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Canadian Economic History Essay


Introduction

Canada, a country believed to have gotten its name by slip-up when a French explorer mistook the village word “Kanata” for “Canada”, is today one of the greatest economic hubs and the second largest country in the world.

The world sometimes jokingly refers to it as a country that runs from “sea to sea.” Diverse Aboriginal people predominantly inhabit Canada and it consists of 10 provinces and 3 territories, mostly dominated by the British and French settlers (Kalman 4-13).

Through the Canada Act of 1982, the country strengthened its political muscles by becoming a federal state and placing Queen Elizabeth II at its head. It is today a “bilingual and multicultural state governed through parliamentary democracy and constitutional monarchy” (Cyr 41).

The latter system is also the basis on which the executive, legislative, and judicial arms of state are founded. In addition, Canada stands out, within the continent and elsewhere in the world, as a country governed by economic transparency. The country also does satisfactorily well in the international rankings in major areas like political freedom, respect for human rights, education, and quality of life.

Purpose of the Paper

The purpose of this paper is to present an analytical examination of the “Canadian Economic History”. Canada’s economy is significantly one of the largest economies in the world today, with an approximately US$1.74 trillion nominal GDP. It is also one of the highest liberal economies across America and Europe as per the heritage index of economic freedom.

Perhaps the major question is how Canada has made it this far economically. For many people, the answer could be the expansion of the political freedom in Canada, or the establishment of more democratic institutions, bringing about transparency in the economic sector. According to this paper, however, the answer lies in the economic history of the nation.

This essay has thus been structured around the Canadian economic history, which has been broken down into smaller significant areas, supported with different valid facts. The first part, “staples thesis”, is used to explain the nation’s resource-based economy given the complexity in understanding it.

The second part looks at the major staple commodities in the country’s history, while the third and fourth parts review the major economic philosophies before and after the expulsion of the French traders from Canada.

Other significant areas addressed, especially in the seventh and eighth sections, analyze Canada’s economic status during and after the two World Wars and their impact on the present economy. The overall analysis determines Canada’s growth to its economic history.

The Staples Thesis

The Canadian economic history stands out for the fact that all the economic frameworks that worked well in other nations, mostly in Europe, either failed to work in Canada or had little impact. A good example is Marxist economic classes, which failed to address the country’s resource-based economy.

Its complex economic relationship with other countries developed after the Second World War, particularly with the US (Easterbrook and Watkins 259). Given the complexity in understanding the Canadian economy, a section of historians has always employed the staples thesis to address fully the economic history of the country.

This school of thought, “staples thesis”, which primarily focuses on the economic geography of Canada, proposes that the Canadian economic history should be studied from the perspective of natural resources (Altman 230-55). Innis, one of the prominent scholars of this philosophy, argued that the country had economically flourished because of its staple commodities.

He particularly listed fur, timber, fish, and agricultural products as major staple commodities that dared the economy into the international markets, especially in Europe and the United States. He further argued that, this economic partnership cemented the country’s cultural links in other major sectors.

Within Canada, he argued, the different staple commodities led to the realization of different economies in the ten provinces. The economy of the Atlantic Canada, for instance, emerged from its trade in cod. The Western Canada heavily relied on wheat for its economy. In Central Canada, fur dominated the economy.

The remaining provinces also had their own staple commodities that propelled their economies (Altman 230-55). Innis, however, argued that the fur trade boomed the general economy of Canada.

Inasmuch as the ports opened the region to the United States, fur cemented Canada’s relationship with European nations, especially France and Britain. The proponents of this school of thought thus argue that Canada managed to sustain its economy because of its exportation of staple commodities.

Canadian Economic History

Way before the arrival of British and French settlers into the country, Canada had a great and vibrant trade networks within its boarders, which were primarily dominated by “waterways”. The natives traded in furs, tools, fish, and decorative items. Mostly, the traders used small boats given the extensive body waters that border and crisscross the country.

They also heavily relied on hunting and gathering for food and a variety of other important items. When French and British traders started arriving, the natives admired their alcohol, weapons, and jewels. In exchange of these products, they gave out pelts from their native beavers, which the European traders equally treasured.

The result of this exchange led to profoundly strong economic and cultural relations between the natives and the European traders (Easterbrook and Aitken 23-50).

Fur trade

The fur trade was perhaps the most traded item that propelled the Canadian interior economy. The North American woodlands were full of many fur animals, and this element was an added advantage to the pelt industry for the natives, who were skilled hunters and gatherers would kill the animals and get pelt for the European merchants. In exchange, the natives got guns and textiles.

They were also given luxury items like mirrors and beads from Europe (Carlos and Lewis 705-28). The other players in the fur trade were the woodsmen. They mainly brought pelts from the forest, through the Atlantic Ocean, to the major ports of Montreal and Quebec.

In the early phases of the trade, the French mainly dominated the major ports and trading forts in the region. The British traders built more elaborate and parallel networks in other promising ports and forts to scuttle French domination and open trade to other regions. As a result, a boisterous contention developed between the two nations.

Timber

Timber was the prevailing staple commodity in Canada in the early 19th century. Previously only known to the domestic market, timber became a large export market for Canada in the nineteenth century as most European countries exhausted their supplies. As the 18th century set it, forest reserves had vitiated considerably in the Great Britain and thus it turned to Canada to replenish its supplies.

The Royal Navy, which had been built using the great oaks, was already getting old and most of the materials could not be re-used. Timber was also an important commodity to Great Britain for its merchant shipping and putting up of new structures in its colonies. Even the United States, which still had some timber reserves, saw the inevitable inadequacy of its stock and thus turned to Canada.

However, the Napoleonic Wars boomed Canada’s timber industry. British needed timber for its wars, but it had none. The other involved countries in the war also had little or none.

Canada became the massive business for timber-trade. Almost every province exploited the timber industry making it Canada’s most important commodity. The Bank of Montreal and some of the largest towns in Canada were allegedly built with the money generated from the timber industry.

Fish Industry

Another important feature before the Second World War was the fishing industry. Actually, the first group of European settlers in the region ended up in Canada through the Grand Banks of Newfoundland in search of fish.

Norrie and Szostak posit that soon after, many boats “especially from France and Great Britain, traversed the land through the Atlantic Ocean and would stay there during the summer and leave with fish at the end of the season” (46). The other factor that also boomed the fishing industry in the region was the dire need of fish in the Catholic dominated countries.

The land was mainly dominated by anglers from regions that had scarce supply of salt, like those from Northern France and Britain. They mainly preserved their fish by hanging them on fish-racks on the main land. Since this process took months, they also built structures that soon became permanent settlements for most of them.

Farming and other Agricultural Products

Canada was also popular for its agricultural products. The country mainly produced wheat and canola in large quantities enough to supply to its regional neighbors. The agricultural sector was mainly boomed by the timber industry. The timber trade required men to stay in one zone for quite a long time.

Given that there were many of these zones, the country needed to supply the workforce with enough food. In the beginning, the lumber towns and zones mostly relied on the US for much of their food, especially barrels of pork, but the shipping cost became high.

The only available option was to invest in locally produced goods. Ontario City took an interest in farming and other high-grade consumer products. The main objective was to grow crops that would be harvested within shorter periods.

They also began keeping cows and rearing chickens mainly for the growing urban market and workers at the timber locations. This captive market became the basis for permanent settlements and opened the region to other new markets (Kaman 24-26).

Wheat boom industry

Astoundingly, Canada experienced its highest economic growth in the late years of 1890s up to the eruption of the First World War. This era was also the phase of an immense structural transformation of the Canadian economy. The period is sometimes referred to as the “Wheat Boom Era” because of the massive export economy that was based largely on wheat.

The staple commodity became the golden crop for the Prairie Provinces and the larger economy of Canada. The wheat industry also led to the construction of the Pacific Railway line easing the transportation of the commodity and other products (Ward 856-83).

Major Philosophies in the Canadian Economic History

Canada’s economy has progressively grown, taking into consideration different factors. It was not just about the booming staple industries, but also the philosophies that guided these industries. These philosophies include Mercantilism, Corporatism, and Capitalism. French traders and settlers mainly used the first two schools of thought, while the British colonialists introduced capitalism, which is still the dominant philosophy in Canada.

Mercantilism and Corporatism

The Canadian economy during the colonial times mainly hinged on two philosophies, viz. the mercantilism and corporatism. The economic idea of mercantilism revolved on the notion of reaping maximum material benefits from the colonized land, for the mother country, with little or no imperial investment on the land itself.

This system was common amongst French, who dominated the region between 1613 and 1621. In 1627, King Louis XIII introduced another system, corporatism, to include its habitants. The idea was to encourage economic corporation with everyone on the land, and this idea culminated into what is today called Canada (Leslie 20).

Capitalism

Capitalism is Canada’s dominant economic philosophy. After the expulsion of the French from Canada and the repeal of Corn Laws, the British government opened the market to other settlers. The idea of ‘Capitalism’ came from the colonial business elites that had taken an interest in the country’s economic trades.

Their main aim was to create a local financial system, and they ultimately manifested this ideology in the banking and insurance sectors. The Canada Banking Company (1792), the Bank of Montreal (1817), and the Bank of New Brunswick (1820) are some of the major banking systems of the period.

Insurance companies included Sun Life (1865), Mutual Life (1870), and London Life (1874). Another important manifestation of this system was the creation of the Montreal Stock Exchange and the Toronto Stock Exchange (Easterbrook and Aitken 445).

Economic lessons before World War II

Confederation

The repeal of Corn Laws and the expulsion of French from Canada taught Canadians a great lesson just on how far they could economically count on foreigners. In addition, the cancelation of the preferential treatment with Great Britain also taught them very hard economic lessons.

The greatest lesson was to never rely on one market for economic prosperity. In 1854, “the country signed its first treaty with the US termed the Canadian-American Reciprocity Treaty (CART), which opened its economy to the United States market” (Martin 237). The treaty flopped later, but the countries maintained their economic relationship.

Another important factor was the Great Depression. Based on its economic relationship with the U.S, Canada was badly hit by the crisis that had originated in the American markets. As the U.S economy began to collapse, it was clear that the Canadian economy was quickly going to follow suit.

At the end of the depression, the wheat industry was almost falling apart. The country also lost 30 per cent of its workforce. A fifth of the population literally relied on the government for assistance. The crisis was far worse in rural areas. Almost two thirds of the rural populace became reliant on relief food.

With the U.S raising tariffs in their market, the Canadian wages and prices consequently fell by significant margins. Foreign investments drastically reduced, rates of crimes increased, and the population growth severely narrowed down. The other threatening situation was the escalating rates of unemployment.

After World War II

Canada’s economy today is one of the largest economies in the world, with approximately US$1.74 trillion nominal GDP. According to the research conducted in 2010 and 2011, the country was ranked as the world’s ninth and eleventh largest economy per income capita respectively.

In economic freedom as per the heritage index, Canada is ranked the highest liberal economy across the entire North of American bloc and Europe beating major economies like the US and Germany. For instance, in 2008, the country imported record goods valued slightly over US$443 billion. Out of these, goods worth $281 billion originated from the US, $12 billion from Japan, and about $ 11.2 from the UK (Messick and Kimura 21-40).

Canadian economy is a mixed economy relying mostly on its natural resources and international trade. On natural resources, Canada’s economy mainly relies on the logging and petroleum industries, which mainly come after manufacturing, mining, and service sectors.

Of the three sectors, the service industry stands out as the primary sector housing about three quarters of the country’s labor force. The country also exports energy, which is an uncommon phenomenon in first world nations.

Presumably, the Atlantic Canada contains immense offshore-deposits of natural gas that are yet to be fully explored. However, the massive Athabasca oil sands position the country as the second largest home to verified oil reserves.

Apart from the gas and oil industry, agricultural products also dominate the country’s economy. The country does well in wheat, and canola amongst others. Additionally, the country has erected major buildings in its towns because of timber the availability.

Mining explorations have indeed made Canada a leading producer of zinc and uranium. The country also does well in gold, nickel, and aluminum. There are also leading signs that the country could be equally rich in lead, though the sector needs further exploration. The other remaining major industries are automobiles and aeronautics.

On the international trade market, Canada is one of the top 10 trading states in the world. It is a member state of the Commonwealth of Nations, Organization for Economic Co-operation and Development (OECD), G7 & 8, APEC, UN, G20, and NATO. While these affiliations have contributed to its economic growth, its complex relationships, particularly with the US, have propelled Canada to great economic heights.

Canada has long and significant relationship with the US dating back to the World War II. In 1988, the two nations signed another agreement, the Canada–US Free Trade Agreement (FTA), which removed all the economic tariffs between them.

In 1994, the two countries extended the olive branch to other countries in the North American region under the agreement of the North American Free Trade (NAFTA) to expand their free trade market. Through these accords, the country managed to pay all its national debts and considerably increased surpluses in its annual budget.

Economic Recession

The worst crisis in the Canadian economic history happened in 2008 during the global financial recession. By the end of the year, Canada was already recording one of the highest unemployment rates in the region. By the end of 2009, the country’s national unemployment figure had hit 8.6 per cent. Regions of Labrador and Newfoundland were the highest hit in terms of unemployment, with the rates shooting as high as 17 per cent.

The only province that was not seriously affected was Manitoba, with a low unemployment rate of 5.8 per cent. Between 2008 and 2010, the country’s labor market significantly reduced. Approximately, about 224,000 permanent jobs were lost. Another 163,000 around the clock jobs (full time) were also lost. Going by the scales, between 2008 and 2009, the Canadian state lost about $464 billion.

The amount lost for the fiscal year 2010 – 2011, translates into a federal debt of about $567 billion, a real scaring figure for an economy. Its foreign debt, as of 2010, had also risen to an estimated amount of $ 194 billion.

However, comparing the Canadian economic situation at the end of the crisis with other G8 nations, one would say Canada had better structures to contain the situation. One of the reasons could be that the federal government had set aside some budgetary surpluses in the previous years.

It could also be the country’s regulated banking sector, which many economists believe was a better bailout for the country under the financial circumstances. Again, prior to the crisis, the federal state had also put long-term structures and policies that probably helped to lower the national debt significantly.

On an average assessment, the global crisis of 2008 had minimal destruction to the Canadian economy compared to the other G8 nations.

As of this year (2012), the Canadian economy is doing well and the worst hit sectors during the recession are steadily stabilizing. The country is also reaching out to new partners, especially the Asian countries, to expand its market. The Canadian industries have “begun reaching out to the Asian markets in order to diversify their exports” (Heinbecker and Momani 161).

In the recent months, for instance, there have been wide talks with China to build an oil pipeline between the countries in order to facilitate in selling out its reserves to China. Canada has also tightened its economic relationship with the US to propel its economy (Heinbecker and Momani 161).

GDP Growth Rate

Canada’s Gross Domestic Product (GDP) in its entire economic history is estimated at an average growth rate of 0.83 per cent. The lowest GDP of -1.8 percent was recorded in 2009 during the global financial crisis, while the highest growth rate at an average of 3.33 percent was reached in 1963.

As of the second quarter of this year, Canada’s GDP growth rate rose by 0.5 per cent from the rate of the previous quarter. GPD growth rate is particularly important to the Canadian economy because it provides an aggregate measure of the country’s goods and services given its diverse and highly developed market (OECD 28).

Conclusion

Canada’s economy is one of the “largest economies in the world, with approximately US$1.74 trillion nominal GDP” (OECD 28). According to the research conducted in 2010 and 2011 respectively, the country was ranked as the world’s ninth and eleventh largest economy per capita income.

As of the second quarter of 2012, the growth rate of GDP had risen by 0.5 per cent from that of the previous quarter. In economic freedom as per the heritage index, Canada is ranked the highest liberal economy across the North American bloc and Europe, beating major economies like the US and Germany.

While the staples thesis argues that the Canadian economy primarily revolves on its natural resources, most analysts today believe that there is a great balance between the country’s natural resources and its international trade relationships.

Works Cited

Altman, Morris. “Staple Theory and Export-Led Growth: Constructing Different Growth.” Australian Economic History Review 43.3 (2012): 230-55. Print.

Carlos, Ann, and Frank Lewis. “Property rights, competition, and depletion in the eighteenth century Canadian fur trade: the role of the European market.” Canadian Journal of Economics 32.3 (1999): 705-28. Print.

Cyr, Hugo. Canadian Federalism and Treaty Powers: Organic Constitutionalism at Work. Brussels: Peter Lang, 2009. Print.

Easterbrook, Thomas, and Hugh Aitken. Canadian Economic History. Toronto: University of Toronto Press, 1988. Print.

Easterbrook, Thomas, and Mel Watkins. Approaches to Canadian Economic History: A selection of Essays. Carleton: McGrill-Queens, 1988. Print.

Heinbecker, Paul, and Bessma Momani. Canada and the Middle East: In Theory and Practice. Canada: Wilfrid Laurier University Press, 2007. Print.

Kalman, Bobbie. Canada: The Land. Alberta: Crabtree Publishing Company, 2009. Print.

Leslie, Peter. Canada: The State of the Federation. Ontario: IIGR, Queen’s University, Print.

Martin, Ged. Britain and the Origins of Canadian Confederation, 1837-67. Ontario: UBC Press, 1995. Print.

Messick, Richard, and Kaku Kimura. World Survey of Economic Freedom 1995-1996: A Freedom House Study. New Jersey: Transaction Publishers, 1996. Print.

Norrie, Ken, and Rick Szostak. “Allocating Property Rights over Shoreline: Institutional Change in the Newfoundland Inshore Fishery.” Newfoundland and Labrador Studies 20.2 (2005): 27-56. Print.

OECD. OECD Regions at a Glance 2011. Paris: OECD Publishing, 2011. Print.

Ward, Tony. “The Origins of the Canadian Wheat Boom 1880-1910.” Canadian Journal of Economics 24.4 (1994): 856-83. Print.

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