starting to shift from primary industry (farming, fishing, mining and logging) to manufacturing. Exports of raw materials plunged, and employment, prices and profits fell in every sector. Canada was the worst-hit (after the United States) because of its economic position. It was further affected as its main trading partners were Britain and the U.S., both of which were badly affected by the worldwide depression.

Ontario

The hardest-hit cities were in the heavy industry centers of Western Ontario where much of Canada's productive farmland and manufacturing centers were located. They included Hamilton, Ontario (Canada's largest steel center), Toronto, Tilbury, Ontario, and Windsor, Ontario, an automotive manufacturing center, a satellite linked to its larger neighbour, Detroit. Windsor also took a devastating blow, being a general manufacturing center, and home to auto manufacturers, much like its larger neighbour, Detroit, Michigan. In Ontario, unemployment skyrocketed to roughly 45%. Much like in the United States, the Government of Ontario decided to start numerous Public Works projects (such as highways, dams, bridges, and tunnels) in order to employ construction workers and pump money into the economy. By 1937, the province's unemployment levels began to recede towards their pre-crash levels. It was during this time that the Queen Elizabeth Way, Highway 2A (which would later become Highway 401), and the routes of today's 400-Series Highways were set. During this time, Highway 7 was also paved by hand and man-power from Peterborough, Ontario to Ottawa, Ontario, through some of Southern Ontario's roughest terrain. The Province of Ontario used manpower whenever possible, to employ as many people as it could. In Kingston, Ontario an unemployment relief camp on Barriefield lower common was set up under the command of the Commandant of the Royal Military College of Canada.

Prairie Provinces

The Prairie Provinces and Western Canada were the hardest-hit; they fully recovered after 1939. The fall of wheat prices drove many farmers to the towns and cities, such as Calgary, Alberta, Regina, Saskatchewan, and Brandon, Manitoba.

The On-To-Ottawa Trek

During the depression, there was a rise of working class militancy. Organized labour largely retreated in response to the ravages of the depression at the same time that significant portions of the working class, including the unemployed, clamoured for collective action. Filling this leadership void was the Communist Party's Workers' Unity League, which sought to building a revolutionary trade union movement under a policy of dual unionism. Numerous strikes and protests were led by the Communists, many of which culminated in violent clashes with the police. Some notable ones include a coal miners strike that resulted in the Estevan Riot in Estevan, Saskatchewan that left three strikers dead by RCMP bullets in 1931, a waterfront strike in Vancouver that culminated with the "Battle of Ballantyne Pier" in 1935, and numerous unemployed demonstrations up to and including the On-to-Ottawa Trek that left one Regina police constable and one protester dead in the "Regina Riot." Although the actual number of Communist Party militants remained small, their impact was far disproportionate to their numbers, in large part because of the anticommunist reaction of the government, especially the policies of R. B. Bennett who vowed to crush Communism in Canada with an "iron heel of ruthlessness." These conflicts diminished after 1935, when the Communist Party shifted strategies and Bennett's Conservatives were defeated. Agitation and unrest nonetheless persisted throughout the depression, marked by periodic clashes, such as a sit-down strike in Vancouver that ended with "Bloody Sunday." These developments had far-reaching consequences in shaping the postwar environment, including the domestic cold war climate, the rise of the welfare state, and the implementation of an institutional framework for industrial relations.

Case studies

Case studies of four Canadian textile firms—two cotton and two hosiery and knitting—demonstrate the range of business response to the economic crisis. Each faced a different array of conditions, and each devised the appropriate restructuring strategies. The large cotton corporations responded by combining mechanization, product line change, and a new division of labor. The smaller, more competitive hosiery and knitting firms, on the other hand, imposed either a harsh regime of scientific management or conservative, piecemeal changes. In the midst of restructuring the workplace, manufacturers reasserted their prerogatives of managerial authority, selectively took advantage of the opportunities opened up by economic crisis, and created a new regime of industrial-state regulations.

World trade

The Stock Market crash in New York led people to hoard their money; as consumption fell, the American economy steadily contracted, 1929-32. Given the close economic links between the two countries, the collapse quickly affected Canada. Added to the woes of the prairies were those of Ontario and Quebec, whose manufacturing industries were now victims of overproduction. Massive lay-offs occurred and other companies collapsed into bankruptcy. This collapse was not as sharp as that in the United States, but was the second sharpest collapse in the world.

Canada did have some advantages over other countries, especially its extremely stable banking system that had no failures during the entire depression, compared to over 9,000 small banks that collapsed in the United States.

Canada was hurt badly because of its reliance on wheat and other commodities, whose prices fell by over 50%, and because of the importance of international trade. In the 1920s about 25% of the Canadian Gross National Product was derived from exports. The first reaction of the U.S. was to raise tariffs via the Smoot-Hawley Tariff Act, passed into law June 17, 1930. This hurt the Canadian economy more than most other countries in the world, and Canada retaliated by raising its own rates on American imports and by switching business to the Empire.

In an angry response to Smoot–Hawley, Canada welcomed the British introduction of trade protectionism and a system of Commonwealth preference during the winter of 1931-32. It helped Canada avoid external default on their public debt during the Great Depression. Canada had a high degree of exposure to the international economy - for example, in the 1920s about 25% of the Canadian GDP came from exports - had left Canada susceptible to any international economic downturn. The onset of the depression created critical balance of payment deficits, and it was largely the extension of imperial protection by Britain that gave Canada the opportunity to increase their exports to the British market. By 1938 Britain was importing more than twice the 1929 volume of products from Australia, while the value of products shipped from Canada more than doubled, despite the dramatic drop in prices. Thus, the British market played a vital role in helping Canada and Australia stabilize their balance of payments in the immensely difficult economic conditions of the 1930s.

Government Reaction

At the start of the Depression, the provincial and municipal governments were already in debt after an expansion of infrastructure and education during the 1920s. It thus fell to the federal government to try to improve the economy. When the Depression began Mackenzie King was Prime Minister. He believed that the crisis would pass, refused to provide federal aid to the provinces, and only introduced moderate relief efforts.

New Deal

The Bennett Government initially refused to offer large-scale aid or relief to the provinces, much to the anger of provincial premiers, but it eventually gave in and started a Canadian "New Deal" type of relief by 1935. By 1937, the worst of the Depression had passed, but it left its mark on the country's economic landscape. Atlantic Canada was especially hard hit. Newfoundland (an independent dominion at the time) was bankrupt economically and politically and gave up responsible government by reverting to direct British control.

World War I veterans built on a history of postwar political activism to play an important role in the expansion of state-sponsored social welfare in Canada. Arguing that their wartime sacrifices had not been properly rewarded, veterans claimed that they were entitled to state protection from poverty and unemployment on the home front. The rhetoric of patriotism, courage, sacrifice, and duty created powerful demands for jobs, relief, and adequate pensions that should, veterans argued, be administered as a right of social citizenship and not a form of charity. At the local, provincial, and national political levels, veterans fought for compensation and recognition for their war service, and made their demands for jobs and social security a central part of emerging social policy.

Blaming it on Bennett: A 1931 political cartoon suggests that Liberals had failed to take responsibility for their own errors.

The Liberal Party lost the 1930 election to the Conservative Party, led by R.B. Bennett. Bennett, a successful western businessman, campaigned on high tariffs and large scale spending. Make-work programs were begun, and welfare and other assistance programs became vastly larger. This led to a large federal deficit, however. Bennett became wary of the budget shortfalls by 1932, and cut back severely on federal spending. This only deepened the depression as government employees were put out of work and public works projects were canceled.

One of the greatest burdens on the government was the Canadian National Railway (CNR). The federal government had taken over a number of defunct and bankrupt railways during World War I and the 1920s. The debt the government assumed was over $2 billion, a massive sum at the time, but during the boom years it seemed payable. The Depression turned this debt into a crushing burden. Due to the decrease in trade, the CNR also began to lose substantial amounts of money during the Depression, and had to be further bailed out by the government.

With falling support and the depression only getting worse, Bennett attempted to introduce policies based on the New Deal of Franklin Delano Roosevelt in the United States. Bennett thus called for a minimum wage, unemployment insurance, and other such programs. This effort was largely unsuccessful; the provinces challenged the rights of the federal government to manage these programs.

The judicial and political failure of Bennett's New Deal legislation shifted the struggle to reconstitute capitalism to the provincial and municipal levels of the state. Attempts to deal with the dislocations of the Great Depression in Ontario focused on the "sweatshop crisis" that came to dominate political and social discourse after 1934. Ontario's 1935 Industrial Standards Act (ISA) was designed to bring workers and employers together under the auspices of the state to establish minimum wages and work standards. The establishment of New Deal style industrial codes was premised on the mobilization of organized capital and organized labor to combat unfair competition, stop the spread of relief-subsidized labor, and halt the predations of sweatshop capitalism. Although the ISA did not bring about extensive economic regulation, it excited considerable interest in the possibility of government intervention. Workers in a diverse range of occupations, from asbestos workers to waitresses, attempted to organize around the possibility of the ISA. The importance of the ISA lies in what it reveals about the nature of welfare, wage labor, the union movement, competitive capitalism, business attitudes toward industrial regulation, and the role of the state in managing the collective affairs of capitalism. The history of the ISA also suggests that "regulatory unionism," as described by Colin Gordon in his work on the American New Deal, may have animated key developments in Canadian social, economic, and labor history.

The failure to help the economy led to the federal Conservative's defeat in the 1935 election when the Liberals, still led by Mackenzie King, returned to power.

The public at large lost faith in both the Liberal Party of Canada and the Conservative Party of Canada. This caused the rise of a third party: the Cooperative Commonwealth Federation (a socialist party that achieved some success before joining the Canadian Labour Congress in 1961, becoming the New Democratic Party).

With the worst of the Depression over. The government implemented some relief programs such as the National Housing Act and National Employment Commission, and it established Trans-Canada Airlines (1937, the predecessor to Air Canada). However, it took until 1939 and the outbreak of war for the Canadian economy to return to 1929 levels.

Liberals return

The onset of the Depression led to a Liberal defeat in the 1930 elections. In opposition, it was William Lyon Mackenzie King's policy to refrain from offering advice and to let the Conservative government under Bennett make its mistakes; Mackenzie King's policy preferences were not radically different. Though he gave the impression of sympathy with progressive and liberal causes, he had no enthusiasm for the New Deal of American President Franklin D. Roosevelt (which Bennett tried to emulate), and he never advocated massive government action to alleviate depression in Canada.

In 1935 the Liberals used the slogan "King or Chaos" to win a landslide. Promising a much-desired trade treaty with the U.S., the Mackenzie King government passed the 1935 Reciprocal Trade Agreement. It marked the turning point in Canadian-American economic relations, reversing the disastrous trade war of 1930-31, lowing tariffs, and yielding a dramatic increase in trade; more subtly, it revealed to the prime minister and the president that they could work together well. After 1936 the prime minister lost patience when westerners preferred radical alternatives such as the CCF (Co-operative Commonwealth Federation) and Social Credit to his middle-of-the-road liberalism. Indeed, he came close to writing off the region with his comment that the prairie dust bowl was "part of the U.S. desert area. I doubt if it will be of any real use again." Instead he paid more attention to the industrial regions and the needs of Ontario and Quebec regarding the proposed St. Lawrence Seaway project with the United States. As for the unemployed, he was hostile to federal relief and reluctantly accepted a Keynesian solution that involved federal deficit spending, tax cuts and subsidies to the housing market.

Mackenzie King returned as prime minister, serving until his retirement in 1948. During all but the last two years he was also secretary of state for external affairs, taking personal charge of foreign policy.

Social Credit

Social Credit (often called Socred) was a populist political movement strongest in Alberta and neighboring British Columbia, 1930s-1970s. Social Credit was based on the economic theories of an Englishman, C. H. Douglas. His theories became very popular across the nation in the early 1930s. A central proposal was the free distribution of prosperity certificates (or social credit), called "funny money" by the opposition.

During the Great Depression in Canada the demand for radical action peaked around 1934, after the worst period was over and the economy was recovering. Mortgage debt was significant because farmers could not meet their interest payments. The insecurity of farmers, whose debts were increasing and who had no legal protection against foreclosure, was a potent factor in creating a mood of political desperation. The radical farmers party, UFA was baffled by the depression and Albertans demanded new leadership.

The prairie farmers had always believed that they were being exploited by Toronto and Montreal. What they lacked was a prophet who would lead them to the promised land. The Social Credit movement began in Alberta in 1932; it became a political movement in 1935 and suddenly burned like a prairie fire. The prophet and new premier was radio evangelist William Aberhart (1878–1943). The message was biblical prophecy. Aberhart was a fundamentalist, preaching the revealed word of God and quoting the Bible to find a solution for the evils of the modern, materialistic world: the evils of sophisticated academics and their biblical criticism, the cold formality of middle-class congregations, the vices of dancing and movies and drink. "Bible Bill" preached that the capitalist economy was rotten because of its immorality; specifically it produced goods and services but did not provide people with sufficient purchasing power to enjoy them. This could be remedied by the giving out money in the form of "social credit", or $25 a month for every man and woman. This pump priming was guaranteed to restore prosperity, he prophesied to the 1600 Social Credit clubs he formed in the province.

Alberta's businessmen, professionals, newspaper editors and the traditional middle-class leaders protested vehemently at Aberhart's crack-pot ideas, but they had not solved any problems and spoke not of the promised land ahead. Aberhart's new party in 1935 elected 56 members to the Alberta Assembly, compared to 7 for all the other parties.

Alberta's Social Credit Party remained in power for 36 years until 1971. It was re-elected by popular vote no less than 9 times, achieving success by moving from left to the right.

Social Credit in office

Once in office in Alberta Aberhart gave a high priority to balancing the provincial budget. He reduced expenditures and increased the sales tax and the income tax. The poor and unemployed got nothing. The $25 monthly social dividend never arrived, as Aberhart decided nothing could be done until the province's financial system was changed, and 1936 Alberta defaulted on its bonds. He did pass a Debt Adjustment Act that canceled all the interest on mortgages since 1932 and limited all interest rates on mortgages to 5%, in line with similar laws passed by other provinces. In 1937 backbenchers passed a radical banking law that was disallowed by the national government (banking was a federal responsibility). Efforts to control the press were also disallowed. The party was authoritarian and tried to exert detailed control over its officeholders; those who rebelled were purged or removed from office by the new device of recall elections. Although Aberhart was hostile to banks and newspapers, he was basically in favor of capitalism and did not support socialist policies as did the Cooperative Commonwealth Federation (CCF) in Saskatchewan.

By 1938 the Social Credit government abandoned its notions about the $25 payouts, but its inability to break with UFA policies led to disillusionment and heavy defections from the party. Aberhart's government was re-elected in the 1940 election, carrying 43% of the vote. The prosperity of the Second World War relieved the economic fears and hatreds that had fueled farmer unrest. Aberhart died in 1943, and was succeeded as Premier by his student at the Prophetic Bible Institute and lifelong close disciple, Ernest C. Manning (1908–1996).

The Social Credit party, now firmly on the right, governed Alberta until 1968 under Manning.

Recovery

The Canadian recovery from the Great Depression proceeded slowly. Economists Pedro Amaral and James MacGee find that the Canadian recovery has important differences with the United States. In the U.S. productivity recovered quickly while the labor force remained depressed throughout the decade. In Canada employment quickly recovered but productivity remained well below trend. Amaral and MacGee suggest that this decline is due to the sustained reduction in international trade during the 1930s.

In the midst of the Great Depression, the Crown-in-Council attempted to uplift the people, and created two national corporations: the Canadian Radio Broadcasting Commission (CRBC), and the Bank of Canada. The former, established in 1932, was seen as a means to keep the country unified and uplifted in these harsh economic times. Many poor citizens found radio as an escape and used it to restore their own faiths in a brighter future. Broadcasting coast to coast in both French and English, the CRBC played a vital role in keeping the morale up for Canadians everywhere. The latter was used to regulate currency and credit which had been horribly managed amongst Canadian citizens in the prior years. It was also set up to serve as a private banker’s bank and to assist and advise the Canadian government on its own debts and financial matters. The bank played an important role to help steer government spending in the right direction. The bank's effort took place through the tough years off the depression and on to the prosperity that followed into and after the Second World War.

Both of these corporations were seen as positive moves by the Canadian government to help get the economy back on track. 1937 was an important year in the recovery from the Great Depression. The Bank of Canada was nationalized in that year, and the Canadian Radio Broadcasting Commission (CRBC) became the Canadian Broadcasting Company (CBC) in that same year. Both corporations were successful aids in the cultural and financial recovery of the Canadian economy during the Great depression.

It took the outbreak of World War II to pull Canada out of the depression. From 1939, an increased demand in Europe for materials, and increased spending by the Canadian government created a strong boost for the economy. Unemployed men enlisted in the military. By 1939, Canada was in the first prosperity period in the business cycle in a decade. This coincided with the recovery in the American economy, which created a better market for exports and a new inflow of much needed capital.

See also

• Canada in the World Wars and Interwar Years
• Cities in the Great Depression#Canada

Further reading

• Robert L. Ascah; Politics and Public Debt: The Dominion, the Banks, and Alberta's Social Credit University of Alberta Press, 1999 online version
• Baillargeon, Denyse. Making Do: Women, Family and Home in Montreal during the Great Depression (1999). 232 pp.
• Berton, Pierre. The Great Depression: 1929-1939 (1990), well-written popular history
• Broadfoot, Barry. Ten Lost Years: 1929-1939: Memories of Canadians Who Survived the Depression. Toronto: Doubleday, 1973. 390 pp.
• Campbell, Lara. "'We Who Have Wallowed in the Mud of Flanders': First World War Veterans, Unemployment and the Development of Social Welfare in Canada, 1929-39." Journal of the Canadian Historical Association (2000) 11: 125-149. Issn: 0847-4478 Fulltext in Erudit
• Cook, Ramsay, ed. Politics of Discontent (1967), with articles on Aberhart, George McCullagh, Pattullo and the Reconstruction Party.
• Fisher, Robin. "The Decline of Reform: British Columbia Politics in the 1930s." Journal of Canadian Studies 1990 v.25
• Fowke, V. C. The National Policy and the Wheat Economy (1957)
• Gray, James. The Winter Years (1966) describes life in Winnipeg during the depression
• Hoar, Victor, ed., The Great Depression (1969) includes recollections of the 1930s
• Hughes, E. C. French Canada in Transition (1943), sociological study
• Klee, Marcus. "Fighting the Sweatshop in Depression Ontario: Capital, Labour and the Industrial Standards Act." Labour 2000 (45): 13-51. Issn: 0700-3862
• Kottman Richard N. "Herbert Hoover and the Smoot-Hawley Tariff: Canada, A Case Study," Journal of American History, Vol. 62, No. 3 (Dec., 1975), pp. 609–635 in JSTOR
• Lipset, Seymour Martin. Agrarian Socialism (1950), on CCF
• Dean E. McHenry; The Third Force in Canada: The Cooperative Commonwealth Federation, 1932-1948 (1950) online version
• McLachlan, Elizabeth. With Unshakeable Persistence: Rural Teachers of the Depression Era. Edmonton: NeWest, 1999. 187 pp.
• Neatby, H. Blair; The Politics of Chaos: Canada in the Thirties Macmillan of Canada, (1972) online version, the standard scholarly survey
• Neatby, H. Blair; William Lyon Mackenzie King, 1924-1932: The Lonely Heights University of Toronto Press, 1963 online version
• Neatby, H. Blair; William Lyon Mackenzie King: 1932-1939: the Prism of Unity, University of Toronto Press, 1976 online version
• Rogers, Sean Harris. "Depression and War: Three Essays on the Canadian Economy, 1930-1945." PhD dissertation McGill U. 2000. 245 pp. DAI 2003 63(7): 2644-2645-A. DANQ70191 Fulltext in ProQuest Dissertations & Theses
• Rooth, Tim and Taylor, Rebecca. "Exports and External Adjustment During the Slump: the British Market, Australia and Canada During the 1930s." Journal of European Economic History 2001 30(3): 569-595. Issn: 0391-5115
• Safarian, A.E. The Canadian Economy in the Great Depression (1st ed. 1959; 3rd ed. 2009 with new preface); standard economic history; has data on public and private investment in the major sectors of the economy
• Thompson, John H., and Allan Seager. Canada 1922-1939 (1985). standard scholarly survey

External links

• Key Economic Events