3 Canadian Development and the Evolution of the Manufacturing Sector: 1900 to 1929
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Productivity comparisons of Canadian manufacturing have contributed to the general notion that this sector was the weak link in Canadian economic development. There have, however, been some dissenters among economic historians. Safarian (1959), writing on the Great Depression of the 1930's, states that by 1929 a very considerable development had taken place in Canadian manufacturing. In his background study to the Rowell-Sirois Commission, W.A. Mackintosh (1964) describes the sector as having become more specialized and integrated between 1900 and 1929 and credits this change to the growth in the size of the domestic market that followed the settlement of the Canadian west.
What impressed both writers was the rapid growth in the Canadian economy and a concomitant growth in Canadian manufacturing during the early part of 20th Century. During the last decades of the nineteenth century, Canadian economic growth languished. In the last two decades of the nineteenth century, Canadian population grew about 11% each decade (Urquhart and Buckley, 1965, p. 14). In the first three decades of the twentieth century, population grew by 34%, 22% and 18% respectively. GNP also grew more rapidly after 1900. M.C. Urquhart (1987, p. 32) calculates that the growth between 1870 and 1900 as 92%, and between 1900 and 1926 as 170%.
The growth in the manufacturing sector during the first three decades of the 20th Century followed that of the economy as a whole. Manufacturing GDP remained at around 22% of total GDP throughout the period from 1900-1926 (Green and Urquhart, 1987). The constancy in the share of manufacturing output indicates that this sector grew at about the same rate as the total economy. Thus, the dramatic expansion in agricultural production, which occurred with the opening of the West, was apparently accompanied by equally rapid growth in manufacturing output.
Over the period of rapid expansion that lasted from 1900 to 1929, the factors that accounted for growth changed. In the first two decades, real output grew in response to western settlement on the Canadian Prairies. During the period up to the beginning of World War I, this growth was accompanied by an investment boom. Acreage seeded in wheat increased between 1891 and 1901 by 56%; by 109% and 106% in each of the next two decades, but only by 37% between 1921 and 1931 (Urquhart and Buckley, 1965, p. 362). Miles of main railway track followed the same pattern—34%, 40%, 57% and 8% over the same four decades (Urquhart, 1987, p. 28).
While there were direct spinoffs associated with the wheat boom in industries such as flourmilling, iron and steel, and transportation products, the large increase in the domestic market occasioned by rapid population growth also provided for substantial expansion in such consumer product industries as textiles, clothing and leather. This was also the period when non-ferrous metals exports grew substantially and so did the associated smelting industry.
From 1914 to 1929, the level of investment activity declined, and a major source of income growth became the export of wheat and flour—a sector in which the country enjoyed a distinct comparative advantage. Furthermore, in the period after 1914, Canada switched from being a net importer of capital to a net exporter (in the 1920's). From World War I onward, therefore, the growth in demand was met increasingly by domestic goods producers.
The relative importance of manufacturing industries changed during the first three decades of the century. The transformation can be gauged by changes in the percentage of employment accounted for by each two digit manufacturing industry (Table 1).
During the first decade of the century, iron and steel, transport equipment and the mineral group—(non-ferrous and non-metallic)—gained about 8 percentage points. The consumer goods industries—textiles, clothing, leather and food—lost about the same amount. This split reflects the role played by high levels of population-sensitive capital formation. This investment resulted in substantially increased demand for steel rails, locomotives and cement.
The decade from 1910 to 1920 not only experienced the continuing effects of prairie expansion, but also the disruptive effects of World War I. Real GNP peaked in 1914 (Urquhart, 1987, Table 9) and was about the same in 1921 as it had been in 1911 (Green and Urquhart, 1987, Table 1). The First World War therefore was a period of little real growth in total output. However, it served to stimulate growth in munitions and in foodstuffs for export. It also reduced foreign competition in some consumer products industries like textiles where disruptions in European markets and overseas transportation served to increase the protection that Canadian tariffs already provided to the fledgling Canadian manufacturing sector.
Between 1910 and 1920, the pulp and paper industry began to emerge as an important new industry—though the 3.7 percentage point gain in relative employment in this sector was more than offset by the 10 percentage point decline in the wood sector. The manufacturing sector was becoming less dependent upon the forest sector overall. Steel products and the transportation sector expanded slightly in relative importance both because of continued prairie settlement and the artificial stimulus of war-time demand. Clothing's decline, which had started in the first decade of the century, accelerated during this period. It lost some 4 percentage points of total employment. Textiles, on the other hand, gained about 3 percentage points, as European competition was reduced by World War I.
The wartime decade also saw the emergence of several new industries. Rubber products, an industry associated with the beginning of the automobile revolution, increased its importance from 0.4 to 2.6% of total employment in manufacturing by 1920. Electrical machinery grew from 1.3% of total employment in 1910 to 2.4% in 1920. This industry was associated with the rapid growth in hydro-electric production.10 Finally, printing and publishing increased its percentage of total employment from 3.4% to 5.1% as urbanization led to an increased demand for newspapers.
The decade of the 1920's was one of rapid growth in total and per capita income. It was a period marked by large external sales of wheat and flour as well as mineral and paper sales. These were commodities in which Canada had a comparative advantage. This decade was less influenced by the initial investment boom associated with western settlement than by the growing domestic market provided by established farmers in the west, and by the emergence of an urban-industrial society in the east. The diffusion of electricity is reflected in the rise of the electrical goods industry (line 13, Table 1), while growth in automobile production filled part of the gap in the transport industry that was created by the slowing of railroad construction. These new technologies—automobiles and electricity—increased the demand for copper, lead and zinc which, along with exports, sustained growth in the non-ferrous metal industry. Finally, the nonmetallic industry expanded as the demand for cement and other building materials increased in response to a construction boom; but this time it was related to the growth of cities.
By 1929 then, the Canadian manufacturing sector was much larger than it had been in 1900; but so was the whole domestic economy. At the 2-digit level of industrial output, there was remarkably little structural change over the preceding decade. The main areas of relative expansion were in the 'new staples'—copper, lead, zinc and pulp and paper. Two-digit industry figures, though, mask changes in individual industries within some 2 digit industrial sectors. For example, transport industries shifted from railway rolling stock to automobiles, trucks and tractors. Iron and steel production adjusted to these more sophisticated demands.
The competitiveness of industries can be seen in their trade balances (export and import levels). In Table 2, the ratios presented in columns 3 and 4 measure the degree of import penetration and export importance respectively for various 2-digit industries. Imports were largest in absolute terms for textiles, iron and steel and transport equipment. For these three industries, imports as a percentage of domestic market (domestic production plus imports minus exports) were also high in 1929—33.6%, 28.9% and 24.1% respectively. The import ratio for non-ferrous metals was also high. Exports as a percentage of the domestic market was highest for pulp and paper (66.4%). Exports were also high in wood (23.2%), non-ferrous metals (66.4%), non-metallic minerals (26.9%) and rubber products (31.6%). Lower, but not unimportant, levels of export ratios were found in food and beverages (12.4%)—the result of flour exports—leather (11.7%), transport equipment (12.3%) and chemicals (13.6%).
In summary, the substantial export positions of pulp and paper, rubber products, non-ferrous metals, non-metallic minerals and wood products suggest healthy industries able to compete in world markets. Except for wood products, these were also industries that were growing in importance when measured by employment percentages during the first three decades of the twentieth century. By way of contrast, imports were important while exports were less so for iron and steel, textiles, petroleum, publishing and clothing. However, only the latter declined in importance during the period. In four industries, food and beverages, leather, transportation and chemicals, there was less trade and it was of a two-way nature. In this group, only leather declined in importance in terms of its percentage of employment over this period.
10. In 1910, there were 977.2 M.H.P. installed in electric turbines; by 1920, this had increased to 2515.6 M.H.P.; and by 1930, to 6125.0 M.H.P. (Urquhart and Buckley, 1965, p. 454).
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