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Laurier House National Historic Site of Canada

II: Setting the Scene: The Great Depression and the Development of Canada's Social Programs: An Overview

The crash of the New York stock market in October 1929 precipitated an abrupt decline in world trade, which ended the economic boom of the Roaring Twenties and ushered in the Hungry Thirties. As a semi-industrialized nation dependent on the export of grain, raw materials, and partially finished products, Canada was especially vulnerable.

No one in 1929 could have predicted the magnitude and duration of the Great Depression. Prime Minister William Lyon Mackenzie King shared the widespread belief that the recession was temporary and that the economy would recover without the necessity of resorting to drastic or radical measures. As a young man Mackenzie King had studied economics, and later served as the first Minister of Labour (1909 -11). For some years thereafter he had investigated labour problems in the United States. When chosen Liberal leader in 1919, the party's platform had included old age pensions, unemployment insurance, sickness insurance, an eight-hour day, and the right of collective bargaining. However, as Prime Minister (1921-30), the only social program enacted by his government was the Old Age Pensions Act of 1927. While it represented the first serious step toward a national system of social security, it would come into effect only in provinces that agreed to pay half the cost of the pensions.

The impact of the Great Depression varied within communities and across the country. Although most wage-earners were forced to accept reductions in pay, the cost of living also decreased and those in the urban middle classes who were fortunate to retain their jobs were often better off than before. Unskilled workers, the elderly, and youth, however, faced continuous unemployment and hopelessness. Searching for work, men walked the city streets and waited in line at soup kitchens for food; they took to the roads as transients and begged for a bed overnight and a meal; they rode the windy tops of freight cars from place to place. In 1933 one of five in the labour force had no earned income.

The plight of the farmer was different. While not unemployed, the prices for his products dropped to a fraction of what they had been. By 1932 wheat was being sold at an all-time low of 34 cents a bushel, less than it cost to grow. Moreover, the world market shrank, and by 1935 the unsold surplus of wheat in Canada amounted to 200 million bushels.

At the same time, the fisheries and coal industry in the Maritimes stagnated, and British Columbia experienced a marked decrease in the Pacific trade. However, the suffering was most acute on the farms of the prairies where wheat was the staple crop and natural disasters - drought, dust storms, grasshopper plagues, wheat rust coincided. Parts of southern Saskatchewan had nine consecutive years of almost complete crop failures. As a result, many farmers abandoned their land and machinery to the mortgage companies and moved to the treed areas farther north or into the cities. Unable to purchase even the barest necessities, many were forced to accept the humiliation of relief. The treasuries of the western provinces were emptied as they met the unprecedented demand for aid. To ensure that the money was not squandered, relief was often given in the form of vouchers which could be exchanged for food, fuel, and clothing.

In the election campaign of 1930, Mackenzie King opposed federal relief, claiming that this was not within the federal powers included in the British North America (BNA) Act of 1867. In his view, the provinces and municipalities must continue to assume responsibility for relief programs. During the campaign, he made the injudicious remark that he would not give a five-cent piece to any province with a Conservative government for alleged unemployment relief.

The Conservatives under R.B. Bennett, who promised aggressive action on unemployment, won the election. The new Prime Minister began his term of office by instituting a repressive policy toward unemployed marchers, labour unions and radical periodicals; a steeply raised tariff which, strangely, was supposed to blast the way into world markets; and emergency measures including twenty million dollars, an enormous sum at the time, for public works and relief. However, the government's strategy was ineffectual and, as the Depression worsened, Canadians began to lose confidence in the capitalist system which had caused such an economic disaster and in the government which seemed powerless to prevent it. Resentment, rural and urban, focused on the Prime Minister. He had promised decisive action, but his policies had done little to improve the situation.

Increasingly, from all sectors of the population with the exception of big business, there were calls for fundamental change in the role of government to ensure social and economic welfare. The monetary theories of the British economist, John Maynard Keynes, attracted considerable attention. According to Keynes, the Great Depression could only be conquered if governments deliberately incurred deficits by cutting taxes to increase purchasing power, and by spending on public works and other large-scale investments to stimulate industrial activity. In the West, two protest parties emerged: Social Credit in Alberta in 1932, with an inflationary panacea in the form of monthly social dividends of twenty-five dollars a month to be issued to every citizen in the province; and the socialist Co- operative Commonwealth Federation (CCF) in Saskatchewan in 1933. In Quebec, discontent had an added nationalist dimension, for business interests were predominantly English-speaking, and wage earners French-speaking. The economic problem of unemployment therefore became a cultural problem, and in 1936 the Depression would bring L'Union Nationale to power.

Fearing political unrest, Prime Minister Bennett surprised even his own party by a series of radio broadcasts in January 1935 in which he admitted that there were grave defects in the capitalist system and announced a New Deal for Canada which would result in greater social justice. Bennett's proposed reforms would include unemployment insurance, maximum hours of work and minimum wages in industry, extension of farm credit, and a natural products marketing board. However, voters were not convinced of the Prime Minister's sincerity, and in the election of 1935 the Conservatives were soundly defeated. The Liberals, with the slogan King or Chaos, returned to power after a five-year absence with the largest majority in Canadian history up to that time.

Back in office, Mackenzie King proceeded cautiously. He had questioned whether the federal government had the jurisdiction to pass the New Deal reforms, and now referred the matter to the courts for decision. The Judicial Committee of the British Privy Council, the highest court of appeal for Canada, declared most of the proposed legislation beyond the federal powers. For his part, Mackenzie King believed in the remedies of the past economical government, debt reduction, low taxes, moderate tariffs. Deficit spending was, in his view, undesirable. He was hesitant to intervene in the social order. Inflation seemed morally wrong. However, the unity of the country, always his prime goal, was at stake, and he adapted to the rising demand for social welfare. The provinces had been adopting various social measures since the late nineteenth century, but their financial resources were simply not sufficient for the critical needs of the twentieth century. In 1937 Mackenzie King appointed a Royal Commission on Dominion-Provincial Relations to study the distribution of powers and revenues and bring the federal system into balance. This was a significant assertion of federal leadership on the part of the Prime Minister, a recognition that the national government had social responsibilities and regulatory functions not envisaged in 1867.

In 1940 Mackenzie King, desirous of maintaining industrial peace during World War II, secured the agreement of the provinces to an amendment of the BNA Act which empowered the federal government to establish national unemployment insurance. This was followed by the enactment of the Unemployment Insurance Act. In 1944 the government established the Department of National Health and Welfare, and passed the Family Allowances Act by which parents would receive a monthly allowance for each dependent child.

The Unemployment Insurance Act and the Family Allowances Act were notable pieces of social legislation and set Canada firmly on the path to a social welfare state. They would be followed over the years by many others: for example, the Old Age Security Act of 1951, the Canada Pension Plan of 1964, the Canada Health Act, a comprehensive national health insurance program (or medicare, as it was popularly known) in 1966. The Great Depression had served as the catalyst for these fundamental reforms, revealing the economic insecurity of modern society and leading to the expansion of federal government activity in assuming responsibility for major social welfare services.


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