The Consolidation of the Nation Stale
If the typical economic institution of the old mercantilism was the merchant enterprise closely integrating the hinterland with the metropolis by ties of trade, investment and exclusivist arrangement, the dominant economic agent of the era of the l9th century metropolitan industrialization was a firm acting within highly competitive markets. This unit of enterprise was either a “Marxian” family business or a “Marshallian” firm incorporating numerous shareholders. In both cases. the success or failure of the entrepreneur depended upon his capacity to play the market and to manipulate the government. Here we have, in fact, the textbook case.
In Canada, the role of entrepreneur was exercised primarily by railway and financial promoters. These rather than the wheat producers were the men who occupied the strategic controlling positions, in business and government. The entrepreneurs and the local politicians were indeed members of a single socia1 class, there being few politicians without personal interest in the railways. The exchange of favours, which this association permitted, effected the institutional mechanism of capital accumulation.
In contrast to the United States this mechanism in Canada, as indeed, in many Latin American countries, did not function through business pressure and lobby on government. Rather, business was directly represented in the Federal Government. It was government which exercised national entrepreneurship, formulated the policies, and set the terms on which private initiative could be exercised and private profitmaking pursued.
The relationship between Canada’s first Prime Minister and the private entrepreneurs is well described by the Liberal historian, Frank Underhill:
”What MacDonald did was to attach to the national government the interests of the ambitious dynamic, speculative or entrepreneurial business groups, who aimed to make money out of the new national community or to install themselves in strategic positions of power within it – the railway promoters, banks, manufacturers, land companies, contractors and such people. They provided the drive behind his so-called National Policy, and they stood to reap the greatest benefits from it. They also required the lavish expenditure of taxpayer’s money in public capital investment if their ambitions were to be realized. In return their support was necessary to keep the Conservative government in office. The actual functioning nationalism therefore, that emerged out of Confederation was based on a triple alliance of Federal government, Conservative part and big business interests.”
The strategy of Canadian National Policy following Confederation in 1867 is well known. Agriculture expansion to the West was basic to the design. The rising demand for foodstuffs for the growing industrial cities of Britain was expected sooner or later, to provide a market for Canadian prairie wheat. The opening and settlement of the Canadian West required a transcontinental railway which had to span a thousand miles of uninhabitable muskeg between the settlement of the St. Lawrence system and the Red River valley. The railway would eventually pay for itself by hauling wheat to Montreal for transhipment to Britain, and by hauling the manufacturers of Central Canada to the new western settlements. As an integral part of the policy, the system was partially closed against the importation of American goods by a high tariff imposed in 1878.
For current and future financing, the Canadian Pacific Railway received 25 million acres in alternate sections of 640 acres in a belt 24 miles deep on each side of the tracks. In addition, it received 2,5 million dollars in cash, a twenty-year railway monopoly in the western areas, extraordinary authority over passenger and freight rates, the free gift of all completed government road beds and exemption from taxation in perpetuity.
The Central Canadian capitalists who gained from protection of Canada’s manufacturers were the same set of people who benefitted from government assistance to the railways. Canadian private venture capital flowed freely from railway enterprise into the financial sector and into manufacturing industries, including those supplying steel and rolling stock to the railway, fertilizer and farm equipment to the western farmer. As a development design the system could hardly have been more consistent and effective.
Domestic savings were effectively mobilized in this teamplay by the Anglo Canadian power elite. Large amounts of British capital were harnessed by the sale of government-guaranteed railway bonds. The cost – and the risk – of foreign borrowing was ruthlessly passed on to the general population in the form of high import duties, high prices for Canadian manufactured goods and high freight rates and financial charges. The heaviest cost was borne by the farmers of the eastern prairies where governmentally-organize exploitation by private Canadian railway and commercial interests financed western expansion. Railway revenues were boosted because the tariff induced a Row of high-cost manufactured goods, both imported and produced in Central Canada to the West. The sale of railway lands to the settlers yielded huge incomes to the capitalists of Central Canada. The financial strength of the railways was further protected by a government-granted monopoly which gave them the power to maintain high freight rates. All this assured a safe return to the London coupon-clippers.
Canada thus falls into the classic pattern of pre-1913 British foreign investment. The investor was assured a safe return in solid pound sterling while the risk – and the control – remained with the borrowing entrepreneur and the government of the hinterland. By 1913, some 75% of all British foreign investments were located in Canada, U.S.A., India, Latin America and Australia- New Zealand. Of all these countries, the heaviest major concentration of British capital was in Canada – with 14 per cent of all British investments placed in this relatively small country.
The risk of fixed interest debt contracted in foreign currency fell on the Prairies with dramatic impact in the 1930’s. When locusts and drought compounded the disaster of the collapse of the wheat market, tens of thousands of farmers whose lands and homes were mortgaged to eastern financial interests, went bankrupt, as did municipalities and even some provinces. By 1930, the interest burden on Canada’s external debt had risen from previous levels of 3 per cent to 6½ per cent of G.N.P. – claiming 25 per cent of the country’s export earnings. But in spite of the disaster, entrepreneurship and control remained firmly in Canadian hands.
Excluded from economic and political power, the western population and the maritimes paid highest for nation-building. There was much protestation: from the Maritimes, constant complaints about the tariff and demands for financial compensation in the form of subsidies, and from the West, mounting resentment against exploitation by the Canadian Pacific Railway and by Central Canadian financial and manufacturing interests. But the power complex was secure and tight enough to survive.
It is true that success did not come at once; it is also true that, whenever the success of the National Policy appeared to be in doubt, continental integration in the form of reciprocity was offered to the electorate as an alternative. But, in spite of the heavy burden placed upon the population by the entrepreneurial classes, reciprocity was rejected by the electorate 1891, 1911 and 1921.
Aitken suggests that out of the National Policy there emerged a sense of national identity and purpose:
“The overall objective of the policy was to make possible the maintenance of Canadian political sovereignty over the territory north of the American boundary that is to say, to prevent absorption by the United States and to build a national state that could guide its own economic destiny, and assert its independence, both from the mother country and the United States, within limits no more restrictive than those necessarily applicable to an economy dependent on staple exports for its overseas earnings. Sustaining the policy was an emerging sense of national identity and purpose, analogous to the sense of manifest destiny which had coloured the expansion of the United States.”
The, vision of Canada’s wheatlands stretching from Eastern to Western Prairie horizon brought European immigrants by the million in the first decade of the 20th century. The country achieved a rate of growth equalled only by the boom of the 1950’s. When Sir Wilfred Laurier declared that the 20th century belonged to Canada, nobody then thought it ludicrous. ‘
But the grand construction of a Canadian national economy built on East-West spine was imperceptibly being undermined by the strengthening North-South linkages of trade and the entry of direct American investment into resource and manufacturing industries. The structure cracked when Britain lost its pre-eminence during the First World War. The cracks were widened during the Depression and the collapse of the international economy. The East-West structure disintegrated altogether during the years which followed the Second World War.
Concurrent with the fracturing of the old national economy came a regression to regional fragmentation of the political system. The emergency measures taken by the Federal government to deal with the catastrophe of the thirties and to mobilize the country for the Second World War obscured, for a long time, the new trend towards economic and political decentralization. The reverse of the process or national unification dates not from the late 1950’s, when it came into the open, but from the break-up of the international economy, in the inter-war period and the rise of a new mercantilism whereby the North-South links of corporate organization disintegrated the older links of the Canadian national economy and thus mobilized the powers of the Federal government over the economic life of the country.
We shall see later that the current crisis of Canadian nationalism and its failure to arrive at a consensus of national goals and objectives is the outcome of these ascending continentalist economic forces. These forces are the primary factor in regional decentralization and the consequent erosion of the powers of central government.
The process has been permissively assisted by successive Liberal administration. The Liberal Party today is undoubtedly the party of big business – we cannot say Canadian big business, because there is no longer quite such a thing.
The Conservative Party is wandering in the wilderness, temporarily saved from extinction by the off-beat chairman of that Tory Prairie radical, John Diefenbaker. The Conservative Party continues to cling to the symbols of British monarch} which served Sir John MacDonald so well when he clothed himself in the Union Jack while building the Canadian nation on the North American continent. Lacking big business support having little labour support, ethnically and culturally antagonistic to the self-assertation of French Canada, and with the poor old Union Jack now ” in rags and tatters, the great Conservative Party was recently up for g1abs with nine leadership candidates competing for the prize. The tarnished glitter is attractive only by comparison with the doubtful fate of the great Liberal Party. Heaven alone knows how many leadership candidates will offer themselves when Pearson retires.
The Underhill triple alliance of Federal Government Conservative Party and Canadian Big Business which gave birth to the Canadian nation and secured its economic and political viability in a triumph of “history over geography” and “politics over economics” has conclusively disintegrated.
Since this was written, the leadership pf the Conservative Party was bestowed upon a provincial premier, whose claim to the position rests on his cool ability to avoid committing himself on any major issues, while yet projecting an image of honesty. It is indicative of the trend to political fragmentation and the reduced powers of Central government that the leadership race narrowed down to a contest between the premiers of two minor provinces. The entrenched conservative leaders of Ontario and Quebec showed no inclination to abandon the solid powerbase of provincial politics for an uncertain and shadowy fate in Ottawa.
As far as the Liberal Party, there are currently eleven candidates. At the time of writing the popularity contest is swinging in favour of a newcomer to party politics – a debonair, millionaire university professor whose semi-French origin and intransigent opposition to the aspiration of Quebec to greater sovereignty have touched off a love-affair of national dimension in English Canada. How Mr. Trudeau’s philosophic liberalism and anti-nationalism will equip him to strengthen Canada vis-à-vis the United States remains to be seen.