Review of Northern Enterprise Five Centuries of Canadian Business. By Michael Bliss.
I cannot overemphasize the importance of a book that recounts the past. It tells us from where we came and, even more importantly, why. Winston Churchill is credited with telling us that “those who fail to learn from history are doomed to repeat it.” In matters of Canadian Business History, many people involved in business are not even aware that we have a history. That is why we should be grateful to The Manufacturers Life Insurance Company. In 1987 they celebrated their centennial. They could have thrown a party. Or they could have commissioned a statue in front of the Manulife Centre in Toronto. Instead, they did something that is of benefit to every Canadian, they asked Michael Bliss to write a book. Not just any book, but a historical record of business in Canada. This is the book that I am now reviewing. If its contents are a bit heavy on finance, that is to be expected considering the source.
Michael Bliss’s accounts goes too far back, even before Canada was Canada or even British North American. He gives John Cabot the dubious distinction of Canada’s first business failure. This relates to Cabot’s expedition of five ships to find a route to the Orient in 1498. He lost four of them including himself, but this should count as more of a British failure happening in what would become North America. Martin Frobisher was responsible for the first mining fraud in 1577 (many more would follow). Eventually Frobisher would find a new career as a pirate. And Mr. Bliss considers fishing off the Labrador coast to be our first commercial enterprise. This was actually a European enterprise being conducted in what would eventually become Canadian waters.
The first truly Canadian enterprise would have been the French missionaries who came to save souls. Theirs was not for profit orientated activity but they did establish Montreal as a center of operations and this town would become Canada’s first city of commerce. Later it became the operations center for the Hudson Bay Company in North America. This company became chartered in 1670 by two French traders Medard Chouart des Groseilliers and his brother-in-law Pierre-Esprit Radison after they failed to get backing in France for their idea to exploit the North American wilderness for furs. It was Prince Rupert, cousin of Charles II, who convinced the king and several merchants of the viability of this enterprise. HBC, as it was later to become known, was granted a charter to operate in a vast part of North America which they named Rupert’s Land, after their main benefactor.
Prince Rupert was the first governor of the HBC and he became the de facto governor of the most northern portion of the Americas. The company supplied native tribes with goods they were unable to produce themselves. These included iron pots, pans, hatchets, and later firearms. In return, they traded beaver pelts. Factories (these were HBC outposts managed by a factor) were established throughout this land and were located in areas accessible by foot or canoe. The furs were transported to Montreal and eventually shipped to London for processing.
What should be noted is that the HBC had a monopoly on this trade and, under the mercantile system of the day, the colonies were expected to provide the raw materials to be processed as finished goods in the home country. These were then sold worldwide. An extreme example in 1730s was an enterprise started by Barthelemy Cotton. He kept back a few beaver pelts and started to manufacture hats to serve the small Quebec market. This small infraction of the rules should have been overlooked. He was only making a few hundred hats per year, but the Minister of Marine ordered that his business be closed. Groseilleirs and Radison themselves lost an entire consignment because they made an unauthorized trip into the interior. Smuggling became common as a small outpost known as Detroit offered better prices and people there did not concern themselves as to what happened to the goods after they were sold.
Once Canada became British North America, local merchants began to service the military. These two groups hated each other. The British officers thought of Canadian merchants as low-class colonials and the Canadians thought of their customers as foreign war mongers. But they needed each other. The British provided security from unfriendly native tribes and the Canadians supplied food and materials the army needed. This was the start of the “shopkeeper aristocracy”. British leaders came either from their aristocracy or their military. Canada had neither of these. So, leadership came from business where people learned by doing. Successful business leaders often joined local governments. There was no concept of a conflict of interest at that time, what mattered was whom you knew. What began as an interaction between business and government often led to corrupt practices and distrust.
Another area of major endeavor was the supplying lumber to British naval contractors. The maritime cities produced these in 2,500 fifty-cubic foot loads. In the 1790s 10,000 loads were shipped and this peaked in the mid-1840s with over 750,000 loads. The contracting firms were Scott, Idles and Company, Henry Usborne and Company, and the most important, Pollack, Gilmour and Company. The latter diversified into shipbuilding and eventually had a large merchant fleet. This was the beginning of what would become a major Canadian export. It also started the prominence of Sottish management. Scotsmen were far less risk averse than native Canadians, so they began to play a prominent role in business ventures.
Canadian business relied on the fact that British North America (BNA) had access to the British market in a protected trading system. It had privileged access to this market and a greater measure of self-government as the mercantile system was bring relaxed. This was to last many years until the American market supplanted it about 1926.
No history of business can be complete without mentioning banks. These companies responded to the mess of coinage that existed in the colonial era. It consisted of French, British, Spanish, and Portuguese specie as well as British army bills of exchange. The last were used by the British army to pay for supplies during the war of 1812. In 1808, John Forsyth incorporated the Bank of Lower Canada. He was followed by John Richardson’s Montreal Bank in 1817 when it opened at 32 St. Paul street. He was, in turn, followed by others including one started by Enos Collins, the Halifax Banking Company. These banks helped sort out the various mediums of exchange which finally ended in 1850 when British North American adopted the dollar/decimal denomination.
Another major event was the rise of Toronto as the commercial center of Upper Canada. What was once muddy York had no advantages over other cities like Kingston, Dundas, or even Hamilton. However, York had an excellent natural harbour and it became the provincial seat of government. So, it was favored by several wholesale firms. Later, it became a center for meat production and, later still, a preferred location for branch plants.
The steam revolution had a major impact on a country as widely spread as Canada. Before the steam engine, all business was local. Repairs to equipment were done by the local blacksmith. The local butcher slaughtered and prepared meats. A local handyman did carpentry and other repairs. A local baker made bread and pies and even dairies served the local community. Railroads changed all this. As their tracks were extended, competition was just down the tracks, but so was an extended market. These railroads were expensive to build and to maintain. The cost to lay track was $25,000 per mile (approximately $845,000 in today’s dollars) plus stations, plus rolling stock, etc. It brought about the capitalist system needed to raise these huge sums. However, Canada did not have the population or the financial infrastructure to meet these demands. It had to rely on foreign sources for capital, first from London and later from New York. Alternatively, businesses could go to the government. National governments had the resources to raise great sums. This led to the next logical change to Canadian business, Confederation and government involvement in its affairs.
Most businesses were lukewarm to the idea of confederation. Even then, Canadian businesses were conservative by nature and did not appreciate change. The exception was the railroads. They saw the profits being made by American railways and were sure the same could happen in Canada. The Grand Trunk, which operated in Lower and Upper Canada with connections to major American cities, lost money on the Canadian side and needed a bailout. It saw immense possibilities if a rail line could be extended to the Pacific, enabling them take advantage of the China trade.
Two major events happened after Confederation in 1867. In 1870 the HBC sold Rupert’s Land to Canada for £300,000. This was a strange transaction since the HBC did not really own the land, only the right to operate there. But the government of Canada saw a good deal and took it. Then in 1871 British Columbia petitioned to become a part of the Canadian Confederation. These events put Prime Minister John A. MacDonald under pressure to build a national railroad to the Pacific. The intent was to protect the new territory and the new province from American incursion, to develop them for agriculture, and to open new business opportunities.
Logically, the Grand Trunk was the obvious choice. Then the Pacific Scandal came to light. Politicians in those days saw nothing wrong in taking advantage of insider information for personal gain. Even if John A. MacDonald was not involved, some of his ministers and members of his party were. In the end, the contract went to a Canadian Pacific consortium of businessmen. They were George Stephen, James Hill, Donald Smith, and Duncan McIntyre, all Scotsmen. They, in turn, hired William Cornelius Van Horne from Illinois to build the second transcontinental railroad in the world. On November 7, 1885 the last spike was driven into a rail tie at Craigellachie, BC.
So, what did it cost Canada. $25 million in progress payments ($625 million today), 25 million acres of land, and a 20-year monopoly granted to the CPR. No rails could be laid south of their line for 20 years. The total cost was $150 million of which $62 million was raised in New York. Thus, the Canadian dream was completed with foreign capital, expertise, and labour. It was controlled by Canadians but built and owned largely by Americans.
The National Policy
It was in 1878 that John A. MacDonald’s Conservative Party introduced the National Policy. Under this policy foreign manufactured goods were subjected to high tariffs, 30% in some cases. Back then, colonial manufacturing started in response to local demands. John Molson used a £1,400 inheritance to start a brewery. Montreal became a manufacturing center for marine engines. The St. Mary’s Foundry started to cast wheels for rail cars. Little casting was done for the rails as the CPR was able to import these duty free. By 1870 manufacturers were firm in their belief that the Canadian market was theirs alone.
Because of the National Policy manufacturing expanded greatly, especially in Montreal. The corporate form of business became common and employment increased substantially. These businesses needed skilled labour, so training increased as did wages. Canada became a nation of business. However, this was limited to central Canada, primarily Montreal and Toronto. Western Canada was left out and remained agricultural. Many of the labourers who worked on the CPR bought land granted to the railroad and became customers of the CPR. Men who supplied furs to the HBC found that there were easier ways to make a living. Farming communities sprouted across the prairies. Unfortunately, they were subjected to the tyranny of the CPR. The only competitive rail service existed in central Canada. In the West the CPR had a monopoly and used it to full advantage.
CPR’s profit projections fell short. Although their line made it easier to settle the West, the resulting revenue was not enough. Management of the CPR made up for this through diversification. They started with CP Hotels, building them even in places where they did not have tracks, such as Quebec City. This reviewer recalls visiting a CP Hotel in Hamburg, Germany. Later diversifications were to CP Ships, mining, oil and gas exploration and, much later, to CP Air and telecommunications.
Toronto continued to grow. New businesses and a well-paid population meant that residents had extra cash to spend. Seeing the possibilities, thirty-five year old Timothy Eaton opened T. Eaton and Company at 178 Yonge Street. This store was unique for its time in that it was cash only, no haggling. As demand increased, he opened new departments and instituted tight accounting controls. In this manner he knew which areas made money and how much. People were wary in case they were not satisfied with the merchandise. After all, how does one return something if it was already paid for? T. Eaton resolved this by making a pledge “goods satisfactory or money refunded.” Having a cash generating business meant he could pay his own creditors quickly. It also meant he could bypass wholesalers and deal directly with manufacturers, many of whom were also located in Toronto. He later started a catalogue that allowed him to market anywhere in Canada and deliver using the CPR or, later, the CNR.
The disadvantage of the National Policy is that it benefited Southern Ontario and Quebec at the expense of the rest of Canada. The Maritimes were big losers in Confederation. Their port cities declined and even their banks relocated to Toronto. In the West, people paid higher prices due to the lack of competition. The Liberal Party headed by Wilfred Laurier wanted to resolve these inequalities by negotiating a reciprocity treaty with the United States, bringing free trade and competition into the Canadian market. Central Canada would have none of this. Playing the nationalist card (the last refuge of a scoundrel according to Samuel Johnson) Conservatives defeated the Liberals in 1911 largely by campaigning in favour of the National Policy and, thus, gaining Central Canada support. The Liberals learned an important political lesson and never again upset Toronto or Montreal interests. It was not until 1984 when another Conservative, Brian Mulroney this time, finally put an end to the National Policy with a free trade deal with the United States and Mexico.
Although the National Policy did benefit Central Canada, it had many disadvantages. The plants in Ontario and Quebec were basically branch plants, copies of American plants setup to bypass tariffs. Very little development or research was done on this side of the border. Managers largely complied with directions from head office in the U.S. The most talented people were offered jobs in the U.S. and local managers here were basically caretakers. Business here became static. New methods or products were copies developed elsewhere.
It should be noted that setting high tariffs to protect domestic industry is a common strategy to this day. The United States used it, and it was the major source of income until the revenue act as enacted in 1913. In fact, the US, France, and Germany all industrialized using tariff barriers. By and large it was successful in that it protected new domestic industries and allowed them to grow. The difference was that in these countries it protected the Gross National Product (GNP), which is revenue generated from domestically owed businesses. In Canada, by contrast, it protected branch plants owed by foreigners. That is, the Gross Domestic Product (GDP), which is all domestic revenue regardless of ownership. The results were different as well. The US, with domestic sources of investment and a large market, grew to become a major world economy. Canadian business relied on government to supply major funding. Only resource industries had a reliable large foreign market that could provide a good return on invested capital.
The partnership of government and business caused problems. Governments regarded such enterprises as having join responsibilities and equal risk. Business, on the other hand, regarded government as a guarantor and expected it to take any losses while they kept most of the gain. Inevitably, the business side won out.
Many historians criticize the manner that the CPR was built, especially the high government incentives given. They ignore the advantages of having advanced skills that can be applied to municipal rail systems. The construction of the CPR trained railway builders and capitalists who could apply their skills to municipal transport systems and utilities. Electric streetcars revolutionized urban transport in the 1880’s and many municipalities were anxious to build their own. Ironically, the CPR received little of this work. Canadians knew how they exploited their monopoly and had no wish to extend it. William Mackenzie got a contract to build the Toronto Railway Company in 1892. He spent some money to “persuade” aldermen of the wisdom of building the system. Soon afterwards street railways were built in Montreal, Winnipeg and Halifax. Mackenzie then teamed with Donald Mann to build rail systems in South America. Through Cornelius Van Horne they connected with Frank Stark Pearson, who was an electrical engineer from New England. The group, now consisted of two railroad builders and an electrical engineer. They needed a banker and a lawyer to offer a complete service. The banker connection was made with George Cox of the Canadian Bank of Commerce and the legal was John Abbott. Everything was now in place for every aspect of urban utility construction: obtaining legal rights of way, initial financial and engineering know-how. The first customer was the city of Sao Paulo, Brazil in July 1899. Followed by the Rio de Janeiro Tramway, Light and Power Company. Then the Mexican Light and Power Company in 1902. Later the Trinidad Electric Company, Puerto Rico Railways and several Cuban utilities. Thus, was born the golden age of Canadian utility imperialism.
Another area in which Canadian companies excelled was life insurance. Canada is a small market for financial services so exploiting foreign opportunities is a way to expand. Canadian companies had two advantages. For one, it was perceived to be a safe place to invest, and second, it was part of the commonwealth. Although the general population of many of its constituent countries were poor, they were ruled by British administrators who were, for the most part, well off. This meant that well managed Canadian companies were competitive with British and American firms.
The Canada Life Assurance Company was founded in 1847 by Hugh C. Baker and the first policy was written to Hugh himself. Legend has it that Hugh suffered from asthma and had to endure extra costs for coverage, so he started his own company. This company was followed by Ontario Mutual in 1871, Sun Life in 1865, Confederation Life 1871, London Life 1874, North American Life 1881, the Temperance and General 1886, and Manufacturers Life 1887. The Government of Canada began regulating these companies in 1868 with the purpose of making sure they were sound and viable.
Canadian business was run predominately by men and, to a large extent, they were very conservative. They were not risk takers, this may be why many were Scotsmen or Americans. In 1900 the president of a company would earn $25,000/year. A factory hand working in the shop could make $500/year. The leaders were mostly men who followed these guidelines:
- Jews and other denominations could expect discrimination.
- Attended both board meeting and prayer meetings.
- Eschewed drinking, gambling, dancing and other frivolities.
- Expected to follow the golden rule, do unto others as you would have them do unto you.
- Obligated to give generously to good causes. Tax deductions for any cause were not available in 1900 but prominent givers were often bestowed with titles.
By and large the typical Canadian businessperson was a man with a Scottish accent and Methodist piety.
The Great War and its aftermath:
The Business Profits War Tax was enacted in 1916 and was made retroactive to the beginning of the war. The intension was to tax excess profits that resulted from The Great War (as WWI was then called). One year later it became the income war tax and was a direct federal levy on both personal and corporate incomes. It was steeply progressive with a top rate of 75% on profits of more than 25% of capital.
Canadians were not very sympathetic towards big business. This after the government nationalized the Grand Trunk Railroad and renamed it the Canadian National Railway. Little sympathy was directed toward William Mackenzie, Donald Mann or the thousands of British shareholders who were unable to profit from their optimistic investments. In Western Canada there was the tyranny of the CPR to contend with. This railroad took full advantage of its monopoly position, taking a good portion of grain profits through transport cost. In this environment Canadians resented companies who profited from the war while Canadian soldiers made $1.10/day putting their lives on the line at Ypres, the Somme, and Vimy Ridge.
James Flavelle of Toronto was one such man who was accused of making excess war profits. At first, he was known for exemplary public service which included the Imperial Munitions Board. However, in 1917 a rumour started that his firm, the William Davis Company, made a 5-cent profit on every pound of bacon sold to the military. The number was false, but even the correct margin of .5 to 1 cent/pound gave him a profit of 80% of recorded capital. He became the most reviled man in Canada.
A strong anti-business climate prevailed. Added to this perception was the close collaboration of business and government. Competition in a small market like Canada could be problematic. At best margins were slight and at worst a business could fail entirely. One way around this is through price fixing agreements. It was very common in business and professional guilds in the 19th and early 20th centuries. Anti-Combines legislation was enacted in 1889, but this was mostly posturing and had no real effect. Unions and farmers often felt victimized.
By 1918 hundreds of million dollars were needed to fund the newly built Canadian National Railroad (CNR) and to service war debt. To pay these down a federal tax on manufactured goods (the MST) was introduced at 6%. This eventually increased to 13.5% and was not repealed until the GST was introduced in 1991. Also, the temporary war tax on corporate and business incomes was made permanent and increased.
While the US experienced the roaring 20’s, Canada had the stuttering 20’s of war time inflation, a post war collapse, and bank failures. It was not until 1926 that Canada returned to some sort of normalcy, mostly in Central Canada. The Atlantic Provinces never recovered. In the 1920’s 150,000 Maritimers emigrated to the United States for better opportunities. To counteract this loss the federal government started to heavily subsidize rail rates, it transferred funds to provincial governments, and enacted special coal tariffs. The Prairies declined as well until the Panama Canal was opened in 1914. This gave them an economic route to ship grain and wood to the UK.
One person who took advantage of the growing American economy was Harry Bronfman in Yorkton, Saskatchewan. He sold liquor to exploit prohibition in the U.S. Saskatchewan did not appreciate being a departure point for bootleggers, so Harry, along with brothers Abe and Sam, moved to Montreal. They at least had a roaring business that ended with the repeal of the Volstead Act in 1933. Harry then made a deal with the U.S. Treasury, offering to pay back taxes in return for continued access to the American market. It was accepted and Seagram products are a popular distilled drink to this day.
The greatest areas of growth in Canadian business during this era were the exploitation of resources. American tariffs on newsprint were abolished in the years 1911 to 1913 and Canada became the world’s largest papermaker. The Chicago Tribune, a prominent American newspaper, built a plant in Baie Cameau, Quebec to be its exclusive supplier. In the mining industry, J.Y. Murdoch incorporated Noranda and began the smelting of nickel and copper ores. The Pittsburg Reduction Company renamed itself the Aluminum Company of America (Alcoa) and moved north to buy a power generation station from American tobacco magnate James B. Duke. Then formed the Aluminum Company of Canada (Alcan).
One cannot ignore an early Canadian entry into business machines when St. George Bond received a license to establish the Canadian Tabulating Machine Company in 1910. In 1917 it was incorporated as International Business Machines Company Limited. The parent company, Thomas Watson’s Computing-Tabulating-Recording Company, must have liked the new name since by 1919 they changed their own name to International Business Machines and later to IBM.
With all these investments, the United States became Canada’s largest source of capital by 1923 and its major trading partner by 1926. Then came the depression.
October 1929 was the acknowledged start of the great depression. By 1930, 30% of Canada’s labour force was out of work and gross national expenditure dropped 42%. Distrust of big business became a general distrust of the capitalist system. In 1934 Harry H. Stevens, Minister of Trade and Commerce in the Conservative government of R.B. Bennett, launched an investigation into price spreads in Canadian distribution. It soon turned into a witch hunt against big business. For a time, Stevens was a populist crusader against all business, but his influence eventually waned. What remained were the recommendations of his commission to legalize price fixing agreements, ban loss-leader selling, and place controls on predatory competition. In short, to increase the role of government in the economy. One result was the 1934 Natural Products Marketing Act which enforced the creation of marketing boards for any primary industry. In the agriculture sector, these marketing boards exist to this day.
Distrust of business extended to banks. In response, Bennett appointed a Royal Commission on Banking and Currency to consider the issue of a central bank similar to the one in England. In 1934 the Canada Bank Act was passed, and The Bank of Canada opened in March 1935. It immediately began to manage the nation’s money supply.
During the depression, governments became the best sources for business. They paid their bills, had access to capital, could raise money from taxpayers, and had the ability to borrow. Governments, both federal and provincial, became highly influenced by John Maynard Keynes. He was a prominent British economist who advocated an increased presence of government in economic affairs. It was Keynes who presented a theory of money supply. He also researched the business cycle and advanced the idea that governments should increase spending during depressions (called panics back then) and then pay down these debts during economic expansions.
In the 1935 election, McKenzie King’s Liberals returned to power. It was they who enacted another significant piece of legislation, unemployment insurance (UIC). This is another idea that stemmed from Keynes. If the unemployed had some temporary spending power, it would not exacerbate a depression. Eventually the economy will expand and then, the UIC fund would be replenished.
C.D. Howe, World War II and afterwards.
A history of Canadian Business cannot be complete without mention of Clarence Decatur Howe. To many he is the builder of modern Canada, implying that business history in this country can be split into Before C.D. and After C.D. So, who was he? To begin, he was an American, going back to Mr. Bliss’s statement that most important figures in Canadian Business were either ex-Scotsmen or ex-Americans. C.D. was born in Waltham, Massachusetts, a descendant of Puritans who arrived in the 1630’s. He graduated from the Massachusetts Institute of Technology (MIT) in 1907 where he did advanced work in engineering. Unemployment was high in 1907, so when Dalhousie University in Halifax offered him a teaching position, he accepted. At the time Dalhousie was a small university with 400 students at most. However, he excelled and earned the respect of his students and peers. In 1913 a former colleague offered him a job as chief engineer for the Board of Grain Commissioners. He took the position and applied for Canadian citizenship the same year. In 1935 a friend convinced him to join the Liberal Party, then led by William Lyon Mackenzie King, and to run in the new riding of Port Arthur (Thunder Bay today). King won that election and so did Howe, who became the first engineer to serve in a Liberal government.
In a pre-election deal, King agreed to give Howe a cabinet position. While a member he was responsible for establishing the National Harbours Board, turning the Canadian National Railway (CNR) into a crown corporation, establishing the Canadian Broadcasting Corporation (CBC), and founding Trans-Canada Air Lines (which much later became Air Canada). He also gained a reputation as someone who is impatient of criticism, deplores debates and the inherent delays of a parliamentary system. Eventually, he would become known as Clarence Dictator Howe for the arbitrary way he applied power.
It was after Germany invaded Poland in September 1939 that Howe’s extensive talents came to the forefront. Mackenzie King established the Department of Munitions and Supply and Howe became its Minister. He kept his old portfolios so became known as the Minster of Everything. An appropriate title considering his influence. In his new role he called up old friends to assist him, including many Conservatives. They became known as “dollar-a-year men.” They were all men, but the term dollar-a-year was a misnomer. It had American origins, but in Canada they earned much more than a dollar. With them Howe created a national purpose and made Canada the fourth most important supplier of war materials among the Allies. Canada swung from being predominantly agricultural to being an industrial economy.
During the war, inflation was held in check by a combination of high taxes and, after 1941, wage and price controls. The latter was under the direction of the Wartime Prices and Trade Board (WPTB) headed by Donald Gordon, a former banker. It was during this war that accelerated depreciation was first used. It was applied to wartime contracts and firms would write off over a billion dollars against revenues. With the introduction of the excess profits tax, firms had to become more cost conscious, accounting controls had to be sharpened, and management practices improved. Business also accepted the Keynesian notion of more government leadership in the economy.
When the war ended, Howe favoured the elimination of wartime controls, but this was constrained by its own success. After all, if a controlled economy worked so well during the war, why not after the war. The general public was not aware of all the compromises made by the WPTB. Businesses learned that there were many ways to increase prices than changing what appeared on the sticker. Quantities could decrease, goods could be made smaller, and quality could decline. All of these were used. It was not till 1951 that price fixing was outlawed. Canada gradually adjusted to peacetime and finally committed to free trade. Canada signed the General Agreement on Tariffs and Trade (GATT) in 1947 and this marked the beginning of the end for the National Policy.
The Banks and Professional Management.
Canada’s chartered banks were among the largest employers of ambitious young men. They preferred Anglo-Saxon boys with Scottish accents who had basic schooling and were willing to work hard for low pay. They were very conservative institutions not prone to innovation but likely to be paternalistic to their employees. A young clerk had to earn more than $1,000/year to get his bank’s permission to marry.
In 1910 Canada had 30 chartered banks. A crisis in this sector began in 1923 just as the Bank Act was due for revision. The Winnipeg based Union Bank wrote off most of its reserves in 1923, as did the Standard bank of Toronto. The Home Bank of Toronto closed its doors in August of the same year. Also in August, the Bank of Hamilton was purchased by the Canadian Bank of Commerce.
The system in Canada called for larger well-funded banks to take over smaller rivals who were in distress. Such was the case when the Bank of Montreal took over the Molson Bank, the last of the family banks. The Royal Bank absorbed the Union Bank. By 1928 Canada was down to 10 chartered banks. The big three, Montreal, the Commerce, and the Royal controlled 70% of domestic banking assets.
By the 1960’s Canada’s banks discovered that they could make more money from Eurodollar intermediation. The Bank of Nova Scotia (BNS), which had since moved to Toronto, was the most active internationally. By 1970 foreign deposits of all the charter banks rose from less than one-fifth to almost one-half. In short, Canadian banks no longer needed Canada.
Canadian banks failed to keep pace with the growing complexity and competitiveness of the financial system. As they expanded abroad, their domestic market eroded. They were conservative and defensive. There is a story about a customer who wanted to change banks. The intended manager told him: your bank is like your church, if it lets you down leave it, if it serves you well stick with it. An announcer at CBC radio in Toronto summed it best when he stated that rivalry among the chartered bank was more of a pillow fight than real competition.
Since banks were reluctant to take the lead, other financial institutions stepped in to provide auto financing and mortgages. Consumer discontent opened the market to Caisses Populaires in Quebec and credit unions in the rest of Canada. Chartered banks finally started to provide consumer credit in the 1950’s. Banks had a 6% interest ceiling, but they quickly learned that with service charges, insurance, and advance discounting, this could be increased to 10% or 12% easily.
Parliament was not ready for wide open banking. The Bank Act of 1967 limited foreign ownership of Canadian banks to 10%. This was odd for an industry that depended on foreign assets for most of its profits. However, the interest rate ceiling and the ban on mortgage lending did disappear.
Another development in this era was the rise of trained professional managers. The complexity of modern firms demands this. The University of Toronto created the Bachelor of Commerce program in the 1920’s and it was very successful. Other Canadian universities copied this idea and by the 1970’s eighteen offered MBA programs. The University of Western Ontario, in London, copied the case study method developed at Harvard and is still a top Canadian business school. York University in Toronto is known for being the most energetic (this reviewer is an alumnus).
On February 3,1947 a crew led by Vernon “Dry Hole” Hunter struck oil near the village of Leduc, Alberta. It became famous as Leduc Number 1 and it changed Alberta and Canada economically and politically. Dry Hole Hunter worked for Imperial Oil. Despite the name and the fact that it was legally a Canadian company, its true owner is Standard Oil, an American company once led by John D. Rockefeller. Standard bought Imperial back in 1898 and there was always an American presence in the Canadian Oil industry.
The Canadian Oil industry was founded by Canadians when William Stewart “Never Sell” Herron and his partner Archibald Dingman started to drill in the Turner Valley in May 1914. It is the nature of oil exploration that a successful find attracts other drillers including wildcatters and the large major corporations. After the successful Dingman find, Imperial Oil drilled 131 dry holes before Leduc Number 1. Between the Dingman find in 1914 and the Leduc find in 1947, $200 million was spent exploring for oil in Western Canada. It is essential to secure drilling rights to as many sites as possible. After 1887 mineral rights were secured by the crown. Thus, only pre-1887 rights could be transferred and traded.
American companies dominated the Canadian oil patch. It was they who had the money for exploration, supplied the rigs and roughnecks, brought in engineers and geologists, and built their wholly owned branch companies. The big four integrated companies were Imperial, Shell, Texaco, and British American. There were Canadian medium sized participants, notably Pacific Petroleums and Home Oil. And there was Husky Oil which was started by rancher Glenn Nielson. Nielson owned a small refinery in Wyoming when he became aware of opportunities in Canada. He was the first to refine heavy oil in Lloydminster.
Oil exploration companies must eventually bring their product to market. Oil is easy to pump so pipelines are essential to transport the raw product to refineries. Refineries produce a variety of finished products and transport by truck, so they need to be close to markets. Imperial Oil is the main shareholder of Interprovincial Pipe Line built in 1950 from Edmonton to a port in Wisconsin. Two years later it was extended to Sarnia, Ontario. Also in 1952, the Trans Mountain Oil Pipeline Company laid pipe from Edmonton to refineries in Vancouver. It was built by a consortium led by Imperial.
OPEC and the National Energy Program
In 1950 oil cost $2.50 USD/barrel. In 1960 four Arab countries and Venezuela signed an agreement to reduce oil exports. They were the founding members of the Organization of Petroleum Exporting Countries (OPEC) and the price of a barrel of oil rose to $11.65 (oil is always denominated in US dollars). No one today can grasp the effect of this on western economies. People who grew up in the muscle car era of V8 engines and open roads suddenly found their lifestyles being challenged. It started an era of gas shortages. Other commodity traders learned that even a rumour of a shortage was a good way to drastically increase prices and inflation took off. People had to change the way they lived and few things are more difficult than being forced into an unwanted lifestyle change.
The federal government reacted by announcing a set of national energy policies to promote self-sufficiency. They started by offering $1.5 billion to the shareholders of Pacific Petroleum to form Petro-Canada. On October 28,1980 they announced the National Energy Program (NEP) which was a complex set of policies involving taxes, prices, grants, charges, and nationality. It was based on the assumption that the price of oil would continue to rise forever.
Ottawa then offered exploration grants known as Petroleum Incentive Payments (PIP). These would cover up to 80% of the cost of drilling in Canada Lands but available only to companies that were 75% Canadian owned. The goal was to achieve 50% Canadian ownership of oil and gas assets within the decade. Within four months an unprecedented expansion of Canadian ownership took place. Petro-Canada paid $1.5 billion for the assets of Petrofina Canada. Husky Oil spent $800 million buying several American firms. Dome Petroleum paid just under $2 billion for Hudson Bay Oil and Gas, buying it from Conoco. Even the Government of Ontario purchased 25% of Suncor for $650 million. Canadian banks were happy to finance these deals. By July 1981 $6.6 billion was spent making the northern oil industry more Canadian.
Inflation and the decline of the oil market
The NEP appeared to be successful. Canadian ownership of energy resources grew substantially. Alberta was the place to be. Jobs were plentiful and money flowed. There was a general perception that this would last forever. Even the Alberta government projected a linear rise of oil prices based on recent trends. The problem with the NEP was that the people involved bought high and eventually sold low. Of course, they did not know it at the time.
By 1981 Dome Petroleum’s total debts were $5.3 billion, the highest ever for a Canadian company. Two factors made this untenable. One was the rate of inflation. The consumer price index (CPI) was 10.9 in 1974 and stayed high well into 1982 when it was 10.8. The Bank of Canada reacted by raising interest rates. The prime rate rose to 10.75% in 1974 and topped to 19.29% in 1981. This put a tremendous strain on highly indebted corporations. The other factor was the collapse of oil prices in 1981. From $40/barrel to $29. The NEP collapsed, along with many large companies, and so did the dream of Canadian energy supremacy.
Michael Bliss has written an excellent book on a topic that few Canadian are completely aware of. He has put a lot of information in chronological order and covered many diverse industries. I would have liked to know his take on other Canadian failed industries like Champion Graders and Studebaker Autos, but the book is already 618 pages long. Furthermore, he has ignored the friction of two official languages and how the English-speaking part discriminated against the French. This definitely had an effect on business relations which was only partially resolved by the Quite Revolution. Readers can take away how difficult it is to have a growing economy with a small population while being geographically placed next to an aggressive and dominating southern neighbour. This while our own nation has divided regional priorities and lacked the home-grown access capital to keep up.
Many of our most talented people emigrated to the US to seek better opportunities. This includes the many aeronautical engineers who moved on to NASA when A.V. Roe lost the Arrow contract. It includes Florence Nightingale Graham (aka Elizabeth Arden) in cosmetics and James Lewis Kraft in food products. There were many more and their loss had detrimental effects.
Businesspeople should be aware of our unique situation and how our many laws and regulations came about. For this reason alone, it is worth reading.
Important Individuals in Canadian Business
General James Murray. Succeeded General James Wolfe after he was killed on the Plains of Abraham. Regarded Canadian traders as lower-class money-grubbers devoid of breeding, manners, or principles.
Robert Hamilton. Came to Canada from Scotland and started his career as a fur trading clerk. Later teamed with Richard Cartwright to form a profitable trading partnership. Known today for being the father of George Hamilton. Son George served with distinction in the War of 1812, later became an Upper Canada politician. He founded a small settlement on the edge of Lake Ontario. Eventually, this small settlement became a large city, Hamilton.
James McGill. Part of the trading partnership Todd & McGill. Known for his bequest of £10,000 and 46 acres of Montreal property to a provincial commission as an endowment for a university. McGill University is acknowledged to be the first important creation of Canadian merchant philanthropy.
John Richardson. Founded the Montreal Bank on November 1817, which opened for business at 32 St. Paul Street.
Enos Collins. Launched a private partnership known as the Halifax Banking Company in 1825. It became incorporated in 1872 and merged with the Canadian Bank of Commerce in 1903.
John Molson. Used a modest inheritance to found a brewery in 1785. In 1809 he launched the Accomodation to begin steam navigation along the St. Lawrence River. Constructed the first railroad in Canada, the Champlain and St Lawrence. Founded the Molson Bank in 1817 which was taken over by the Bank of Montreal by 1822. The brewery is still going strong today.
Casmir Gzowski. Polish immigrant who moved to Canada in 1841 to work on the Welland Canal. Later formed his own company which was responsible for the building of many public and private works, including railroads, highways, and bridges. During this era, public works was associated with graft and many historians feel that Gzowski was not above corruption. Also known as the great-great-grandfather of CBC radio personality Peter Gzowski.
George Simpson. Known for his brilliant management of HBC and became the resident governor. Policies included proper cost management and ruthless negotiation. He saved the HBC from competition from the North Westers and from falling into the hands of Americans.
Charles J. Brydges was the first Canadian manager of the HBC in 1879.
Hugh Allan. Later Sir Hugh Allan. He almost built a railroad to British Columbia. However, his bribes to the Prime Minister became public, this was then known as the Pacific Scandal. He started the Merchant Bank of Canada to fund many of his business interests. In 1871 this bank was saved from bankruptcy by the Bank of Montreal.
Erza Butler Eddy. An American who drifted up to the Ottawa Valley in the early 1850’s. He put his knowledge of making phosphorous matches to use by peddling these through the countryside. He later diversified into other wooden products like pails, washboards, and clothespins. By the 1870’s he had his own manufacturing facilities.
George Tillson. Established his own Dereham Forges at a site that became the Village of Tillsonburg.
W.C. McDonald. A non-smoker who started importing tobacco products and later began to manufacture them. He despised his own product but had no qualms about making money off it.
John Redpath. Invested his $200,000 fortune made as a canal builder into a sugar refinery in Montreal. Production was protected by the Federal National Policy. Later it merged with Dominion Sugar Company Limited. It is now owned by American Sugar Refining of West Palm Beach, Florida.
William Davies. Started to smoke pork in Toronto about the late 1850’s. By 1860 he started shipping cured pork to the UK. He gave local farmers good prices for their animals and is a reason why Toronto became known as hog town.
James Williams. Dug the world’s first oil producing well in 1857 near Petrolia, Ontario.
- Herbert Mason. Toronto accountant who created the Canada Permanent Building and Saving Society in 1855. Mason pioneered the reorganizing of saving societies into permanent corporations. Also started the Lambton Permanent Building and Investment Society.
Timothy Eaton. Purchased the dry goods stock of James Jennings and opened T. Eaton and Company.
Robert Simpson. Copied the operations of the T. Eaton Company and opened his own store at 184 Yonge Street in 1872. The store was called Simpson’s.
William Watson Ogolvie. Former cavalry officer who built a grain mill in Winnipeg in 1882 and eventually dominated the Manitoba grain trade. With the help of the CPR, he expanded his monopoly throughout the Canadian West. The tyranny of CPR, as it became known, was largely due to his and the CPR’s monopoly power exerted on the grain trade.
Robert Samuel McLaughlin. Started a carriage works company in Oshawa, Ontario. In 1890 a fire destroyed the original factory, so the City of Oshawa help him with a $50,000 loan repayable “as convenient”. In 1907, with engines purchased from Buick, he established the McLaughlin Motor Car Company. The first production run of 154 was the McLaughlin-Buick Model F. In 1918 the company became General Motors of Canada.
Daniel Massey. Established the Newcastle Foundry and Machine Manufactory in 1847. His son Hart renamed it the Massey Manufacturing Co. and moved it to Toronto. In 1891 it merged with A. Harris, Son and Company to form Massey-Harris Limited. This became the largest agricultural equipment maker in the British Empire. In 1953 it merged with the Ferguson Company to become Massey-Harris-Ferguson which was later shortened to Massey-Ferguson.
Patrick Burns. Began trading in cattle to supply beef to railway camps. In the mid-1890’s he discovered a demand for beef in the mining camps of the Kootenay. Developed a wholesale beef business in Calgary and became the “Meat King of the North West”.
Francis Hector Clergue. An American promoter who began a series of developments in Sault Ste Marie, Ontario. Started the Consolidated Lake Superior Corporation which produced power and later a steel mill. Ironic in that an American had more faith in Canada than most Canadians.
Alexander Tilloch Galt. A railroad builder and resource developer in Western Canada. Leased coal deposits and organized the construction of a hundred mile “coal branch” railway. Lethbridge is named after one of his principal investors, a British bookseller.
Joe Boyle. Believed in the long-term future of the Klondike, but not in the Yukon. Went to Ottawa to secure concessions of unclaimed or lapsed gold bearing lands. Ottawa’s Klondike policy was a hot bed of political favoritism and corruption. Took advantage of this to form the Canadian Klondike Mining Corporation.
Henry Mill Pellatt. Later to become Major-General Sir Henry Mill Pellatt, CVO. A financier who invested heavily in the Toronto Electric Light Company as well as several mining stocks. Now known as the builder of Casa Loma at 1 Austin Terrace in Toronto. It is the largest private residence ever constructed in Canada and continues to be a major tourist attraction to this day.
John Bayne MacLean. In 1887 scrapped together $2,000 to launch a weekly trade paper, The Canadian Grocer. He expanded into several other trade publications and in 1907 started the Financial Post. He was considered to be a mediocre writer, a poor editor, but a great promoter. His national magazine, MacLean’s, is still available on magazine racks across Canada.
Henry Worth Thornton. An American who was the first president of Canadian National Railways (CNR) from 1922 to 1932. Had very ambitious plans for the CNR, which were mostly funded by Canadian tax payers. People at CPR wondered why the CNR was getting so much government funding while they were running a profitable railroad.
Gordon Morton McGregor. Founder of Ford Motor Company of Canada. This was the first Canadian manufacturer to build cars completely, from raw materials to the finished product. A good negotiator, he kept the rights to export to the rest of the British Empire. Ford Canada exported two or three times as many cars as Ford U.S.
Edward Plunkett (EP) Taylor. Eddie to his friends, EP to the rest of us. Made director of Brading Brewery in 1927. After Ontario’s prohibition ended in 1928, there were 37 breweries all operating below capacity. His plan was to consolidate them into the Brewing Corporation of Ontario. This was done during the great depression. Fortunately, EP met Clark Jennison who represented British interest with $500,000 to invest. In all, 20 breweries were merged into his company. He later moved into other industries and into thoroughbred horse racing.
Harvey Reginal MacMillan. Founded H.R. MacMillan Export Company in 1919 to engage in timber brokerage. Merged with Bloedel, Stewart and Welch to form MacMillan-Bloedel Limited (MacBlo), the first truly integrated forestry company in BC. Now part of Weyerhaeuser.
James Y. Murdoch. Toronto lawyer who was the first president of Noranda.
Carl Sherritt. Along with J. Peter Gordon formed Sherritt-Gordon Mines Limited in 1927. He should never have taken flying lessons. During a demonstration in The Pas, Manitoba, he fell out of his plane to his death. The company developed a hydrometallurgical cobalt extraction technique that enhanced recovery of nickel cobalt sulfide concentrates. The company is still active but is now known as Sherritt.
Richard Bedford Bennett inherited control of the E.B. Eddy Company from a former sweetheart. This and family connections made him a millionaire. Later became the 11th Prime Minister of Canada. His answer to the great depression was to make tariffs even higher. Conservative pro-business and pro-banking policies did little to help the unemployed. He was voted out of office in 1935.
Harry Oakes was born in Sangerville, Maine. He spent two years at Syracuse University before deciding that the way to succeed in life was to find gold. Fifteen years spent travelling to Alaska, then to California, and on to Australia should have convinced him to finish his medical studies at Syracuse. Instead, he persisted. Finally, in 1911, he found gold at Kirkland Lake in Northern Ontario. Established the Lake Shore Mine and became the richest man in Canada. The Canadian government bestowed honors on him (giving him the title Sir) and, in return, relied on his taxes to balance their books. Eventually, he tired of funding Canada and moved to the Bahamas. This did not work out very well as he was murdered in 1943. Count Alfred de Marigny was arrested for the crime, but he got off on several technicalities. The murder is still officially unsolved.
Graham Towers was the first governor of the Bank of Canada when it opened its doors in March 1935.
Brothers John and Alfred Billes concentrated on selling low-cost car parts and incorporated Canadian Tire Corporation in 1922. Began franchising their concept in 1934.
Crawford Gordon Jr. One of C.D. Howe’s “dollar-a-year” men. After the war he managed A.V. Roe Canada. Under his leadership the company grew to a conglomerate of 44 companies and 50,000 employees. Responsible for the CF-105 Arrow, the most advanced jet interceptor of its time. Unfortunately, he had an ego larger than his company, and this clashed with the new Prime Minister, John Diefenbaker. No love could possibly have been lost between the two men. They despised each other. The Arrow program was cancelled February 1959 and Gordon was fired. Had to battle an addiction to alcohol until his death in 1967.
John George Diefenbaker. Became the 13th Prime Minister of Canada after the public started to perceive the Liberals as being arrogant and aloof. Made promises of business and government working together. His government then scrapped the Arrow, wrestled with the highest level of unemployment since the war, and he fired the Bank of Canada governor. Money saved from the Arrow project was used to build a dam on the Saskatchewan River. Must have liked the idea that there would be a lake named after him. His government lasted all of six years.
Frank McMahon. Started Westcoast Transmission Company Limited which was the first to carry gas from the Peace River area to Vancouver.
Conrad Black. Once the boy wonder of Canadian Business. Fortune magazine applauded when he was named chairman of Massey-Ferguson, expecting him to reverse the decline of the company. However, he was soon “over his head” and tried to distance himself from its inevitable failure. His reputation was tarnished in 2007 by the US District Court of Chicago when it convicted him of three counts of fraud and one count of obstruction of justice. Spent 31/2 years in a US prison before being pardoned by his buddy Donald Trump.
Important dates in Canadian Business History
May 2, 1670 – The Hudson Bay Company was founded in London, England. Headquarters is now at 401 Bay Street, Toronto,
June 22, 1774 – The Quebec Act created British North America.
June 18, 1812 – Opening salvo of the War of 1812.
1820 – Government of Canada began taxing the output of timber companies, since it could not control their taking of trees.
1821 – Merger of the North West Company (NWC) with the Hudson Bay Company (HBC). Under the Leadership of Sir George Simpson the new company had a fur trade monopoly that included 25 chief factors and 28 chief traders. A profit-sharing scheme was introduced.
1854 – Reciprocity with the United States. Later broken by the United States.
Summer of 1858 – Start of the Kootenay gold rush. Ended by 1870.
1858 – Dollar decimal currency was formalized.
1861 – Toronto Stock Exchange founded.
July 1, 1867 – Confederation created the Dominion of Canada. Very popular with railroad promoters but the rest of the population was disinterested.
1879 – The National Policy was introduced by the Conservative government of John A. Macdonald. The policy set high tariffs for manufactured goods (30% at times) and created a branch plant economy in Central Canada.
November 7, 1885. The Canadian Pacific Railroad (CPR) was completed.
1896 – George Washington Carmack, Skookum Jim, and Tagish Charlie found gold in a Klondike river tributary named Rabbit Creek. Now called Bonanza Creek.
1897 – Crow’s Nest Pass agreement signed. CPR got heavy subsidies in return for reducing its rates to grain farmers. For many years it was cheaper to ship grain to China than within Canada. This was eliminated in 1995.
July 28, 1914 – The Great War, later known as World War I, began.
August 1914 – Canada left the gold standard. The money supply became unlimited.
1916 – Business Profits War Tax came into being. This morphed into the Income War Tax and later into the Income Tax Act. It is still with us.
1926 – The Balfour Declaration of 1926. Not to be confused with the Balfour Declaration of 1917. This one was an affirmation by Artur Balfour that granted political autonomy to Newfoundland, New Zealand, Australia, South Africa, the Irish Free State, and Canada.
October 1929 – Onset of the great depression.
1938 – Arthur B. Purvis appointed to the National Employment Commission. Unemployment Insurance was implemented according to Keynesian principles.
February 13, 1947 – Leduc No. 1 struck oil. This totally changed the dynamic of Western Canada, especially Alberta.
Sometime between 1947 and 1951 – The National Research Council built the University of Toronto Electronic Computer (UTEC).
March 31, 1949 – Newfoundland became part of Canada. This made Joey Smallwood the last father of Confederation.
1965 – Canada Pension Plan introduced.
1965 – Auto pact between the U.S. and Canada signed. Tariffs on autos were removed but market share for Canadian manufacturers was maintained.
1981 – Liberal government introduced the National Energy Program (NEP). This was Canada’s response to the energy crisis of 1973. It was a well-intentioned policy to obtain control of energy resources and to keep them in Canadian hands. Unfortunately, it was very poorly timed. High debt levels of Canadian oil companies, exceedingly high interest rates used to combat inflation, and the eventual collapse of oil prices all combined to kill the NEP.
1981 – Start of international recession.