Some Regional Problems of Canada

DR. C. C. GOLDRING: Mr. Coldwell came from England, the country of his birth, to live in Edmonton, Alberta, in the year 1910. He taught school in the Provinces of Alberta and Saskatchewan for the next twenty-five years and served as Alderman in the city of Regina from 1922 to 1932. He was President of the Canadian Teachers' Federation in 1927-28 and was its Secretary-Treasurer from 1928 to 1934. He was active in Farmer and Labour groups in Saskatchewan, particularly during the period 1929 to 1934, and he became National Secretary of the C.C.F. in 1934. He was first elected to the House of Commons in 1935 and has been in Parliament continuously since that time.

He has been Parliamentary Leader of the Co-operative Commonwealth Federation for several years. With his long experience in the House of Commons he has been a member of Canadian delegations to other countries on many occasions, particularly Britain, the United States, and the Middle East.

Mr. Coldwell has had a wealth of experience in various organizations and has given leadership in many movements designed to improve the lot of man. His experience in serving others and his intimate knowledge of all parts of Canada give him unique qualifications to speak on the subject "Some Regional Problems of Canada"

It is a privilege to have Mr. Coldwell with us at this Empire Club meeting and we extend a warm welcome to him.

MR. COLDWELL: During the past few months certain economic problems in Canada have occupied a prominent place in both the newspapers and in the thoughts of our people. Having just completed a cross-country tour, I have had an opportunity of seeing for myself some of the serious problems which confront Canadian primary producers. It is true, of course, that for various reasons great industrial developments have taken place, particularly in the provinces West of the Maritimes. The effect of these I shall not have time to discuss.

Suffice it to say that there are great disparities of opportunity and wealth in the several regions of Canada. This applies not only to provinces as such but as individuals within the provinces.

Comparisons of the per capita incomes emphasize this point. What has been true during this post-war period, was equally true between the two wars. 1928 was a comparatively prosperous year but the per capita income in Prince Edward Island was only $240, while that of Ontario was $540, or more than twice as much. In 1954 the per capita income of Prince Edward Island was only $650, while that of Ontario had risen to $1,470. The other provinces ranged between these two amounts with the exception of Newfoundland which was only $640.

At the present time there appears to be little likelihood of any real adjustment between the extremes unless contemplated federal-provincial agreements are effected to equalize economic conditions among the ten provinces.

Unfortunately, farm returns have dropped sharply in the past several years and it is unlikely that they will rise sufficiently to bring about the necessary. adjustments among the regions. In Nova Scotia and Prince Edward Island farm returns are dropping sharply.

When I was in Nova Scotia recently I visited the Annapolis Valley where a very high grade crop of apples was being marketed at uneconomic prices. I was told that farmers were receiving about 40 cents a bushel on the farm and along the roadside bushel baskets were on sale to motorists at $1. Two years ago the apple growers voted to abandon their marketing board. I found much the same price situation in Prince Edward Island where I was told that potato growers were receiving as low as 35 cents a sack for their exceptionally good crop of potatoes.

But for government floors under butter, Ontario and Quebec dairy farmers would be feeling the effect of the vast accumulation of surplus butter which presents a problem to the federal government.

On the Prairies wheat in storage has reached an all-time record. The 1955 crop is of exceptionally high quality and under normal circumstances should find ready markets overseas. Every storage facility is filled to capacity and some millions of bushels lie on the ground with such protection as farmers can provide of a temporary character. The marketing policy of the United States is in some measure responsible for this situation but federal policies also play their part.

British Columbia growers have also reaped excellent crops of apples and other farm produce but there, like the prairie farmers with their Wheat Board, the producers are protected through marketing boards which feed apples and other produce to the markets in an orderly manner.

Generally speaking, the picture of regional average personal income shows Ontario and British Columbia on the top with the Prairie region next, and Quebec close behind in times of prosperity or a bit ahead of the Prairies in times of depression. The Martime region practically always brings up the rear. What is the reason for this persistent disparity?

I take it that no one will suggest that these long-standing differences mean that Canadians living in one province are any less industrious than Canadians living in the provinces with higher incomes, nor that their contribution to the welfare of Canada is any the less important.

At any rate, if any one did suggest that, I would immediately disagree, for it does seem that in the complex and interdependent economy of today anyone who would venture to measure how much any individual or any region contributes to national development is being rather rash.

A person who attempted to make such a measurement on the basis of what people actually earn now would be saying in effect that a person receiving a million dollars a year is snaking a contribution to Canadian welfare a thousand times that of somebody getting only a thousand dollars a year. I think, then, that we must assume that the people in the various regions of Canada are making their full contribution to national welfare, but then one must immediately say that they are not receiving full benefits from their participation in Canadian nationality.

It has often been suggested that Canada cannot long afford to watch its millions of neighbours throughout the world starving to death and casting envious eyes at our prosperity. In a similar way, Canadians, regardless of what province they may live in, cannot afford a situation in which some people get a chronically smaller share of the national income in spite of the extraordinary efforts that they may put forward.

The poverty of some is a shadow directly and indirectly on the prosperity of others. Thus, it is of advantage to us to consider the economic problems which the people of other regions face for they are problems which residents of the province of Ontario must face as well.

When we look at the place of a region or a province in the national income scale, we find that it is determined to a surprisingly large degree by the extent to which that province depends upon primary extractive industries. Generally, the greater the dependence on primary industries, the lower the province ranks as far as income is concerned. And within each province, too, we find that the height of personal income is closely related to the degree of concentration on primary production.

Accordingly, the suggestion that in the modern world the numerous but generally small primary producer is at a bargaining disadvantage with the less numerous and relatively larger secondary producers or manufacturers goes far to explain Canada's regional economic problems. I think that is a reasonable statement.

At any rate, since each section of the economy today participates fully in the complex inter-relationships of today's world it does seem to follow that the distribution of the common product or the common income depends on these bargaining powers. I am not saying that in all cases this is due to conscious effort but that in the final analysis it is precisely what does take place. Let me explain what I mean.

Over the past few years there has been a substantial stockpile of wheat on the prairies which has not been sold. This has been exerting a downward pressure on the price of wheat and accordingly on the farmer's income. Now, the suggestion made to the wheat farmer is, well if you can't sell it all produce less. The point is that people making these suggestions are thinking of the reactions of industry to the same kind of situation.

What is the reaction of the automobile industry, for instance, when cars begin to pile up? Restrictions of production and lay-offs, of course. Thus, the price is maintained. But how can the farmer do the same thing? He can never guess how much wheat he is going to have at the end of the harvest. On comparatively the same acreage it may vary widely in the three prairie provinces. For instance, in 1937 the harvest was 157 million bushels and in 1952 664 million bushels.

An individual farmer may cut down his wheat acreage but his neighbour may increase it, so, unless there is concerted action such as can only be encouraged by the government it is impossible. But I must immediately add, that in my view, a policy of restricting food production while two-thirds of the people of the world are hungry, would be unsupportable. I have given this as one example of the type of problem that a region which is heavily dependent upon primary production has to face.

While secondary industries as a general rule are able to restrict production and thus maintain prices, primary producers generally are in a different position. But the point that I am getting at is that agriculture, because it is the most competitive in structure of any industry in Canada, finds itself in an inferior position as far as income is concerned. Accordingly, it is necessary for the nation as a whole to adopt policies that will compensate those sectors of our economy that are not in the advantageous positions that some of our industries are in.

However, I shall not go into what I think those policies should be. I have outlined them again and again. I have pointed out then that generally speaking those regions that are most heavily industrialized have the largest share of the national income. It is true that sometimes you will note a province like Nova Scotia which is largely industrialized but whose average income will be less than a less heavily industrialized province like Manitoba.

Still, within the Maritimes framework, Nova Scotia is ahead of the other provinces and the same relationship prevails. Why, then, we may ask, if there is an income advantage to industrialization, have some regions of Canada industrialized while others have not? At the time of Confederation, Maritime manufacturing was diversified and on the whole prosperous. At this time, Maritime leaders were hopeful, indeed, optimistic, that Confederation would mean a great spurt in their industrial development. For instance, Sir Leonard Tilley, speaking in the House of Commons in 1879 said, "I am not, I think, over sanguine when I say that the day is not far distant when the population in the Western country will be greater than in Canada and when the Maritime Provinces, with their coal, iron and water power, will be the manufacturing centres for this vast Dominion."

But with the opening of the Canadian West, the whole centre of gravity of the Canadian economy moved westward and the Maritime Provinces from having an ideal situation with respect to markets with every transport advantage, now found themselves on the far extremes of "an unnatural tariff-created national economy with every general advantage in industrial location enjoyed by Ontario and Western Quebec" as Prof. Keirstead said in his inquiry into "The Economic Effects of the War on the Maritime Provinces of Canada."

Although the steel industry of Nova Scotia flourished as a result of the steady market for steel rails in the Western provinces as they were opened up, practically all of the commercial benefits of the development on the Prairies went to Ontario and the Montreal area in Quebec. The national tariff and transportation policies contributed to that result.

Although, from time to time, popular waves of protest have arisen in the Maritimes and the Prairie provinces at what was felt to be the unfairness of some of these policies, these national policies have continued relatively unchanged. Yet, even without tariff walls, it seems clear that Ontario would be the most populous area in Canada as well as the centre of industrial activity. Sometimes it is suggested that the resources of southern Ontario, which is the manufacturing centre, practically cried out for industrialization, while a province like Saskatchewan was similarly meant by the nature of its resources to be agricultural. But southern Ontario once its forest cover was removed was no more and no less basically agricultural than Saskatchewan. If we could imagine southern Saskatchewan and southern Ontario interchanged, we could see that the wheat lands of Saskatchewan could sustain industry quite as well as the pastures, oat fields and fruit farms of Southern Ontario.

Clearly, the industrial advantages of Southern Ontario depend on its location-its location in relation to cheap fuel and raw materials from the iron and steel belt of the United States and its location in the centre of a Canadian economy that was built by national policies. Since location is such an important factor in determining whether or not, and in what direction, the resources of a province shall be developed, it follows that transportation policy has a very significant effect on the development of the various regions of Canada. This is particularly important in the case of the Prairie provinces. Located as they are in the middle of a vast continent and dependent as they are upon the sale of a bulky commodity to distant markets, and the bringing in of other goods to meet their needs as consumers, the Prairie provinces could never have been developed without an efficient transportation system. This was, of course, supplied by the railroads and it is clear that the heavy produce of the Prairie farms must continue to move to Fort William or Port Churchill or Vancouver by railroad.

Truck transportation for bulky commodities like wheat is out of the question. The railways have, and must continue to have, a monopoly of the handling of most of the agricultural produce of the West. Because the Prairie Provinces depend upon the railroads more than any other region, the impact upon that region of national transportation policy is considerably greater. But first, let it be said that the effect of national transportation policy on the Prairie region is related to another national policy, the National Policy of John A. Macdonald, which has been carried down to the present day, with some modification, it is true but in essentially the same form.

Accordingly, the fact that the Prairie consumer must transport his goods over a long haul from Ontario instead of a shorter haul from the American mid-west is related to the existence of an invisible line, the 49th parallel and substantial trade barriers that form part of the Canadian national policy. Not only then does a Canadian tariff policy stimulate the development of industry in the central provinces but it has the effect of providing traffic for the national railroads. Now the inhabitants of the Prairie region share the goal of an independent Canadian nation which these national policies were designed to achieve. For instance, the vast majority of Canadians strongly support an all-Canadian, and I believe publicly operated, gas pipeline even though the cost of construction of such a line may be a bit more than the construction of a similar line between the same points via the United States, for the advantages of an all-Canadian line are great. In the same way, Canadians supported and continue to support the policies of directing traffic north of Lake Superior through Northern Ontario instead of south of Lake Superior via the United States. Undoubtedly there has been a price to pay for this national policy.

The Prairie region is prepared to pay a part of this price but is determined that it shall not bear an unfair share. Water and truck competition in Central Canada tends to hold down rail rates in that region but there is no comparable factor in the Prairie region. Accordingly, it has frequently been suggested that, because of the monopolistic position of the railways on the Prairies, they are able to levy a higher freight rate than in the Central Provinces. Also, because the Prairie economy is bordered on both the East and the West by relatively uninhabited areas which are locally unproductive of rail traffic there is in consequence a heavier transportation toll on the products originating in the Prairies.

These freight rates are especially burdensome because of the long hauls involved in marketing the produce of the area and because they apply generally to low-valued bulky commodities. Moreover, many of the products are sold in markets where competing producers either have a shorter haul or have the advantage of cheaper forms of transport. Under such circumstances, as the Report of the Royal Commission on Transportation points out, (p.41) the tendency is for the freight burden to be passed on to the producer. On the other hand, Prairie consumers representing as they do only a fraction of the market of Central Canadian industry find that the tendency is for the Prairie consumer to pay the transportation charges on the goods they use. Because of this double impact of freight charges on the Prairie economy there has always been special concern about the level of freight rates.

In a diversified economy if the freight rates become too onerous a burden for one type of production it is always possible to shift production to commodities with a higher ratio of value to weight and accordingly escape some of the freight burden but the Prairie region is heavily specialized in primary production and it could not, nor possibly would it be of economic advantage to shift production to a sufficient degree. Furthermore, because of the long distances involved in shipping commodities to market, and because of their low-value, bulky character, freight charges are a high proportion of the total value of the goods. Freight charges also, linked as they are to the economic activity of the nation as a whole, fluctuate less than the income of the Prairie region. For instance, during the thirties the schedule of rates remained the same from 1927 on, despite the fact that from 1928 to 1933 income dropped to a third or a quarter of what it had been. Accordingly, there is a general fear based upon experience that if freight rates are increased in periods of rising prices it may be difficult to have them lowered in times of falling prices. Therefore, at all the recent freight rate increases hearings of the Board of Transport Commissioners you found the Prairie provinces and the Maritime provinces solidly arrayed against the increases, with British Columbia joining in as well although not as much concerned because many of the freight rates of interest to her are held down by the competition of the Panama Canal shipping route.

Neither Ontario nor Quebec were represented at any of the hearings indicating the lesser impact of freight rates on the Central Canadian economy.

As has been said, the level of freight rates has a particularly significant effect on the level of the personal income in the Prairie region and accordingly is one of the regional economic problems about which we are concerned. This explains the objections raised to any suggestion that the grain freight rates held down by the Crowsnest Pass Agreement of 1897, and confirmed again in part by statute in 1925, might be raised. The Prairie wheat producer knows that if the freight on wheat shipped from his community to the head of the lakes or to Vancouver is raised by 5 cents a bushel, then his return will be reduced by exactly that amount. The relationship is as simple and as direct as that.

The cost to him of such a policy can be found at once by multiplying the freight rate increase by the number of bushels he has available for shipping. Accordingly, there would be not one resident of the Prairies who would support such a change. The Crownest Grain rates represent one method by which the people of the Prairie provinces have hoped by legislative action to mitigate to some extent their locational disadvantage and the cost to them of various national policies which have already been mentioned.

Another one was the pressure for, and eventual acceptance of the “bridge subsidy", a subsidy to the railroads estimated to cover the additional cost of traffic moving on class rates through the non-revenue bearing region of northern Ontario so that the railroads might modify their rate schedules to eliminate computation of that stretch of track as far as the rate structure was concerned. This had the effect of cutting down the distance between the Prairie region and Pacific region and Central Canada. It has been said that the British House of Commons can do anything but make a "man a woman and a woman a man."

Perhaps the Canadian House of Commons does not have the same power but certainly its powers are quite vast when it can, by the mere passage of a bill, move a whole region 5511/2 miles closer to the rest of Canada.

Similarly, we have the Maritime Freight Rate Assistance Act designed to assist via a subsidy to the railroads the Maritime economy by lowering freight rate levels over what they might be. Location we have said has played an important part in determining the relative industrialization of the various regions of Canada. Location we may put down as a natural factor involving real cost disadvantages for some areas as opposed to others. But there are other factors involved in the complex freight rate structure as it has applied to the Prairie region that may be put down as artificial relationships although they have a real impact on the Prairie economy and create real regional problems. Some of these factors have operated against the establishment of local industry in the Prairie region that might depend for its success on a position of distant markets. We know that frequently the freight rate from Toronto to say a point like Edmonton will be more than the freight from Toronto to Vancouver even though the distance is less. This is, of course, due to the establishment of special trans-continental rates lower than the regular rates, competitive with the sea voyage from the Atlantic Coast to the Pacific Coast via the Panama canal.

For example, vegetable canning in Southern Alberta was inhibited, according to testimony given before the Royal Commission on Transportation (p31) because vegetables canned in Central Canada could move to markets in British Columbia at lower rates than vegetables canned in Southern Alberta even though the real freight costs from Central Canada would be much higher. The implementing of the one-and-a-third rule whereby the freight rate from Central Canada to an intermediate point may not exceed the trans-continental rate by more than one-third is just a recognition of this fact. This means, incredible as it may seem, that for many commodities, British Columbia freight-wise is closer to Central Canada than the Prairies. Clearly, this is another instance where the geography of this continent is shaped in such a way as to make regional problems more severe. Let me give one concrete example of the type of problem I mentioned. In Northern Saskatchewan we find vast acres of valuable timber land that could be developed most usefully for pulp and paper. Over two years ago the Anglo-Canadian Pulp and Paper Mills, Ltd., expressed an interest in conducting a survey to investigate the feasibility of constructing and operating a newsprint mill in the Candle Lake area near Prince Albert, Saskatchewan. The company was granted an option on 2,000 square miles of the timberland and in addition a reserve area of some 4,000 miles was set aside to provide for future expansion of the Company's operations. It is estimated that such timberlands could support on a perpetual yield basis a mill capable of producing over 500,000 tons of pulp and paper per year. This, it is true, might be small when compared to the 4 million tons production of Quebec or the 2 million tons of Ontario in 1953, but it is still significant and would be especially important as far as the Saskatchewan economy was concerned.

After a survey the company estimated that in order to meet the mill costs of the other large Canadian mills the initial capacity of any contemplated mill must be at least 175,000 tons per year of newsprint. Then, on top of that must come the costs of transporting the commodity to markets in competition with closer plants. The company estimated that in order to sell this initial capacity it would have to seek markets not only in the Prairie provinces but also well southward into the United States and as far east as the American Eastern seaboard. Indeed, in attempting to estimate sales, it assumed that more than half of the newsprint would have to be sold in the area of Wisconsin, Illinois, Michigan, Pennsylvania and New York. Accordingly, since the current freight rates were too high and fell short of putting the Candle Lake operation in a competitive position, the company applied to the railways for freight rate reductions for development purposes.

One discovery, for instance, was that under the present freight rate structure, it cost more to send a ton of paper from Prince Albert to Regina than it does to send it from Prince Albert to Chicago. The Saskatchewan government played an active part in trying to obtain such freight reductions but although the railways made some concessions they were not nearly enough and the withdrawal of the company meant the indefinite postponement of the project.

The establishment of a pulp and paper industry would have marked a step in the diversification of the Prairie economy but it was blocked for the time - being by the location of the Prairie region and the non-co-operative approach by the railroads. The diversification of the economy of say, the Prairies or the Maritimes is hindered by yet another factor. The centralization of industry once started tends to be self-perpetuating. As the economist, Alfred Weber, puts it, there are "agglomerating factors" those when once there has been some concentration of industry in one area, give, from the mere fact of concentration, advantages to other industries in that area. These are the built-up supply of skills, both managerial and technical, the large-scale development of power, economies of size and natural industrial links such as the growth of an engineering industry where there is a demand for machines and so forth.

Accordingly, in order to do something about regional economic problems, governments must not only take steps that will balance the returns received by primary producers with secondary producers, but must play a positive role in planning investment on a broad front throughout the nation so as to counter some of the trends toward centralization that create problems not only for what we might call the under-developed areas, but also for those areas in which most of the development has been taking place. The uneven distribution of income, of course, poses serious problems in the form of inequalities in the standards of public services that can be provided. Regional inequalities in income mean a smaller per capita tax base in some regions than in others and also mean that to provide the same public services, a much higher tax is involved in those regions with the lower income. Of course, in many cases, to provide the same services would mean prohibitive tax rates so that what we actually have in Canada is a serious mal-distribution of educational, and health facilities and so on.

In the field of education, just as an instance, according to the report "School Finance in Canada", New Brunswick with 2.4 percent of Canada's tax-paying ability has 3.8 percent of the school population, while British Columbia has 9.7 percent of Canada's tax-paying ability and 7.1 percent of the school population. Furthermore, expenditures on elementary and secondary education vary from $17 to $45 per capita among the Canadian provinces. And then, with the per capita tax-paying ability in one province being 2.3 times as high as the province with least ability, we should expect that the differences in standards would extend into other fields as well. This merely emphasizes the importance of programs like a national health plan and federal aid to education that will go far to eliminate the disparities in opportunities for abundant living that our young people face.

Rather a basic approach to the problem of enabling the ten provinces of Canada to finance their programs has been the tax rental agreements. I felt that the tax rental agreements marked a long step forward because they accorded with my basic conviction that the vast wealth of this nation was earned by the people of this nation working hand in hand and that it was only through accidents of geography and constitutional provisions or interpretations of them by the Courts that more of the national wealth was taxable in one part of this country than in another. To me the tax rental agreements seemed to recognize that fact. It may be that at the present time the redistribution of income that may take place under the proposed new agreements might be as satisfactory as under the old, but I cannot but look into the future with foreboding.

The new suggestions introduce the so-called equalization grants which some of the provinces may regard as subsidies which will be paid by the richer provinces to some of the poorer ones. They are not subsidies but it may well be that the new steps being advocated by the federal government may lead future federal-provincial fiscal relationships into a welter of accusations and acrimony.

Decisions taken now should recognize that we are all Canadians, differing in our approach to many problems, but sharing a common interest in providing adequate standards for all our people. That, I feel sure, is the manner in which we should approach the solution of Canada's regional economic problems-several of which I have tried to touch upon.