LECTURE 18
OVERVIEW
 

This lecture builds on Topic X, Part B in the printed Guide. Please read that material first.  

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This overview draws heavily on the work done by Professor Mac Urquhart of Queen's University and the colleagues who helped him create the historical extensions of Canadian national accounting data from the 1920s, when the official Statistics Canada data begin, to the 1870s. Much of the ligation used here is also derived from published work of Urquhart and Allan Green on the subject which is documented in the printed Guide. 
  
Six Periods of Development
  • Colonial beginnings 1500-1867
  • The national policy era 1867-1896
  • Industrialization 1896-1929
  • Instability and recovery 1929-1950
  • The Post-World War II boom 1950-1975
  • Slowdown and Restructuring 1975-1995
Following Urquhart, the development of the Canadian economy overall can be divided into the six main periods shown above.  

The first was a period of colonial development, in which the  colonies that came to comprise Canada were formed within the context of British imperial policy.  

In the second period these colonies coalesced into a federal union, which set about creating a transcontinental economy.  

The third period was on in which the Canadian economy became industrialized, although it was also marked by the simultaneous creation of the prairie wheat economy. 

The fourth period was one of great instability caused by the upheavals of the Great Depression and World War II.  

The fifth period was one of sustained economic growth beginning with the end of World War II and continuing until the mid-1970s.  

The last period was characterized by slowing and irregular growth from the mid-1970s to the end of the century. 

  

Colonial Beginnings
1500-1867
  • staples-based development
  • interaction of European culture and North American geography
  • institutional foundations
    • political
    • economic
    • social
    • cultural
  • population growth and settlement
The traditional staples approach serves as a framework within which the early period of colonial development in British North America can be explained by considering the production functions for specific industries: 
- the cod fishery 
- the continental fur trade 
- the timber industry 
- agricultural settlement 

and how this influenced the development of the political, social and cultural features of the colonies as well as their economic characteristics.  

- the theory of mercantilism also helps explain development in this early period insofar as "policy " was a factor. 

The colonial period was important for establishing the institutional framework of subsequent North American development. 

  

The "national policy" Era 1867-1896
  • a period of slow growth compared to that in the US
  • precarious export trade
  • low rate of real capital formation
  • net emigration
  • some increase in per capita income
  • territorial expansion
Slow growth characterized  the quarter century following Confederation in Canada, in stark contrast to what was happening in the US.  

Canadian exports were expanding, but slowly and the prospects for future growth uncertain. 

Investment in real capital sluggish. 

The rate of population growth was negative. 

But the overall rate of economic growth was positive and the basis was laid for more rapid development in the next period. 

  

Industrialization 1896-1929
  • very high rate of growth, even higher than in the US
  • western settlement and expanding export trade
  • high rates of real capital formation until 1914
  • British portfolio investment + US branch plants
  • expansion of manufacturing industries
  • hydro-electric power
  • chemicals
  • iron and steel...
  • urbanization and growth of domestic markets
Despite some setbacks, such as occurred at the end of World War I, real national output increased at a remarkable rate over this period.   

Associated with a great investment boom stimulated by: 
- development of the prairie wheat economy 
- expansion of industrial activity in central Canada 
- beginning of the new resource developments in the Canadian Shield 

By the 1920s Canada was: 
- a significant supplier on world markets of food, forest products, metallic minerals 
- increasingly urbanized 
- experiencing rapid industrialization 

 
Instability and Reconstruction 1929-1950
  • slow or negative growth in 1930s
  • World War II
  • Keynesianism and the era of the activist state
  • disorganization of export trade
  • Canadian social policy
  • consolidation and rounding-out of industrial sector
The decades of the 1930s and 1940s characterized by extreme volatility in levels of economic activity.  

There was a distinct break in the secular growth trend during1930s 

But growth accelerated in the 1940s and for the next 30 years the economy displayed both growth and development 

Canada's export trade was particularly affected by these developments, with the volume of exports plummeting in the 1930s and undergoing unusual fluctuations in the 1940s as a result of the disturbances to trade patterns resulting from the war. 

This was also the period during which Canada's  distinctive social welfare system began to take shape, blending both European and American elements. 

The Canadian industrial sector became more fully developed in this period through the development of new manufacturing and related service industries, some of which owed their existence to wartime requirements. 

 
The Postwar Boom
1950-1975
  • unprecedented period of sustained economic growth
    • rapid population growth due to both natural increase AND net immigration
    • high rates of real capital formation
    • relative decline in agriculture and other primary production
    • emergence of a mature industrial economy with high and rising levels of per capita incomes
The great postwar boom from the end of the 1940s to the mid-1970s was comparable in many ways to the turn of the century boom, but longer lasting.  

This was also one of two periods in Canadian history when the rate of population growth was significantly influenced by net immigration as well as by natural increase. 

Canada's export trade changed significantly in this period, with commodity exports falling relative to exports of manufactured goods, particularly with the coming of the automobile agreement with the US in the 1960s.  

Agriculture and other primary industries declined as sources of both output and employment. 

The tertiary, services industries, accounted for most of the increase in employment during the period.  

Labour productivity in Canada rose faster in this period than in most other industrial countries, making Canadian workers among the most productive in the world…with per capita incomes rising accordingly. 
 

Slowdown and Restructuring 1975-1995
  • Stagflation
    • collapse of the Keynesian consensus
  • Decline in productivity growth
  • Stagnant of falling levels of per capita income
  • Policy frustration
    • loss of confidence in activist role of government
    • political upheavals
  • Continentalization
  • National disunity
The postwar boom and the policy climate associated with it ended in the mid-1970s.  

The rate of productivity increase slowed.  

Unprecedented rates of "peacetime" inflation combined with a rising trend in unemployment creating a policy crisis. 

The rate of growth in real per capita income slowed although the effect on incomes was obscured by the high inflation rates of the time. 

Two severe recessions, at the beginning of the 1980s and again at the beginning of the 1990s undermined confidence in the economy and helped bring macro-economic management policy into disrepute.  

The mood of the country was also negatively affected by the growing signs of national disunity and acrimonious debate over trade policy. 

 
Population Growth

 

  • Two periods of rapid growth during which net immigration combined with natural increase to accelerate growth above the long-term trend
  • 1896-1914
  • 1945-1960
Overall, the driving force behind Canadian population has been natural increase. Net immigration has been a supplementary influence, being of particular significance only during two periods as noted above. 

The overall upward growth trend shows two distinct breaks: 
- one at the end of the 19th century when natural increase was augmented by heavy net immigration 
- the other the slowing of growth in the 1930s followed by the abrupt acceleration beginning in the late 1940s when the baby boom fertility increase was again augmented by a rise in net immigration.  

 

  

Real GNP Growth

 

  • steady growth at rates comparable to or higher than most industrializing countries until slowdown of 1970s
  • slowing of growth as in other industrialized countries since then
The chart depicts a rare record of economic growth and development ... one of the great success stories in history. 

Despite the stagnation of the 1930s, real GDP per capita in Canada rose more rapidly over a longer period of time than can be found in the history of any comparable country, and at a rate that compares favourably with that achieved in the US. 

This made the slowing of this growth in the 1970s particularly  painful, even if it was shared with most industrial countries and in some ways was less severe than in the US. 

  

Productivity Growth

 

  • Real GNP per worker in 1985
  • USA = 100
  • Canada = 92.2
  • Norway = 85.1
  • France = 80.1
  • UK = 68
  • Japan = 55.7
  • Hong Kong = 48.7
  • Argentina = 41.3
International comparisons of economic data are tricky because of technical and conceptual problems having to do with exchange rates, tastes, types of goods produced ... 

A new source of data,  the Penn World Tables, permit comparison of productivity in different countries but the data must be interpreted with caution. 

The most recent data on per capita real GDP suggest, however, that in the mid-1980s Canada still compared favourably with most other industrial countries with respect to productivity,  ranking second only to the US. 

 
The Distribution of Income

 

  • lack of long-term historical data 
  • in comparative terms Canada about "average" for industrial countries
  • since 1970s, increasing market income inequality in US and Canada
    • but offset by transfers in Canadian case
Comparative studies of economic development suggest that  some reasonable level of income equality may be a prerequisite for sustaining long-term economic development. 

The pattern of income distribution in Canada has been about average relative to other industrial countries.  

In recent years there has been some indication of a trend   toward increasing inequality (both in Canada and in the US, although more in the latter than the former). 

Since the mid-1980s family "market incomes" in both countries has become somewhat more unequal, but in Canada the effect of this has been offset by the more generous system of income transfers available. 

  

Size of the Economy

 

  • Canada has become a medium-sized industrial economy with a high level of per capita output and income.
  • In terms of economic absolutes, Canada is about 1/10th the size of the US.
Is bigger better? Not if you use per capita real income as the measure.  

Many of the largest countries in terms of population and total output are the poorest in terms of per capita real income. Some of the smallest are the richest.  

Canada today is a small to medium-sized country economically. 

  

Measures of Development
1997 UN HDI ranking: 

1. Canada 
2. France 
3. Norway 
4. USA 
5. Iceland 
6. Netherlands 
7. Japan 
8. Finland 
9. New Zealand 
10. Sweden
  • beyond per capita income?
    • quality of life measures

     

  • the United Nations' Human Development Index
    • longevity
    • education
    • real per capital GDP
Per capita real GDP may not be the best measure of wellbeing. But more complex measures are harder to interpret. 

One of the more elaborate is the United Nations'  "Human Development Index" which  incorporates three (equally weighted) component indexes measuring:  
-  per capita income  
-  educational attainment 
-  life expectancy.  

Whatever its shortcomings, this measure, published annually  since 1994, suggests that Canada has achieved one of the highest levels of economic development of any country in the world.

Would it be un-Canadian to conclude with that? 

 

The End
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