Maple staple

The push for and backlash against Canadian economic nationalism during the Pearson–Trudeau years

Prepared 8 April 2008 for Profs. Steve Penfold and Heidi Bohaker (HIS263Y1Y, University of Toronto).

————— —— —————

In this paper:
Introduction
Walter Gordon and the nationalists
Assembly line logjams: tariff dams & the Auto Pact
Toronto: canvas for civic evolution
Economic nationalism: culture industries
The energy sector: protection under duress
Conclusion: did protecting the maple leaf help?
Endnotes
References


Introduction

In varying capacities, Canada’s worry of being overwhelmed — even overtaken — by the juggernaut of the United States dates not back to Confederation or post-Laurier autonomy, but to the origin of the U.S. itself.[1] Though along the way this fear manifested along geographic, political, and cultural vectors, what resonated with Canadians following World War II was the continuing expansion of American corporate interests within the Canadian economic realm. Increasingly, major business concerns in Canada were owned outright by Americans (or subsidiaries of American parent companies). The timing for this Americanizing push coincided with an improving prosperity that emboldened Canadian citizens and political élites alike with the latitude of moving beyond the survival ethos of the 1930s to ignite introspection on the nation’s postwar sovereignty. By 1960, this played out differently in each of French and English Canada, but a similar theme emerged from both: a new nationalism — a Canadianism within English Canada. It ushered sometimes prolix debates on economic imperialism; stirred public sentiment on matters of job security (coinciding with a national recession at the turn of the ’60s); questioned political clout within a global context; and called for ways to curtail the nation’s economic dependence on and productivity gaps with the U.S.[2] A new generation of postwar activists chimed in assertively, but so did seasoned leaders. Would retrenchment of national interests over economic policy solve the problem of this American imperialism?

This essay visits a few themes. First, the lead-in to this new Canadianization emerged in the 1950s, led largely by the prominence of Walter Gordon’s voice in the political arena, but who else was pressing for this nationalism? Were its advocates unified by a single goal? Next, automobile manufacturing in Canada experienced exceptional impediments, resulting in skewed trade deficits and dragging the domestic economy with it. How did federal government, labour unions, and corporate management negotiate through this seemingly intractable situation? Did it alleviate the trade imbalance? Third, as Canadianization gained traction, what other industries were swayed? Finally, by the 1970s, the emergence of a geopolitical energy crisis raised further questions on national sovereignty. Did the tack Canada pursued remedy or exacerbate this situation? Ultimately, did nationalism benefit Canada’s economy in the long run?


Walter Gordon and the nationalists

His name arises frequently on matters of Canadian economic policy. While Walter Gordon fielded the brunt of criticism for his tireless refrain of Canadianizing the economy (particularly as it underscored Canada’s increasing economic dependence on American investment), it would serve as shortsighted to suggest that he alone spoke out on this concern — or that he did so under an auspice of strict idealism.

Gordon’s genesis in public service followed the aftermath of, curiously, the discrediting of U.S. Senator Joseph McCarthy, whose anti-Communist hearings were by 1953 deemed a witch hunt; following the House of Commons condemnation of McCarthy, spreading anti-American sentiment within Canada coaxed Gordon to gingerly raise questions about American leadership in an alliance against the Soviet Union.[3] Observing a “old and tired” St. Laurent government in 1954, Gordon declined an invitation from the prime minister to join his cabinet.[4] Instead, he prodded the St. Laurent government to open the Royal Commission on Canada’s Economic Prospects, both as a way to question an increasing American presence in Canadian affairs and to challenge Trade & Commerce Minister C.D. Howe’s encouragement of foreign ownership (namely American) of Canadian enterprises so long as it assured a “consistently high level of employment and income.”[5] Gordon was appointed as the Commission’s chair.

The Commission’s findings, later submitted as the Gordon Report, informed the newly elected Diefenbaker government in 1957 the alarming rate at which American investment in the Canadian economy was subsuming Canadian-controlled businesses; he pressed the Canadian government to actively participate in how non-Canadian interests conducted business domestically, recommending tariffs, restricting free trade measures, and tying these measures with the preservation of Canadian sovereignty.[6] Per some Commission recommendations, foreign businesses in Canada would be required to include Canadian directors on boards; up to a quarter of their shares would be reserved for Canadian investors; and Canadian-owned businesses would enjoy tax incentives.[7] Alas, Diefenbaker’s Tories were nary moved by these Grit findings (clearly nationalist in scope), and it ultimately dismissed much of the Report.[8]

Lester Pearson, who assumed party leadership after St. Laurent’s defeat, brought Gordon on side to manage the structural affairs of the Liberals — which led government opposition until Diefenbaker’s defeat to Pearson on 8 April 1963.[9] During the Diefenbaker era, roughly one-third of Canadian industry was controlled by foreign interests, with about 80 per cent of this being American; the petroleum sector’s foreign ownership exceeded 60 per cent.[10]

Nevertheless, despite being a key figure in the Pearson Cabinet as his Minister of Finance, Gordon’s colleagues dismissed his overtures favouring nationalistic economic strategy. Many of his protectionist-driven initiatives for the first Pearson budget were widely rejected, such as a “takeover tax” levied on foreign buyers of Canadian businesses; the Cabinet even turned down his proposal for a Canada Development Corporation — a kind of crown incubator for Canadian-originated enterprises — though the idea eventually materialized a few years later in the Trudeau government and remained a fixture through the mid 1980s, when Mulroney’s Tories dissolved it.[11] After resigning from the Cabinet in 1965 (replaced by Mitchell Sharp, a freer-trade advocate opposing many of Gordon’s ideas), his involvement in economic policy never again enjoyed the leverage of being a senior-level minister, but his overtures stressing nationalism over continentalism slowly met favour with other Canadians, spilling into wider debate by 1970.[12]


Assembly line logjams: tariff dams & the Auto Pact

The automotive industry offered a prototypical example affirming Gordon’s worry that American interests were trumping Canadian economic security. Until the 1950s, the three dominant automobile makers in Canada were this country’s subsidiaries of Ford, General Motors, and Chrysler.[13] Tariffs between the U.S. and Canada impeded the latter’s profitability and productivity of domestic manufacturing. Because of this, factories on both sides of the border operated in parallel and, thus, with redundancy: if a model’s popularity in Canada exceeded domestic production capability, then extra units had to be imported, cutting into the revenue of Canadian-assembled models; likewise, limited economies of scale relative to the U.S., higher retooling costs and, consequently, vehicle prices were higher in Canada than the same model assembled and sold in the U.S.[14] Worse, Canadian factory workers were paid less than their American counterparts as a consequence of these tariff-imposed inefficiencies, resulting in less money being passed along to the national economy through consumption.[15]

This exacted a toll on the Canadian economy, aggravating a precipitous trade deficit with the U.S. during the Diefenbaker years.[16] While the Canadian United Auto Workers (UAW) called for measures to nationalize the automobile manufacturing sector, its greater concern was job security and offering comparable wages with U.S. workers. Eventually, the imbalance provoked the Diefenbaker government to step in with a remedial measure known as “remission”, where power train parts (e.g., transmissions, engine blocks, etc.) could be shipped across the border duty-free whenever a shortage on one side of the border slowed production of a popular model.[17]

Continued pleas from the Canadian UAW locals, however, demanded further nationalization measures to improve worker job security, wages and the domestic industry — including creating an “all-Canadian” car not manufactured in the U.S., but this was dismissed due to cost ineffectiveness.[18]

In 1963, Pearson’s new government asserted a more direct role to help mitigate the trade imbalance. The remedy came in the form of a rationalization of automobile manufacturing across the border — namely, the removal of tariffs for original equipment parts involved in the assembly of cars and trucks; put another way, original parts used in assembling automobiles could be shipped over the border in either direction without tariffs being imposed, so long as a minimum ratio of Canadian parts were contained in the finished product.[19] This way, no longer was the Canadian sector required to eat the costs of importing parts, nor did it have to mirror the manufacture of the same models originating in the U.S. Over time, this enabled plants in both Canada and the U.S. to reserve their production to a handful of models, reducing the need to retool production machinery as frequently and improving efficiencies on both sides of the border.

In effect from the start of 1965, this came to be known as The Automotive Products Trade Agreement (APTA), or “Auto Pact”, but it lacked the worker protections the Canadian UAW had demanded. Soon after, their fears were realized when Ford laid off several thousand workers at its Windsor plant.[20] While this enraged the Canadian UAW director, the trade imbalances over the next few years began reversing to the point improved profits for Canadian assembly plants. Further, because the tariff on parts was lifted, it allowed wages for unionized Canadian workers to reach parity with their American counterparts. While the Auto Pact was a continentalizing manoeuvre, it eventually demonstrated that the Canadian UAW’s bargaining power and trade imbalances improved. By the late 1970s, it also enabled the Canadian plants to better withstand the downturn in the market. By the mid-1980s, the Canadian UAW’s strengthened position enabled it to break from the UAW to form the Canadian Autoworkers Union (CAW); while this idea would have been questioned in the 1960s, it became clear that the CAW’s leverage could, in times of labour dispute, halt entire assembly lines of model production.[21] In this sense, a blend of tactical continentalism created a strategic nationalism that held for the next four decades.


Economic nationalism: culture industries

While the charge for economic nationalization dominated automotive manufacturing and energy policy, it was by no means exclusive to these sectors. In more subtle capacities, the nationalist discourse found its way into other areas. The culture industry was one of these.

By the 1960s, Canadian musical talent and television producers increasingly found domestic airtime access impenetrable, particularly so as American programming dominated.[22] But it was more than that: Canadian broadcasters expressed recalcitrance to airing Canadian talent which had not been vetted first by American audiences. Canadian broadcasters supported this paradigm as rationale for selling advertising time at higher prices. By 1970, this de facto barrier summoned centre stage before Canadian Radio-Television Commission (CRTC) hearings. CRTC commissioner Pierre Juneau, after hearing testimony explaining how Canadian talent had to leave Canada to establish a name elsewhere (usually the U.S.) before receiving airtime within the country, responded by implementing a Canadian content rule requiring broadcasters to air a minimum level of Canadian-originated talent as a condition to retain their broadcast licence.[23] Broadcasters expressed their discontent, but this policy took effect from 1971, which over the following decades, triggered investment in a domestic studio and distribution industry.[24] Whether this was actually an economic stimulus is debatable: loopholes in the CanCon rules did not necessarily prevent “Canadian” recordings being produced elsewhere, and the policy, which stressed “Canadian” over “independent”, fostered the promotion of large-label recordings (often multinational in scope) being held with greater weight than Canadian label counterparts.[25]

In addition, Walter Gordon, whose presence reached beyond politics, used his clout as a director for Torstar publishing during the 1970s to make an exceptionally high bid for the ailing Toronto Telegram’s circulation list — then the Toronto Star’s major competitor[26]. While the industry considered the bid excessively overvalued, it ensured a continuing platform for Gordon’s nationalism, something familiar to Star readers since the 1950s when his name featured prominently whenever he made public speeches or headlines — a product of his involvement in an asset transfer deal following the death of the Star’s previous publisher, Joseph Atkinson.[27] That deal, though not rationalized as a Canadianizing measure, was orchestrated to keep the Star’s sale away from the open market and within grasp of its trustees.[28] The Telegram buyout followed Gordon’s voiced concerns during the 1960s about American periodicals issuing Canadian editions of American editorial content — such as Time and the Reader’s Digest — which he argued stifled development of Canadian-originated media and illustrating why he felt the imperative to enforce ownership of domestic media exclusively to Canadians.[29]


The energy sector: protection under duress

Canada’s energy policy in the 1970s provided another example of nationalism over continentalism. Following the OPEC oil crisis in late 1973, Trudeau’s minority government chartered Petro-Canada, a crown corporation whose mandate was “to expedite the exploration and production of Canada’s petroleum resources.”[30] At the time, Americans dominantly ran Canada’s petroleum industry: Imperial Oil (Esso); Gulf Canada; Shell Canada [n.b., Dutch-owned]; Texaco Canada; and BP Canada [n.b., British-owned].[31] Without a domestically-owned petroleum operation, this left Canada largely dependent on interests whose chief concern was not necessarily the well-being of the Canadian economy.

Even if a private Canadian petroleum supplier had existed, the OPEC crisis would likely have triggered a multinational entity to buy out and integrate its operations for greater scalability within the Canadian market. This would subject Canadians to market forces beyond domestic purview during extreme fluctuations in global pricing — something which U.S. consumers, enjoying diversified competition, might not fully feel. Such volatility was something a crown corporation could moderate, particularly as that corporation explored its own petroleum reserves.

The Tory opposition spoke defiantly against Petro-Canada, particularly as the company benefited from Trudeau’s National Energy Program (NEP) from 1980; the NEP gave Petro-Canada an automatic 25 per cent stake (shielded from market pricing) on all domestic resource claims made by other petroleum companies.[32] Arguably, this nationalizing initiative paved the way for two ends: lowered volatility in the domestic petroleum market; and increased revenue generated and reinvested domestically. But following the world petroleum price crash in the 1980s, the Mulroney government identified the NEP as contradictory to market conditions and dismantled it, later semi-privatizing Petro-Canada as well.[33]


Endnotes

  1. Nesbitt-Larking, Paul. 1998. Canadian political culture: the problem of Americanization. Crosscurrents: contemporary political issues, 3rd ed. Eds. Mark Charlton and Paul Barker (Toronto: ITP Nelson), 21.
  2. Watkins, Mel. 1968. A new National Policy. Agenda 1970: proposals for a creative politics. Eds. Trevor Lloyd and Jack McLeod (Toronto: University of Toronto Press), 169.
  3. Azzi, Stephen. 1999. Walter Gordon and the rise of Canadian nationalism (Montréal and Kingston: McGill-Queen’s University Press), 35–7.
  4. Gordon, Walter. 1977. Walter L. Gordon: a political memoir (Halifax: Formac Publishing), 56–7.
  5. Azzi, Walter Gordon, 1999, 35, 38.
  6. Corimer, Jeffrey. 2004. The Canadianization movement: emergence, survival, and success (Toronto: University of Toronto Press), 6–7.
  7. Azzi, Stephen. 1999. ‘It was Walter’s view’: Lester Pearson, the Liberal party and economic nationalism. Pearson: The Unlikely Gladiator, ed. Norman Hillmer (Montréal and Kingston: McGill-Queen’s University Press), 106.
  8. Corimer, 2004, 7.
  9. Gordon, 1977, 128.
  10. Azzi, ‘It was Walter’s view’, 1999, 104.
  11. Azzi, ‘It was Walter’s view’, 1999, 110.
  12. Godfrey, Dave and Mel Watkins. 1970. Gordon to Watkins to you — documentary: the battle for control of our economy (Toronto: New Press), 10.
  13. Anastaksis, Dimitry. 2004. Between nationalism and continentalism: state auto industry policy and the Canadian UAW, 1960–1970. Labour/Le Travail 53(Spring): 89.
  14. Anastaksis, 2004, 96.
  15. Anastaksis, 2004, 96.
  16. Anastaksis, 2004, 97.
  17. Keeley, James F. 1983. Cast in concrete for all time? The negotiation of the Auto Pact. Canadian Journal of Political Science/Revue canadienne de science politique 16(2) June: 284.
  18. Anastaksis, 2004, 110.
  19. Keeley, 1983, 293.
  20. Anastaksis, 2004, 113.
  21. Anastaksis, 2004, 124–5.
  22. Jennings, Nicholas. 1997. Before the Gold Rush: flashbacks to the dawn of the Canadian sound (Toronto: Viking-Penguin Group), 59. It is important to distinguish that this impenetrability was more than a matter of cultural popularity, not any notion that American creative talent was in some way “superior” to Canadian talent: Canadian broadcasters expressed their recalcitrance to airing Canadian talent not vetted first by American audiences — a substantial market. Further, Canadian broadcasters were in direct competition with American broadcasters along the border, the latter unapologetically pointing their transmitters north of the border. Canadian broadcasters supported this anti-Canadianization paradigm as economic rationale for selling advertising time at higher prices.
  23. Jennings, 1997, 220.
  24. Edwardson, Ryan. 2003. Of war machines and ghetto scenes: English-Canadian nationalism and The Guess Who’s ‘American Woman’. The American Review of Canadian Studies (Autumn): 339–56.
  25. Wright, Robert. 2004. Virtual sovereignty: nationalism, culture and the Canadian Question (Toronto: Canadian Scholars Press, Inc.): 93–4.
  26. Azzi, Walter Gordon, 1999, 173.
  27. Azzi, Walter Gordon, 1999, 69.
  28. Azzi, Walter Gordon, 1999, 69.
  29. Gordon, Walter L. 1966. A choice for Canada: independence or colonial status (Toronto and Montréal: McClelland and Stewart Limited), 96–7.
  30. Edwards, Miriam. 1987. Public choice theory and petroleum policies in Canada, Britain and Norway. European Journal of Political Research 15(3): 366.
  31. Gordon, Walter L. 1975. Storm signals: new economic policies for Canada (Toronto: McClelland and Stewart Limited), 48.
  32. Edwards, 1987, 366.
  33. Saunders, J. Owen. 1994. GATT, NAFTA and North American energy trade: a Canadian perspective. Journal of Energy and Natural Resources Law 12(1): 7.
  34. Muszynski, Leon. 1985. The politics of labour market policy. The politics of economic policy, ed. G. Bruce Doern (Toronto: University of Toronto Press), 272–273.

  35. References

    Anastaksis, Dimitry. 2004. Between nationalism and continentalism: state auto industry policy and the Canadian UAW, 1960–1970. Labour/Le Travail, 53(Spring): 89–126.

    Azzi, Stephen. 1999. ‘It was Walter’s view’: Lester Pearson, the Liberal party and economic nationalism. Pearson: the unlikely gladiator. Ed. Norman Hillmer, 104–16. Montréal and Kingston: McGill-Queen’s University Press.

    Azzi, Stephen. 1999. Walter Gordon and the rise of Canadian nationalism. Montréal and Kingston: McGill-Queen’s University Press.

    Corimer, Jeffrey. 2004. The Canadianization movement: emergence, survival, and success. Toronto: University of Toronto Press.

    Edwards, Miriam. 1987. Public choice theory and petroleum policies in Canada, Britain and Norway. European Journal of Political Research, 15(3): 363–79.

    Edwardson, Ryan. 2003. Of war machines and ghetto scenes: English-Canadian nationalism and The Guess Who’s ‘American Woman’. The American Review of Canadian Studies, (Autumn): 339–56.

    Godfrey, Dave and Mel Watkins. 1970. Gordon to Watkins to You — documentary: the battle for control of our economy. Toronto: New Press.

    Gordon, Walter L. 1966. A choice for Canada: independence or colonial status. Toronto and Montréal: McClelland and Stewart Limited.

    Gordon, Walter L. 1975. Storm signals: new economic policies for Canada. Toronto: McClelland and Stewart Limited.

    Gordon, Walter. 1977. Walter L. Gordon: a political memoir. Halifax: Formac Publishing Company Limited.

    Jennings, Nicholas. 1997. Before the Gold Rush: flashbacks to the dawn of the Canadian sound. Toronto: Viking–Penguin Group.

    Keeley, James F. 1983. Cast in concrete for all time? The negotiation of the Auto Pact. Canadian Journal of Political Science/Revue canadienne de science politique, 16(2) June: 281–98.

    Muszynski, Leon. 1985. The politics of labour market policy. The politics of economic policy. Ed. G. Bruce Doern, 251–305. Toronto: University of Toronto Press.

    Nesbitt-Larking, Paul. 1998. Canadian political culture: the problem of Americanization. Crosscurrents: Contemporary Political Issues, 3rd ed. Eds. Mark Charlton and Paul Barker, 21–38. Toronto: ITP Nelson.

    Saunders, J. Owen. 1994. GATT, NAFTA and North American energy trade: a Canadian perspective. Journal of Energy and Natural Resources Law, 12(1): 4–26.

    Watkins, Mel. 1968. A new National Policy. Agenda 1970: proposals for a creative politics. Eds. Trevor Lloyd and Jack McLeod, 159–76. Toronto: University of Toronto Press.

    Wright, Robert. 2004. Virtual sovereignty: nationalism, culture and the Canadian Question. Toronto: Canadian Scholars Press, Inc.

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