National Policy of 1878: Repercussions for the Maritime Business Community

Did The National Policy of 1878 ultimately benefit or penalize the business community of the Maritimes? What was the condition of Maritime business community of the Maritimes? What was the condition of Maritime business by the 1920s? What accounts for the emergence and success of K.C. Irving's business empire since the 1920s?

Mark Twain was at work on Huckleberry Finn in 1879, the quintessential American novel which was to prove a source of never ending controversy. Oscar Wilde left Oxford, determined to "somehow be famous, and if not famous, notorious," and Sir John A. MacDonald introduced the National Policy to Canada, further securing his own position in the annals of history as one of controversy, fame, and notoriety. While the American and the British/Irish writer were in the business of creating fiction, the Canadian Prime Minister, who was once found in his room with a railway rug thrown over him, "practising Hamlet before a looking glass," was involved in political myth-making of his own.⁽¹⁾ In his efforts to throw a policy, and a railroad, across the nation from sea to sea, he was working on the premise that the policy would "benefit and foster the Agriculture, the Mining, the Manufacturing and other interests of the Dominion."⁽²⁾ History has revealed this premise to be flawed in a number of areas, and this paper will argue that in the specific case of economic development in the Maritimes, the promised restoration to "struggling industries" has proven, ultimately, to be fiction.

On March twelfth, 1878, Sir John A. MacDonald rose in the House of Commons to move his Conservative Party's resolution to adopt a National Policy, a three-point plan to initiate a protective tariff, build a transcontinental railway, and stimulate expansion into western Canada. It was perceived by Sir Charles Tupper, the finance minister of the day, as "collectively that group of policies and instruments which were designed to transform the British North American Territories of the mid-nineteenth century into a political and economic unit."⁽³⁾ Contrary to this idealism, it now appears more likely that the National Policy was born out of political expedience and appeasement, serving as the means to quiet the small but powerful group of Central Canadian Industrialists who were clamouring for protection from cheaper imports and demanding access to the potentially vast markets in the east and west.

Where, then, did this leave the three Maritime provinces: New Brunswick, Nova Scotia, and Prince Edward Island? Were their communal leaders able to share in the country's "enhanced natural prosperity"⁽⁴⁾ or were they to fall victim to the wolves of Toronto, Montreal, and Hamilton? As might be expected, there are no easy answers. Some Maritime entrepreneurs secured riches which allowed them to flourish, while there were Ontario factories which faced enormous competition from American branch plants and declined. The majority of evidence, however, points to the National Policy's role in dismantling previously reliable sectors of the Maritime economy, and in depriving the region of economic opportunities that went instead to Ontario and Quebec.

With a century of hindsight on our side, it is clear that the National Policy, although only one of several impediments to the growth of Maritime business, was responsible for setting in motion a series of events which led to the continual de-industrialization of the region right into the 1920s. This decade would witness the permanent transformation of Canada's original commercial luck into regional disadvantages and economic weaknesses, where entrepreneurs became the exception, and only a few ambitious visionaries, like K.C. Irving, commenced to rule.

The years immediately following the introduction of the national policy tariff represented a boom period in the history of the Maritime provinces, as foreign imports were made prohibitively expensive. MacDonald's protectionist wall stimulated the emergence of new, and in many instances larger, manufacturing establishments which produced goods for the domestic and new national market. Growth was primarily concentrated in the areas of cotton cloth, refined sugars, iron and steel. For example, between 1882 and 1885 six cotton textile plants were opened in New Brunswick and Nova Scotia, including mills in Moncton, Halifax, St. John, Windsor, Yarmouth and Marysville. Much of this new investment came in the form of English textile industry capital and equipment which were facing a recession back home.⁽⁵⁾

Prior to the National Policy, about 90% of refined sugar purchased for domestic consumption in Canada came from American, French, German, and British producers who dumped "surplus output on a glutted world market."⁽⁶⁾ In 1879, however, the advent of a one-cent specific duty and a .35% ad valorem on refined sugar changed the situation dramatically. Within three years new refineries opened in Halifax, Moncton, and Dartmouth, and the shipment of sugar from Halifax to Montreal on the The Intercolonial Railway of Canada became a brisk business.⁽⁷⁾ Even the trade of fish for raw sugar between the Maritimes and the West Indies experienced a miraculous resuscitation, leading to secondary benefits in both the fishing and coastal shipping industries.⁽⁸⁾

The National Policy tariff also gave rise to new Maritime iron and steel manufacturers. In 1881 the Nova Scotia Steel Company was founded in New Glasgow with a modern facility that grew steadily throughout the decade, and in 1880 the Charcoal Iron Works in Upper Woodstock in New Brunswick came onto the scene.⁽⁹⁾ On the surface the 1880s and the National Policy treated the Maritimes well. The region's rate of industrial expansion exceeded that of Central Canada by fifteen percent, and its manufacturing output relative to total production increased from 37 percent in 1880s to 48 percent in 1890.⁽¹⁰⁾ By the end of the decade St. John had almost doubled its industrial output, ranked third in Canada in the production of machinery, and first in that of nails and brass. Similarly, Yarmouth, Nova Scotia, had more than quadrupled its output, while New Glasgow had become the leading maker of rolling mills.⁽¹¹⁾

A harsher reality contravenes this rosy image of the Maritime economy during the National Policy tariff's first ten years of existence. One of the most serious problems was that too many communities were competing for limited resources, as well as duplicating processes. This eliminated any advantages from economies of scale. The St. John Cotton Mill was just one of several entities that collapsed due to such inefficiencies during this period.⁽¹²⁾. Furthermore, the blossoming of secondary manufacturing occurred haphazardly and without any organization, again depriving the region of the advantages that accrue from strategic locations, mass purchasing power, and economies of production.

The Maritime provinces also suffered the highest rate of outmigration in Canada in the 1880s, and a population growth rate of only 1.1 percent, as compared to 13.5 percent the previous decade.⁽¹³⁾ The apparent prosperity, therefore, was being seriously undermined by the depletion of the youth and skilled workers, who would be needed for future industrial development.

The end of the 1880s found Maritime businessmen at the edge of an abyss. The completion of the CPR link between Montreal and St. John had opened a direct route between Central Canada and the East which had never been achieved with the winding Intercolonial route. Although industries in Atlantic Canada primarily viewed it as a means of accessing the markets in Ontario and Quebec, by the 1890s it was proving to be the floodgate through which the inexpensive goods of giant central Canadian firms drowned out small domestic produce in the Maritimes.⁽¹⁴⁾ The casualties would be high.

While the initial economic consequences of the National Policy tariff were arguably mixed, the negative impact of the eastern arm of the Canadian Pacific Railway (complete 1885) was undeniable and swift. The Maritime business community quickly became the victim of osmosis, in which materials move from an area of high concentration to one of lower concentration. Montreal firms tended to be vast conglomerates which churned out manufactured goods at a minimal cost and could, therefore, afford to charge a much lower price for their merchandise than the frequently small and decentralized St. John or Moncton producers. Local Maritime factories that found themselves in direct competition with these mainland companies were generally either squeezed completely out of domestic markets and perished, or were able to implement an adequate degree of differentiation and retreat to a smaller niche.⁽¹⁵⁾

The strong, steady current of Central Canadian output was not limited to the manufacturing sector. Rather it washed over most of the profitable industries in the Maritimes, leaving behind a large variety of items ranging from agricultural produce to cotton cloth. By the time the decade neared an end, the commercial men (and women) in Nova Scotia, New Brunswick and P.E.I. were aware that their enemy's face had changed from Uncle Sam to Mr. and Mrs. Central Canada.

A further examination of the relationship between the late 19th century Atlantic Economy and the National Policy's CPR reveals the considerable extent to which Maritime optimism in the railway policy was unfounded. Joseph Howe once observed that "the critical thing about railways was their capacity to expand commercial activity and population growth in landward directions."⁽¹⁶⁾ As geography would have it, the Maritime region found itself constrained by the Atlantic Ocean while the western half of British North America was largely developed and prime for expansion. The victim of osmotic forces yet again, the Maritime provinces witnessed the outflow of their capital and skilled workers to the more sparsely populated Prairie frontier. In the process, the railroad made off with probably the two most vital ingredients for economic development.

Another communal corpse that can be traced to the railway's door is the Maritime shipbuilding industry. Soon after the Montreal - St. John branch was opened, a general feeling arose, particularly among ship owners, that the CPR would become Canada's new "National Highway," replacing the need for coastal trading on the St. Lawrence Seaway between the Maritimes and Upper Canada. Although this did not turn out to be the case, it generated enormous pessimism within the industry, which helped to stunt attempts to build ships.⁽¹⁷⁾

If the protective tariff and the transcontinental railway could be seen as disappointing in isolation from one another, together they formed a very dangerous unit which worked towards disrupting the basis of Maritime economic life. Paul Phillips' description of the National Policy is a convincing one, that it was "conceived and implemented by a... communal elite...of Central Canada," whose agenda was "to direct economic activity on an east-west axis so that this elite might control a greater volume of commerce."⁽¹⁸⁾. By the end of the 19th Century, the promising manufacturing inroads of the 1880s were replaced in the 1890s "by the seeds of eventual despair."⁽¹⁹⁾ Facing direct competition from the producers in Ontario and Quebec, the number and average size of Maritime farms declined steadily after 1891.⁽²⁰⁾ Similarly, the growth rate of manufacturing output in the region increased just 4% in the 1890s as compared to 21% and 30% in Ontario and Quebec respectively within the same period, and between 1891 and 1911 the labor force of the Maritimes grew by only .3%, one fifth the rate enjoyed by Ontario and Quebec.⁽²¹⁾

The blame for this economic decline is directly linked with the National Policy and the way in which it rearranged the structure of Maritime economy. At first the protective tariff encouraged the start-up of new sectors of the Maritime manufacturing industry, such as the production of cotton, glass, rope, and sugar.⁽²²⁾ However, the Atlantic provinces lacked many natural advantages with respect to these new businesses. They did not have a particularly skilled labor force and as a result brought tradesmen from Britain. They also were short on capital, which they obtained from England, the U.S. and Central Canada. The family-oriented nature of business and the scattering of firms and population throughout the three provinces served as obstacles to economics of size. Finally, the domestic market was too small to sustain large-scale manufacturing; as a consequence the Maritime entrepreneurs often staked their enterprises on the ability to access Ontario and Quebec. In many instances, the protective tariff was the main reason plants were able to continue.

The flow of Mainland goods into the region after 1885 exposed the numerous disadvantages which plagued many of these new Atlantic manufacturers. Almost overnight they began to decline in the face of such overwhelming competition, and soon after dozens of these firms were consumed by central Canadian businessmen who bought majority interests at suppressed prices.⁽²³⁾ Maritime commercial players were often wiped out, or the businesses would be revamped and maintained as was the case with the Maritime cotton-textile industry. By 1890 it was suffering from a lack of local leadership "in beating back outside intrusion" and showing little return on capital. In 1891 the Dominion Cotton Mills Company in Montreal was founded by A.F. Boult and David Morne to consolidate the seven Maritime "producers under the control of a single directorate." This was effectively accomplished by 1892.⁽²⁴⁾ Neither was it rare, however, for these newly purchased firms to be permanently closed, reducing, as a result, the Maritimes' ability to produce the items it needed to survive.

For all practical purposes, this shift in ownership of Maritime business marked the loss of the region's economic independence and the beginning of its role as a branch economy for central Canada. The National Policy had stimulated the establishment of American branch corporations in Ontario and Quebec by 1900, creating jobs, capital, and prosperity for the area. In contrast it made the Atlantic region dependent on Ontario and Quebec for employment and consumer supplies, while taking from them the resources that would be crucial to forging an economic comeback.

Maritime commerce was not destined to fail; rather, its failure was manufactured by a national economic strategy that sought to exploit regional economies instead of equalizing regional opportunities.⁽²⁵⁾ In 1878, just prior to the initiation of the National Policy, Maritime businessmen were busy scrambling to re-orient their export trade in order to take advantage of the relatively close American markets beginning to boom on the eastern seaboard. Efforts were also underway to control, if not curb, the region's persistent population decline. Within twelve months the Maritime business people were effectively isolated from the U.S. by the protective tariff, and would soon thereafter enter new manufacturing arenas where they would be brought down by the competition from Central Canada. From this point on, the Maritimes became a hinterland. This policy, proclaimed in the House of Commons by the Prime Minister under the railway rug, proved to be the sheep's clothing under which Montreal, Toronto, and Hamilton business interests flexed their muscles.

The boom which swept Canada at the turn of the Century created "only a mild flutter in the Maritime economy," but Maritime "consciousness of economic stagnation and relative decline within the Dominion of Canada only assumed the stature of certainty and reality in the 1920s."⁽²⁶⁾ The decade of limited interwar expansion also appears to have been a bleak one, in which the population of the region grew less than one percent due to the exodus of workers to the cities, and those who remained, especially farmers, fishermen, and miners, began to organize in a way which brought issues of regional and economic disparity into the political agenda, but which also led to lock-outs and clashes with the military.⁽²⁷⁾

The shift of economic focus from coal, iron, and the railroad to electricity, oil, and the automobile had an inevitable impact on industry in the Maritimes. Inflationary prices on coal resulted from the effective protection of duty on that which was imported. This protection had itself come about with shipping disruptions in 1918 and 1919. Local coal consumption, along with railway expansion, was down, and Nova Scotian steel mills worked far below their capacity. Ontario mills, favored by tariffs and nearer to large markets, were in a better position to adapt to the new demand for lighter, structural steel, now that the "prewar orgy of railway expansion" had ended. ⁽²⁸⁾ The Model T was starting to become the preferred mode of travel, but "virtually all [other] established manufacturing plants in the region declined in the 1920s"⁽²⁹⁾

The fishing industry also suffered the effects of competition, since in 1921 the U.S. re-established tariffs on imported fresh and frozen fish. The year before, government subventions for fresh fish shipped to Ontario had been withdrawn, and this, combined with a decrease in world demand for dried cod, made new offshore trawlers and freezer plants all the more threatening. Natural disasters in 1926 and 1927 caused the government to exclude fishermen from the existing Workmen Compensation Act, and they had then to rely on private insurance companies,⁽³⁰⁾ and local cooperatives began to be formed to ensure the fishermen some kind of voice.

Theirs was not the only struggle to be heard in Central Canada, however. The farmers, who were declining in number but not in importance to both rural and urban economies, organized themselves to demand collectively the elimination of tariffs on imported farm machinery and fertilizer (Worth noting is the new platform adopted by the Canadian Council of Agriculture in November, 1918, in which they proclaimed a "New National Policy" in opposition to the earlier one).⁽³¹⁾ Their demands were seldom directly met by the government, but their influence in noticeable in the increased number of Royal Commissions and studies of agricultural which were undertaken. United farmers were a force to be reckoned with, and the political party, Maritime Rights, which arose in this era was an outgrowth of these small cooperatives in all of these essential, but troubled, sectors of Maritime economy.⁽³²⁾

Nor were the farmers the only group who moved from economic discontent to specifically challenging the political order. The BESCO corporation, which reduced the wages of its coal miners by one third in 1922, sparked a miners' resolution calling for the abolition of the capitalist system, and in spite of a settlement due to the intervention of the provincial government at this time, strikes and more strife followed, with the army being called in frequently by BESCO under the Militia Act. To the dismay of the Prime Minister, "hundreds of soldiers became accustomed to spending their summers on strike duty in Cape Breton"⁽³³⁾

It is not surprising, then, that the 1920s developed into a period "rich in official enquiries" regarding fiscal and industrial problems.⁽³⁴⁾ The forestry sector was another industry which contracted in the period between the wars. The lumber industry declined in the late 1920s, but this was, fortunately, nearly offset by an expansion in pulp and paper. Forestry provided winter employment for both farmers and fishermen, and during this period the real capital/labor ratio of the Maritimes was comparable to the national level, but the output/labor ratio was 20 to 30 percent lower. The economic growth of only .3 percent, compared with 6.1 percent in Canada as a whole, is startling, and although Alexander argues that the growing manufacturing sector still accounted for the same percentage of the total output growth as that of Canada,⁽³⁵⁾ the implication for non-manufacturing sectors: the fishery, agriculture, and to a significant degree, forestry, is that the greatest disparity was to be found in the most fundamental resource-based industries in a region whose greatest asset was these raw resources. It was also at this time that the manufacturing industry began to encounter the discouragement of the loss of regional control of freight rates.

Fiscal decisions made in Ontario were, not surprisingly, of great impact on the Maritime region. The area staggered under unprecedented levels of taxation. This was one of many grievances brought to Central Canada by the Maritime Rights party, yet the business community in the Maritime "occupied an ambivalent position," in relation to Ottawa, since many local entrepreneurs found their interests lay in making an accommodation with the banks and corporations of central Canada.⁽³⁶⁾ "Runs" and bank closures following the Bank Act of 1923, however, while isolated for the most part to Central and Western Canada, could not have boosted the confidence of those in this way dependent on the purse-strings in Ontario.

If the 1920s marked the decline of industries that had depended on the railroad, the rise of the automobile still gave some hope to others. As the need for labor relations became dire in many instances, serious attention was demanded for this problem, and for that of corporate mismanagement, from both provincial and federal governments. Increased consciousness of regional disparity within Canada spurred workers to unite to protect themselves from big business. Arguably, all of these factors would have encouraged those who may have felt the stirrings of the entrepreneurial spirit to exercise it outside of the Maritimes. It was in such an environment, politically volatile and economically stagnant, that K.C. Irving began to build what came to be a distinctly Canadian empire.

Kenneth Colin Irving was a child of the National Policy. Born exactly twenty years after its introduction by MacDonald in the House of Commons, he was still a young boy growing up in Bouctouche, New Brunswick, while it was putting the finishing touches on the bankruptcy of domestic Maritime producers. Yet his connection with the "railway legislation" far exceeded any mere temporal link. It can be asserted that he lived his entire 93 years striving to reclaim an Atlantic Canada he had never known, one of considerable potential and efficiency, opportunity and optimism, in short, an Atlantic Canada which, if it had ever existed, was quietly slipping away in the decades before his birth. The entire sum of his business pursuits might have been an effort to raise his Province back up to the stature it enjoyed shortly before the age of the National Policy. But in the case of K.C. Irving, he had learned from the mistakes of his commercial ancestors, and when he did business in New Brunswick it was inevitably with a central Canadian style and vision.

Mr. Irving's initial success in the mid 1920s came from his ability to recognize the automobile as a valuable and permanent alternative to the railway, a vehicle which would serve as the foundation for Canada's newest "National Highway." By the age of 23 he possessed the exclusive right to sell Model Ts in the southern half of Kent County and within a year was peddling most of the oil and gas in the region.⁽³⁷⁾ From such modest beginnings, he had built by 1930s a growing conglomerate that operated gas stations in over twenty cities in Nova Scotia and New Brunswick, and which generated a profit of over 130 000 for the 14 month period leading up to January 31st, 1931.⁽³⁸⁾ Had Irving been able to read fifty-nine years into the future, he would have witnessed his empire's estimated worth climb to more than ten billion by 1990. When he died in 1992, his company had interests in pulp and paper mills, media technology, oil fields, 3000 service stations, fleets of aircraft and supertankers, an oil refinery, a shipyard, mines, and numerous other industries.⁽³⁹⁾

K. C. Irving was able to achieve such phenomenal levels of growth and consolidation on the basis of the simple maxim: "You've got to keep going. Expansion is the thing." ⁽⁴⁰⁾ Not content to remain stagnant, and always looking forward he generally tried to function at all levels of an industry. For example, he owned service stations as well as car repair shops, oil fields, refineries, and all the transportation infrastructure necessary for the movement of materials in between. He, therefore, was an ardent believer in the advantages to be secured through backward and forward (vertical) integration. In this way, K. C. Irving stole a page out of the history of America's "megacorps" and slowly shaped his firms into diversified, money making machines that were largely invulnerable to other competitors.

Larry McCann contends that in the 1890s it appeared that "only smaller-scaled manufactories [in the Maritimes] could remain under the ownership of regional entrepreneurs and free from central Canadian control."⁽⁴¹⁾ Irving, however, reversed the trend in the twentieth century and frequently assumed the characteristics of a wolf in both protecting his commercial interests in Atlantic Canada and in exploiting opportunities in Ontario and Quebec.

The most important factors in K. C. Irving's commercial achievement were his steely determination and relentless ambition. To assemble a billion dollar corporation in the wilderness of New Brunswick requires more than business acumen. It demands the skill to see profitable developments where others see only waste or absence, as well as the fiery leadership to make one's visions real. Russell Hunt and Robert Campbell describe Irving as a "social phenomenon on the same level of importance as a revolution or a war."⁽⁴²⁾ Whether he was founding yet another local industry or taking bites out of the central wold, the degree of his power was unquestionable, and the importance of his legacy to Maritime Canada undeniable.

Seven years after the dawn of MacDonald's National Policy, Maritime poet Charles G. D. Roberts wrote:

The salt, raw scent of the margin;
While, with men at the windlass, groaned each reel, and the net,
Surging in ponderous lengths, uprose and coiled in its station;
Then each man to his home, - well I remember it all!⁽⁴³⁾

There is contained in this verse both a nostalgia for that which is lost, and an acknowledgment of what was unique to the remembered event, a moment of life in "the margin". Geography determined that the Maritimes be marginally located in Canada, but 1. the winds that have played havoc with her boats and life on the shore have not all come from the direction of the sea. J.J. Hayes Doone questions that "the calamities of the Maritimes have always been casually passed along as acts of God, over which governments have no responsibility; while apparently, from the official point of view Divinity does not operate in other sectors of Canada."⁽⁴⁴⁾ The end of Charles G. D. Roberts' nostalgia ends with "Yet I will stay my steps and not go down... Lest on too close sight I miss the darling illusion... Spy at their task even here the hands of chance and change." While change is inevitable and necessary, those changes which the National Policy brought to the Maritimes were not all inevitable and the question remains, necessary for whom?

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