Great Depression in Canada
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Canada is sometimes considered to be the country hardest hit by the Great Depression. The economy fell further than that of any nation other than the United States, and it took far longer to recover. It hit especially hard in Western Canada, where a full recovery did not occur until the Second World War began in 1939.
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Pre-Depression
In the years between 1900 and 1929, Canada had the world's fastest growing economy, with only a sharp but brief recession after the First World War. The 1920s had been an especially successful period of growth, with living standards improving markedly. Unlike in the United States where the "Roaring Twenties" were mostly illusory, in Canada the decade truly was a boom. While housing starts had stagnated in the United States in 1925, for instance, they continued to increase in Canada until May 1929.
Earliest signs - the wheat economy
Canada's most important export in the early part of the century was wheat which became central to the Canadian economy. By 1922, Canada was the world's largest exporter of wheat, and Montreal was the world's leading wheat port. From 1922 to 1929, Canada accounted for 40% of the world's wheat exports. Wheat exports helped make Canada one of the world's leading traders, with a third of GDP coming from international trade.
The success of Canadian wheat was based, however, on problems elsewhere in the world. World War I had devastated the agricultural production of much of Europe, and more importantly, the Russian Revolution and the resulting turmoil in that country, kept Russian wheat off the market.
By the mid-1920s, recovery in Western Europe and the New Economic Policy in Russia was increasing the real supply of wheat, and prices flatlined. Hoping for a quick return to higher prices, the Canadian wheat pools stockpiled much of their supplies rather than reducing production. The introduction of machinery, especially the tractor and powered combine harvester, led to increased production in Canada and the United States.
By June 1929, this had led to a collapse in prices destroying the economies of the Prairie provinces and deeply wounded the economy of Central Canada as well.
Pulp and paper
Canada's largest manufacturing sector was the pulp and paper industry, especially the newsprint makers. Throughout the first part of the century newsprint was booming and became a major export. New factories were built throughout the 1920s, and new technologies meant the factories built at the end of the decade were far more efficient than the older ones. In April 1928, the price of newsprint began to fall as supply caught up to demand. The older plants could not make money at the new price, leading to many of them shutting down. Plants that had been built later were mostly in the United States and Sweden causing Canada to lose significant market share, and putting a great many workers out of work.
The United States falls
The fall in commodity prices also hurt the United States. In October of 1929, this contributed to a massive stock crash known as Black Tuesday. Mistakes in the management of money in the United States and an unstable banking system quickly brought almost the entire American economy down.
Because of the gold standard and 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 over production. 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 bank system that saw only one bank collapse during the entire depression, compared to over 9,000 that collapsed in the United States. Canada was hurt so badly because of its reliance on wheat and other commodities, and also because of the importance of trade to the Canadian economy. The first reaction of many states, including the US, when the depression began was to raise tariffs. This hurt the Canadian economy more than most others in the world.
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.
The contraction period of the depression in Canada was to last from May 1929 until 1933.
Social effects
The Great Depression caused Canada's population growth to contract markedly. Immigration to Canada slowed, and birth rates fell. Crime rates increased, and a new class of unemployed vagrants was created.
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 William Lyon 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.
The Liberal Party lost the 1930 election to Richard Bedford Bennett and the Conservative Party. 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 cancelled.
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.
During the period after 1933, the United States began to see rapid improvements as a result of Roosevelt's policies, but Canada saw far less growth. The Depression lasted much longer in Canada then in the United States. The failure to help the economy led to Bennett's defeat in the 1935 election when Mackenzie King and the Liberals returned to power.
Nevertheless, by this time the worst of the Depression was over. King's government implemented some relief programs such as the National Housing Act and National Employment Commission, and also established Trans-Canada Airlines (1937, the precursor to Air Canada). It took until 1939 and the outbreak of war for the Canadian economy to return to 1929 levels, however.
One of the most important lasting effects of the depression was the new role of government. Under Bennett and Mackenzie King the first elements of Canada's welfare state were created, and the size and role of the government began to grow immensely over the next decades.
Protest
The dissatisfaction with the government during the Depression resulted in a rise of third party activity in Canada. Some remnants of the Progressive Party from the 1920s organized to form the Social Credit Party of Canada. This party under the leadership of Bill Aberhart won a provincial election in Alberta.
Other members of the Progressives joined with the small Labour Party of Canada to form the Cooperative Commonwealth Federation, a socialist party that achieved some success. The period also saw the rise of a small Communist Party of Canada and great controversy as the government tried to ban its activities.
During the Depression, there was a rise of militancy among the working class. In 1935, the On-to-Ottawa Trek, a massive protest march, was stopped by the Royal canadian Mounted Police in Regina, Saskatchewan, and a large riot broke out that attracted publicity across the nation. The Depression also saw the permanent entrenchment of organized labour in the economic and political life of the nation.
Recovery
While the Canadian economy had slowly been recovering after 1933, it took the outbreak of World War II to pull Canada out of the depression. From 1939, an increased demand in Europe for materiel, 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 also coincided with the full recovery in the American economy, which created a better market for exports and a new inflow of much needed capital.