Class 3: Canada Expands: Agriculture and Manufacturing

Business in the Canadian Context ADMS 1010 – Section Instructor Alex Browning Web Site:

Class 3:Canada Expands Agenda Class Admin Summary from Class 2 Trade - Protectionism National Policy Break Agriculture in Canadian Economy Manufacturing in the Canadian Economy Massey Harris Case Group Assignment Q & A

Class 3:Canada Expands Outcomes Expected Able to discuss the Importance of Trade to Canada Able to discuss what protectionism is and it’s role in the development of Canada’s Economy Able to discuss John A. Macdonald’s “National Policy” and the role it plays and still plays in the Canadian economy Able to discuss the role of agriculture and manufacturing to the Canadian economy

Class 2: Defining Canada

Early Governments in Canada Government of New France – – Mostly based on feudal system – Fur Traders – Aristocracy, Church dominated British Government – Traders and farmers dominated – Early attempt to eliminate French influence through restrictions – Eased off prior to US Revolutionary war

Revolutionary War, May After U.S. Revolutionary War 50,000 Empire Loyalists who did not want independence from Britain fled persecution and came north to Quebec and Nova Scotia. This resulted in Nova Scotia being split and Britain creating the Province of New Brunswick in 1784 and the creation of Upper and Lower Canada 1791

Civil War in US

Upper & Lower Canada While the British ruled through a Lieutenant Governor, who spent most of their time in Europe, and an elected assemble, the effect rule was left to an executive group who were appointed for life. Family Compact – Upper Canada Chateau Clique - Lower Canada Lead to Unrest and finally rebellions in Upper and Lower Canada in

Durham Report 1838 After the two Rebellions Britain sends Lord Durham to investigate and to make recommendations Create a responsible government Unite Upper and Lower Canada 1841 Act of Union into the Province of Canada

Lead Up to Confederation Civil War and Raiders from US caused concern Political instability in the new province of Canada John A. Macdonald and other delegates created the 72 resolutions that lead to the British America Act in 1867 establishing a confederation of provinces but with a strong central government to avoid US problems

Form Of Government Unitary State Federated State

What is Federalism? Emphasizes the legal and institutional aspects of the system. It has been defined as the method of dividing powers so that the general or central regional governments are each within there sphere coordinate and independent.

Principles of Federalism ● Governmental power is distributed between a central or national authority and regional state or provincial authorities ● Every individual is subject to the laws of each, both the central government and the regional government ● Neither levels can subordinate or over rule the other where powers specified ● Where powers not explicitly granted they are assumed to be part of either the central or the regional authority

Federal Legislative Powers VI. -- DISTRIBUTION OF LEGISLATIVE POWERS. 91. It shall be lawful for the Queen, by and with the Advice and Consent of the Senate and House of Commons, to make laws for the Peace, Order, and good Government of Canada. British North Amercia Act 1867 Sec. 91

Provincial Legislative Powers Section 92 and 93 on Canada’s Constitution distributes exclusive legislative powers to the provinces over regional interests.

Division of Powers Federal: 1. The Public Debt and Property. 2. The Regulation of Trade and Commerce. 3. The Raising of Money by any Mode or System of Taxation. 4. Postal Service. 5. Militia, Military and Naval Service, and Defence. 6. Navigation and Shipping. 7. Currency and Coinage 8. Banking, Incorporation of Banks, and the Issue of Paper Money 9. Bankruptcy and Insolvency 10. Indians, and Lands reserved for the Indians 11. Naturalization and Aliens 12. Marriage and Divorce 13. The Criminal Law Provincial: 1. Direct Taxation within the Province in order to the raising of a Revenue for Provincial Purposes. 2. The Management and Sale of the Public Lands belonging to the Province and of the Timber and Wood thereon. 3. The Establishment, Maintenance, and Management of Hospitals, Asylums, Charities, 4. Shop, Saloon, Tavern, Auctioneer, and other Licences in order to the raising of a Revenue for Provincial, Local, or Municipal Purposes. 5. Local Works and Undertakings 6. The Solemnization of Marriage in the Province. 7. Property and Civil Rights within the Province. 8. The Administration of Justice in the Province 9. Generally all Matters of a merely local or private Nature in the Province.

What are the challenges to Canadian Federalism? Duality of federalism. The country versus the regions. Vast geographic distances. Changing economic and social circumstances Nature of Regions. Many areas of Canada were independent prior to Confederation and have their own distinct identities.

A Federal System is a Balance Federal Government provides peace and security for the entire nation Provincial Governments retain sufficient powers to regulate local matters FederalProvincial

Judicial Powers A method of authoritative interpretation of the constitutional division of the legislative power The testing of the constitutional validity of laws both at the Federal and Provincial Levels

Differences between US and Canada In Canada All powers not specifically reserved for the provinces are allotted to the Federal government. House of Commons democratically representative Senate Appointed Co-operative Federalism – Marble Cake In the United States All powers not specifically reserved for the Federal government are allotted to the States. House of Representatives (Congress) democratically representative Senate Elected and Equal Dual Federalism – Layer Cake

Historic Differences of Ideology Between Canada and the United States Canadian Ideological thought is more of a conservatism/reform Liberalism/socialism ideology and collectivist than the US. Canadians feel government is responsible for its citizens’ well being. There has been a strong continuity of socialism in Canada not witnessed in US. In the United States there is a stronger belief of non- interference by government and the primacy of individual liberties. Law will not allow Federal Gov. to get involved in State issues. US appears to be continuing to move ever more to the right and individualistic

3. The fiscal and institutional arrangements of federal-provincial relations

Canada's confederation on July 1, 1867 brought four eastern provinces together to form a new country. As part of the deal, Nova Scotia and New Brunswick were promised a railway to link them with the two Central Canadian provinces – Quebec and Ontario. Manitoba joined confederation in British Columbia, on the west coast, was enticed to join the new confederation in 1871, but only with the promise that a transcontinental railway be built within 10 years to physically link east and west. Canadian Pacific Railway was formed in The Great Canadian Dream

Fiscal and Institutional Arrangements From Provinces gained more an more power from the Federal government Many provinces gained control over crown lands Gain control over mineral rights Growth of importance of Provincial roles in Education, Health and Welfare

Factors Contributing to Increased Federal Activism The Great Depression and the need for Federal Government help? Federalism was influenced by the economic theories of John Maynard Keynes. Federal authority was seen under Keynes’ economic model to be the provider of economic stability through the use of the Central Bank to regulate money supply an Start of WWII, the War Measures Act Post War recession

Cooperative Federalism Provinces started to resent Federal involvement in provincial jurisdiction Federal and Provincial Governments agree to work together in areas that are clearly the domain of one or the other Four Main Features Reliance on Federal-Provincial conferences Federal Government agreed to consult with provinces before committing to programs Policies designed as fiscal programs to create economic stability and growth – Cost sharing Formal structures to support intergovernmental relations Lead to a more integrated Federalism but did not solve provinces’ concerns

Executive Federalism Quebec often opted out of Federal Programs though wanted the money to do their own. (Double Image Federalism) Provinces began to take more activist roles in economic and social policy and demand great control over revenue and spending Lead to a more Executive Federalism First Minister Conferences Held behind closed doors

Part 4: Regional Diversities and Disparities

Regional Differences Influenced by immigration patterns. Economics Cultural differences Resource differences Historic differences

Regional Differences Size of internal market and access for products. Ontario vs. PEI Natural Resources – Inherently volatile Occupational mobility, fishing and mining Spatial immobility “I like it here!” Claim to capital, i.e. Bank Loans

Feds try to Manage Regional Differences three ways. 1. Industrial Incentive Programs 2. Infrastructure Assistance Programs 3. Social adjustment and rural development programs.

Flaws of Regional Development Industrial incentive programs favor capital-intensive programs in areas where one of the major problems is excess labor. (Mega-projects). Do the companies really need the grants, or would they have done it anyway? Grants to one company could hurt other existing companies who have not received grants. Could lead to bidding wars between provinces Benefit may accrue to multi-national corporations

Currency Reform and Bank Act 1871 Canadian Banks: A better system By Theresa Tedesco and John Turley-Ewart, Financial PostApril 5, 2009

Based on the Stern Model Government Stability— Sound laws, peace, order and good government Financial System for providing Capital for financing for development Currency and means for trade Building an New Country Canada 1867 what do you need for Competition and Sustainable Growth

Class 3: Canada Expands: Agriculture and Manufacturing

The Role of Government in the Early Development of Canada Sir John A. MacDonald's national policy. Exercise of residual legislative powers to establish a strong central government to unite, expand, develop and settle a newly established nation. Regulate trade and commerce. Establish trading patterns.

The Staple Thesis of Harold Innis In 1922, standing on the campus of the University of Toronto, Harold Innis asked the question, What have been the very long run factors in the economic integration and independence of Canada? …He asked it when the Maritime Rights Movement, the Progressives on the Prairies, and the Partie National in Quebec were threatening to destabilize and regionalize the federation. His answer, pointing to the factors of unity and of separation from the United States, constituted the Staple Thesis of Canadian economic development. The Staple Thesis has formed the principal interpretive element in virtually all treatments of Canadian economic history since then.

The Staple Thesis of Harold Innis Asserted the origins and purposes of the federal government can be understood in terms of an economic territory dependent upon the export of certain staples. To make it commercially feasible, production entailed heavy public expenditures on railways and canals. The government filled an important vacuum by being the substitute for private enterprise in the building and developing Canada. Thomas Hockin later argued that the Canadian government was given an active role in national development and fostering and protecting of certain cultural and economic characteristics.

Section 3: The Evolution of Protectionist Intervention in Canada

SIR JOHN A. MACDONALD’S NATIONAL POLICY (1879) Designed to encourage manufacturing growth in Central Canada Imposed high tariffs on manufactured goods – Machinery in the natural resource industries: Exempted from tariff or charged low rates of duty – Resulting east-west flow of goods helped make the Canadian Pacific Railway viable Established open market for foreign investment – “The bigger the capitalist and the more he has invested in the country, the better the country.” Sir John A. Macdonald. – Attracted both foreign and domestic investors to Canada’s protected markets Copyright © Captus Press Inc., 2009

SIR JOHN A. MACDONALD’S NATIONAL POLICY (1879) Designed to encourage east-west trade rather than north-south with the U.S. Development of harbours and fast steamship lines to England and Asia Encourage the grow the a wealthy business class in Canada Strong Immigration Policy to promote the population of Western Canada Macdonald believed the future of Confederation, he thought, hinged upon the development of the West. Without such development, the Americans would take over the West, encircle Canada and inevitably bring about its annexation. Hence, the dream of creating a sepearate, peaceful and orderly society on the northern half of the continent would die.

IMPLICATIONS OF THE NATIONAL POLICY Foreign firms importing goods into Canada Foreign firms importing goods into Canada – Disadvantaged by the tariff – Free to invest in Canada and establish subsidiaries – Developed “branch-plant” mentality (inefficient) Foreign firms able to open resource frontiers before Canadian firms Foreign firms able to open resource frontiers before Canadian firms – Vertical integration National Policy made Canadian industries very attractive investments National Policy made Canadian industries very attractive investments Concentration of ownership and market power Concentration of ownership and market power Copyright © Captus Press Inc., 2009

Before the National Policy The Canadian American Reciprocity Treaty, also known as the Elgin-Marcy Treaty, was a trade treaty between the colonies of British North America and the United States. It covered raw materials and was in effect from 1854 to It represented a move toward free trade, and was opposed by protectionist elements in the United States, who joined with Americans angry at apparent British support for the Confederate States of America during the American Civil War, ended it in 1866.ElginMarcyBritish North AmericaUnited StatesConfederate States of AmericaAmerican Civil War

Post National Policy Attempts at Free Trade The last major attempt at reciprocity was negotiated in 1911 by the Liberal government of Sir Wilfrid LAURIER. This Reciprocity Agreement, to be implemented by concurrent legislation, provided for free trade in natural products and the reduction of duties on a variety of other products. The agreement was accepted by the US Congress but repudiated by Canadians, who ousted the Liberals in the general election of 21 Sept LAURIER Protectionism ruled until The Free Trade Agreement of 1989 was signed.

Protectionism

What is Protectionism It is the degree to which a government intervenes in the operation of the day to day market in an economy. Even in the most right wing of countries, governments will inevitably choose to intervene to protect what they perceive as in the nation interest.

What is Protectionism? Refers to government policies that shield domestic production and producers from foreign competition.

How does Protectionism Work Degrees of Intervention Persuasion (Minimum) Manipulation of the tax system The awarding of government contracts Granting subsidies and tax concession policies

Trade Restrictions as Protectionism To protect domestic Industries from foreign competition Tariff refers to a tax imposed by the importing country when a good crosses an International boundary

An Example of a Protective Tariff A Canadian Tariff of 15% is imposed on foreign automobiles. The automobile costs $5,000/ This means the tariff will be $750. When exported to Canada the Canadian price will be $5,750.

An Effect of a Protective Tariff Producers dependent on protection cannot normally export since their costs are often above world prices. They depend almost entirely on the domestic market.

Economic Losses from Tariffs Often Exceed their Benefits A tariff is wasteful It leads to the substitution of higher cost domestic products and lower cost imports.

Trade Restrictions as Protectionism Non-tariff barrier refers to any action other than a tariff that restricts International trade 1. Quotas 2. Licensing 3. Regulations

Political Realities Ensure Protectionist Policies Politicians are likely to ignore tariffs or pay lip service to free trade elsewhere. To support tariffs where the protectionist vote is concentrated Politicians who would gain by repealing tariffs may vote against it in trade off for other issues they are interested in.

Canada Pioneers Canadian Content Provisions Easier for companies to import when they produce in Canada a certain proportion of the content of goods they sell. Became ingrained in Canadian broadcast and magazine production. Major mandate of Canadian Radio and Television Commission (CRTC)

Cultural Protectionism The CRTC's Over-the-top 'Fact Finding Mission': Key Submissions Submitted by Adam Webb on Wed, 07/13/ :04 Front Page Media News Post For the second time in two years the CRTC has requested submissions from concerned parties on the increasing prevalence of over-the-top (OTT) services. requested submissions Like so many of the Commission’s actions, the decision to prematurely reopen discussion is derived from a mix of obsessive cultural concern, private sector lobbying and a dependence on external research.obsessive cultural concernprivate sector lobbyinga dependence on external research

Section 4: Arguments for Protection Industries fearful of foreign competition. Those intended to influence the composition of production. Those intended to influence the level of employment. Those intended to influence the distribution of income.

Protection of Infant Industries When foreign competition is reduced or eliminated by import barriers, new domestic industries can develop rapidly. Protection frequently cannot be removed because the domestic industries never develop sufficient competitive strength.

National Defense Argument Seeks to avoid dependence on foreign sources for supplies of essential materials or finished products that might be denied in time of war.

Counter Dumping Argument Dumping occurs when products are made available as imports at prices lower than the prices prevailing in the exporting country.

Redistribution of Income Argument for Protectionism Refers to a country's ability to gain income at the expense of other countries by imposing tariffs or other import barriers. Invites retaliation.

Increasing Employment With imports reduced, demand for domestic substitutes will be stimulated expanding production at home. Referred to as “Beggar- thy-Neighbor” It invites retaliation by other nations.

Outsourcing and Off-Shoring of Employment – Outsourcing involves moving a portion of production outside of a firm. – Off-shoring entails sourcing part of inputs outside the country.

Import share of service and material inputs in the business sector, 1961 to 2003 Note: Authors’ calculations from data. Source: Statistics Canada, Input–Output Accounts

Conclusion: Officially Countries Deny Protectionism and Favor Free Trade When economies are booming and jobs seem secure, most people tend to support free trade. When recessions occur, many countries become more protectionist because of national interest and pressure from organized labor and other interest groups.

Roles of Agriculture and Manufacturing Industries in Canada Historically Canada industry and agriculture were impacted by Mercantilism theory Mercantilism is an economic theory that there is a fixed amount of wealth in the world and that a nation's prosperity depends on its success in accumulating wealth by exporting more than it imports. European nations attempted to put it into effect through commercial policies designed to produce a favourable balance of trade, through acquisition and development of colonies as exclusive markets and sources of raw materials.

Context: Relationship of Agriculture & Manufacturing in GDP terms

Agriculture in Canada Maritimes – The British promoted agriculture in the Maritimes to provision both its military and merchant fleets and supported trade to the West Indies – After 1850 Maritime agriculture was affected by 2 principal developments: the transition throughout the capitalist world from general to specialized agricultural production and, especially after 1896, the integration of the Maritime economy into the Canadian economy – After 1896 the boom associated with Prairie settlement opened the Canadian market to fruit (especially apples) and potatoes

Agriculture in Canada Quebec – Despite being a feudal system agriculture took a back seat in early Quebec to the fur trade – Agriculture was never a major export player in Quebec, It was not until 1640 that is was even self-sustainable in agriculture and even that disappeared in the 1830’s. – Later 19th-century Québec agriculture was marked by increases in cultivated area and productivity, and by a shift from wheat production to dairying and stock raising.

Agriculture in Canada Ontario – Agriculture in what is now Ontario was dominated by wheat production. Wheat was the crop most easily grown and marketed and was an important source of cash for settlers. – British tariffs (Corn Laws), US tariffs and crop failures (the midge, 1858) significantly hurt the wheat trade in the first half of the 19 th century. British tariffs were offset when preferential tariffs were introduced for Canada. Also the reciprocity treaty with the US from helps – Livestock raising increased after 1858 and with the introduction of factory cheese making a large cheese industry developed in Ontario – In the late 19 th and early 20 th century with urbanization there was a increased demand for market gardens and beef and milk product to feed the cities. It also put a drain on farm labour. – After a period of strong income the depression made it difficult to sell crops so the government regulated parts of the agricultural sector and created marketing boards that still exist today. The most important is the Milk Board

Agriculture in Canada Prairies – Confederation was the spur to the agricultural development of the Prairie West. – Purchase of Ruperts Land by the government and the support to populate the west with farmers led to this expansion. – The creation of Marquis or Winter Wheat in 1907 overcame the short growing season. – Large scale ranching on leased land was started in Alberta – After the boom of WW1 the price of wheat declined and stayed depressed throughout the 1930’s. – During this period of time technological advances were made with the invention of the combine. – Much of the infrastructure for farming and transportation was controlled from central Canada. Farmer’s resented an formed what has become the “United Grain Growers” – One organziation that came out of this period is the Canadian Wheat Board to be the sole marketing agent for Canadian wheat and barley

Agriculture in Canada British Columbia – Agriculture in BC was basically only to supply local markets and other industries in rural BC – Fruit production began in the Okanagan Valley in This remains the dominant agricultural activity in BC.

Manufacturing in Canada Manufacturing in Canada had its beginnings early in the 18th century, but it was not until the late 19th century, with the development of electricity and a national political objective, that it achieved significant growth. Throughout the 20th century, manufacturing has contributed significantly to the economic well-being and prosperity of Canadians

Manufacturing in Canada Manufacturing in Canada began with flour mills. The first gristmills were built in New France in the 17th century and, by 1840, there were 400 in UPPER CANADA and LOWER CANADA producing flour for domestic and foreign saleUPPER CANADALOWER CANADA Iron smelting began in the 1730s at the FORGES ST- MAURICE near Trois-Rivières, Québec.FORGES ST- MAURICE With CONFEDERATION in 1867 came geographic expansion, construction of the CANADIAN PACIFIC RAILWAY, and new settlement bringing population increases, skills and capitalCONFEDERATIONCANADIAN PACIFIC RAILWAY Eight years later, John A. Macdonald's NATIONAL POLICY established protective tariffs to encourage domestic processing of Canadian materialsNATIONAL POLICY

Manufacturing in Canada During the 1870s and early 1880s., the discovery of electricity and the subsequent harnessing of some of Canada's vast hydro resource provided industry with an efficient, low-cost source of hydro-electrical energy. At the same time the extent of the mineral wealth beneath the Canadian Shield began to be realized. Between 1945 and the 1990s, manufacturing has accounted for 22-24% of Canada's total real output of goods and services.

Manufacturing in Canada Four developments in trade policies and practices in this period affected Canadian manufacturers substantially: the Canada-US Autopact; the GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT); the world competitive environment, particularly the emergence of lesser developed countries; and the bilateral FREE TRADE agreement with the US reached in late 1987 and its expansion in the late 1990s to include MexicoGENERAL AGREEMENT ON TARIFFS AND TRADE FREE TRADE With "freer trade," the volume of manufactured goods imported into Canada has increased. Canada's degree of trade exposure is high by international standards, Ontario and Quebec dominate the manufacturing sector in Canada though the western provinces are increasing particularly in the area of extracting technology.

Copyright © Captus Press Inc., 2009 Sectoral Structure of Canada’s Economy from

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Copyright © Captus Press Inc., 2009 Sectoral Structure of Canada’s Economy from

Canada’s First Great Manufacturer: The Story of Massey-Harris

Massey Harris Who were the Key Players in the Case Origins. Daniel Massey Jr. – What type of Individual was he?

Massey Harris International Events ? Effect on Daniel Massey Jr.?

Massey Harris Development of the Business – Demand was significant, Why – What significant change happens in the business – What did Hart bring to the business? – What was one of his key strategies What supported his expansion? – What else was the company facing? What was the significance – What Innovations were there?

Massey Harris Marketing the Business – What did Hart do the market the business and increase share – What did Massey launch that created a direct link between the manufacturer and the farmer.

Massey Harris Questions Hart Massey faced: – Expand into US? – Export to Europe? – Focus on Domestic Rivalry? What Does he Do? What assisted him? Where did he finally expand to?

Massey Harris Change of Leadership – What Happens? Competitive Position ? – How did Massey deal with it?

Massey Harris Government Policies – What Policies Helped ? – What Policies Hindered? Another Management Change

Porter’s Five Forces Framework

Next Week Readings The CNR: Keynes in Canada The Depression in Canada Social Welfare in Canada Crown Corporations in Canada Rasmussen's slides on Crown Corporations Railways in Canada CN today Case: Relentless Change: Wars, Depressions and Dynamic Growth, pp AND CNR, pp