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Lecture 8

Lecture 8--The Role of Government in Canadian Business History.doc

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York University
MGMT 1030
Frank Miller

The Role of Government in Canadian Business and Economic History MGMT 1030 Schulich School of Business The Staples Economy and British Colonial Preferences  American Revolution and Napoleonic Wars stimulated British demand for colonial timber  Traditional sources of British timber were the Baltic Sea nations  high cost of trans-Atlantic transport made North American timber uncompetitive  most Baltic ports closed to British ships after 1805  Colonial preferences instituted for colonial timber  1809—tariff of 27 shillings per load of Baltic timber; tariff of 2 shillings per load of British colonial timber  1821—tariff of 55 shillings per load of Baltic timber; tariff of 10 shillings per load of British colonial timber  these rates applied until 1841  timber exports from New Brunswick exploded as a result of these preferences  New Brunswick timber exports to Britain increased from 5,000 tons in 1805 to 420,000 tons in 1825  82% of all exports from New Brunswick were forestry-related in 1853  British timber markets gradually replaced by American timber markets after colonial preferences removed in the 1840s - British have a massive demand for timber to facilitate construction of massive navy - Used government policy to create secured supply of timber in North American policy - Put huge tariffs on timber, high during Napoleonic War; wanted to use protection and create colonial timber market - Huge income coming in from forestry - Ontario and New Brunswick timber start flowing towards USA The National Policy and Canadian Industrial Development  Federal government secured 60% of its revenue from tariffs between 1867 and 1879  Broad range of interests sided with John A. Macdonald in 1878 supporting the raising of tariffs  High tariffs, transcontinental rail link, manufacturing in central Canada, and settlement of the West were all linked under the National Policy after 1878  Encouraged U.S. “branch plants” in Canada to avoid tariff barriers  37 American branch plants in Canada established between 1879 and 1887  29 more branch plants established between 1888 and 1900  By 1929, more than 1,000 Canadian firms were wholly or partially owned by Americans  Canadian industry heavily dependent on foreign direct investment  Direct U.S. investment increased from 618 million dollars in 1914 to 1.65 billion dollars in 1929  National Policy largely incomplete before settlement of the West after the 1890s - Government dramatically expanded tariffs to focus industrial protection, create rail link to facilitate creation of new market and western immigration, and use government revenues to develop that - Due to National policy, a lot of businesses owned by America - Significant increase in USA direct investment in Canada - National policy, creates branch plant economy, populates west, develops infrastructure - The Canadian Government and the Wartime State  Federal government expenditure increased from $681 million in 1939 to $5.1 billion in 1945  Military spending from $126 million to $2.9 billion  Employment in war industry increased from 121,000 in 1939 to 1.1 million in 1943  Steel industry employment increased from 73,000 in 1939 to 213,000 in 1943  Value of steel products increased from $321 million in 1939 to $1.3 billion in 1943  Wage and Price Controls  PC 7440 (December 1940)—“fair and reasonable” wage levels based on 1926-1929 wages  Labour Control  National Selective Service created in March 1942  Workers needed to register for employment and gain permission to leave employment  Workers in essential industries such as coal mining frozen  Compulsory transfer of workers in non-essential to essential industries - Givernmet started to become heavily involved in the economy - Incrase spending in war industry - Steel industry, essential to military, employment increases significantly - Steel products value increases as well - Direct government intervention changes the way business takes place - Even more government intervention; started moving people based on where they wanted them - At end of the WWII, government intervention actually had good effect - Federal Government Policy Options in the 1970s and 1980s 1) Pierre Trudeau and Liberal Approaches to Economic Malaise A)Economic Performance  Real GDP growth declined from 7.7% in 1973 to -3.0% in 1982  Unemployment increased from 6% in 1973 to 11% in 1982  Inflation rate increased from 5% in 1973 to 10% in 1982  Federal budget deficit increased from $3.8 billion in 1975 to $20.3 billion in 1982 B)Government Response  Stringent monetary policy  Bank of Canada interest rate reached 21% at its peak in 1981  Anti-Inflation Board created in 1975 to limit wage increases  Largely ineffective C)Intervention in the Petroleum Industry  Arab Oil Embargo (1973)  Prices quadrupled from $2 to $8 per barrel  Trudeau Government Response  Taxes on oil and gas exports  Creation of Petro-Canada (1975)  Controlled one-fifth of Canadian petroleum market by 1985  National Energy Program (1980)  Oil price reached $26 per barrel in 1979  NEP expanded federal control ove
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