Why Mexicans Don't Drink Molson

by Andrea Mandel-Campbell

  For the vast majority of Canadians, however, the domestic market was the only one that mattered. Perhaps chafing from the high U.S. tariffs, domestic producers defended what they saw as their rightful claim with an almost siege-like ferocity: “In these days of overproduction, when nation is fighting against nation for possession of markets, and when commercial war is hotter the civilized world over than ever it was before — what seems the most sensible course for us?” asked an editorial by the Canadian Manufacturers’ Association during the return of economic turmoil in 1885. “Clearly this, we should say to hold our own — to keep a fast grip of the home market, the only one that we can hold, if we choose, against all comers.”67

  Not only was the international success of companies like Massey Harris “inconceivable” to most, according to historian Michael Bliss, but Canadian manufacturers displayed an “almost neurotic abhorrence of exporting.”68 As one frustrated trade commissioner, based in Argentina, wrote in a 1912 dispatch to Ottawa: “It is an inexplicable thing but many manufacturers appear to fear the very thought of the export trade; they apparently harbour the delusion that it is full of pitfalls for the unwary, full of unknown risks, and that once embarked upon it there can be no return to domestic trade.”69

  As Glen Williams assiduously documents in Not for Export, Canadian companies rarely even responded to queries from overseas buyers. When they did export, it was usually sloppy, with the sole aim of dumping surplus stock. Manufacturers routinely failed to fill orders on time, exporting substandard and obsolete product, in some cases not even taking the time to properly package the goods for the long overseas journey.

  The shoddy performance, Williams and others argue, can in large part be blamed on Canada’s reliance on American technology and branch plants. Instead of replacing imports with domestic production, subsidiaries acted as a conduit for American parts, machinery and brand names while Canadian licensees of U.S. patents had no incentive to develop an indigenous technological base. The result was the creation of a backward and un-innovative industrial structure that was highly dependent on Americans for technology, capital and managerial expertise. “Canadian manufacturing from its point of origin,” Williams writes, “was never in a position to become a competitive force in the world economy.”70

  It would be in direct contrast to Sweden, a country that faced many of the same challenges as Canada — a sparse population and forbidding geography— and until the early 1900s had lagged behind Canada in industrial development. Although Sweden relied on similar resources such as forestry, farming and mining, and had a smaller home market than Canada, it exhibited a penchant for developing engineering innovations. More importantly, it saw international markets as a natural extension of its domestic economy.

  In 1907, the Swedish firm SKF invented the modern ball bearing, and within five years it was the world’s leading exporter. In 1876, Lars Magnus Ericsson adapted Alexander Graham Bell’s invention to create the first table telephone. Within twenty years Ericsson’s company set up its first foreign plant and was exporting 80 per cent of its production. When the country’s forest reserves began to run low, the Swedes looked for value-added alternatives, first inventing and exporting matches and then establishing the first chemical pulp factory in 1872. By 1914, Sweden was the world’s leading pulp exporter.71

  Academics point to the fact that Sweden blocked foreign investment and had a powerful military, which fostered technological development. But they acknowledge that the underlying determinant and what ultimately differentiated Sweden from Canada had more to do with “inventiveness, entrepreneurial ability” and most importantly a “sense of national identity.”72 By 1914, Canada was the only “late developing” industrial country— a list that included Japan, Sweden and Italy— that had not developed an independent manufacturing economy. The National Policy’s central purpose of creating an indigenous industrial base had, instead, produced the opposite effect.

  Perhaps that is why Prime Minister Wilfrid Laurier, who had presided over an unprecedented era of economic growth and prosperity, decided to change tack and campaign on a bold bid for unrestricted reciprocity with the United States. His subsequent humiliating defeat in the 1911 election would leave a lasting psychic mark on government policy-makers and perpetuate the belief for the next eighty years that Canadians couldn’t compete in the world.

  Everything that came after would in some way reinforce or expand upon the original National Policy tariff. During World War I, when Canadian exports surged, it was the government that procured the foreign contracts to supply bullets and uniforms, secured the financing for overseas buyers and often oversaw production in Canada’s factories. As the war wound down, leading members of the Canadian Manufacturers’ Association called for the creation of a government agency that would drum up business for Canadian factories in foreign markets and divvy up the sales orders among local manufacturers. If Canadian product was not competitively priced, argued F.H. Whitton, president of the Steel Co. of Canada, “our manufacturers should have the right to call on the government to make up the difference.”73 He also demanded that the government furnish the boats to ship the goods overseas. Amazingly, the government acquiesced, supplying a sixty-three vessel merchant marine fleet. But by 1923, almost half of the vessels were decommissioned due to their high cost and lack of use.

  Not surprisingly, Canada failed to capitalize on European post-war reconstruction efforts, only to be hit by the Great Depression and a reinforced wall of U.S. tariffs. Prime Minister R.B. Bennett, a Conservative, responded by upping the tariff to its highest level yet and introducing industrial cartels, otherwise known as marketing boards, which allowed trade associations to effectively price fix — a legacy Canada still wrestles with today.

  By the time World War ii rolled around, everyone agreed the government had to “protect” Canadians from the brutalities of the free market. That guiding hand would come in the form of C.D. Howe, whose twenty-two-year reign as “minister of everything” left the most lasting imprint on the modern Canadian economy of any politician or businessman in the nation’s history. A businessman at heart, Howe was nevertheless far from laissez-faire. He believed the Canadian economy was best served by private, regulated monopolies or Crown corporations, establishing the cbc and sponsoring the country’s nuclear ambitions while subsidizing everything from steel to airplane manufacture. In 1935, as minister of transport, he quashed a private airline initiative and organized Trans-Canada Air Lines, a subsidiary of another Crown corporation, Canadian National Railways, and hand-picked its senior managers.*

  After the war, the steady flow of foreign investment seemed to reach a kind of apex when Howe unveiled plans to build the first transcontinental gas pipeline. The mega-project would mirror in many ways the country’s first transcontinental nation-building exercise, the cpr. Like the railway, the government-subsidized monopoly would largely be the work of Americans. Not only was TransCanada PipeLines, the company behind the project, American, but so was Howe.

  This fact was increasingly starting to grate on Canadians’ evolving sense of national identity. Rich and confident in their post-war prosperity, they became convinced that the American money that had often been actively enticed across the border was now holding them back. Canadians weren’t exporting, many argued, because U.S. companies were barring their Canadian subsidiaries from developing markets. How that stopped Canadian entrepreneurs from going abroad — despite a myriad of government subsidies and regional development programs — nobody seemed to ask.

  To wean the country off its reliance on the Americans, Prime Minister John Diefenbaker promised to divert 15 per cent of Canadian trade to England from the United States. Not long after Pierre Trudeau came to power in 1968, a sustained attack against foreign ownership was launched. In what seems now like a kind of Orwellian paranoia more suited to the likes of Venezuelan generals, the Trudeau government set up the Foreign Investment Review Agency in 1975 to determine whether foreign acquisitions of
Canadian assets were of “significant benefit to the Canadian economy.”

  The iron curtain also came down on cultural industries. In what Michael Bliss describes as “an elaborate extension of the old tariff based on the economic nationalism of the National Policy,”74 foreign ownership was banned in key strategic industries that somehow became intimately identified — as manufacturing had been a century before — with the Canadian identity. The protection of fragile cultural industries like broadcasting, the press, financial services, publishing and motion picture distribution became the new National Policy.

  The National Energy Policy of 1980 was the icing on the cake. Trudeau, like John A. Macdonald, thought he could protect Canadians from the global oil crisis by legislating the price of oil, independent of world markets. Through a combination of expropriation and massive subsidies, the federal government also attempted to wrest control of the oil industry from foreign operators in an effort to create Canadian and government-owned oil giants. A dangerous mix of naïveté and hubris, the grand scheme ended in a spectacular flame-out when the price of oil, which the government had forecast to reach $80 per barrel, plunged, and it was forced to bail out bankrupted oil companies to the tune of hundreds of millions of dollars. *

  The ensuing economic crisis finally forced the government’s hand. After having exhausted its National Policy treasure chest, it seemed the only other option was to acknowledge the 800-pound gorilla the country had tried to ignore since the time of John A. Macdonald: reciprocity. It would take more than a century and generate spectacular waste and massive deficits, but the National Policy was finally laid to rest with the 1989 Canada–U.S. Free Trade Agreement. But, as Professor McDowall notes, its legacy lives on.

  Vestiges of the policy remain, from the government support for Bombardier to the decision by the Ontario government to bail out Stelco. It is there in the painful absence of Canadian multinationals and the plethora of “pridefully dozing”75 oligopolies that continue to eschew competition in favour of divvying up the domestic market. It is there in the flagging technological innovation, over-reliance on natural-resource exports and the corporate strategies that Michael Porter describes as “distinctively incompatible with global competitiveness.”76

  It can even be found in the woefully few women who lead the country’s corporations. The vested interests that the National Policy helped to entrench are still evident in the amazingly resilient old boys’ network that continues to control the top echelons of corporate power. In a listing of the top five hundred Canadian companies in 2004, there were only two women CEOS , and both were daughters of the owners. Likewise, in a 2005 survey of Canadian corporate boards by the Globe and Mail, 44 per cent did not have a single woman member.77

  Most of all, it is in the mindset — one in which lobbying government is often the first point of sale and decisions are taken in isolation from the broader global context, as if the rest of the world were static and somehow secondary. Like a snail that retracts when prodded, Canadians tend to react defensively to foreign stimuli rather than aggressively seek out opportunity. The problem is, hiding in one’s shell is about the most dangerous thing one can do these days.

  “We’re genetically geared to Ottawa and the national market and we’ve got it into our minds that international markets are threatening,” says McDowall. “The old mindset has been instilled in us since Confederation, and it will take a long, long time to get rid of, especially in today’s precarious, dog-eat-dog world. At home it’s comfortable, we know the market, the levers to pull. The international market is not that simple and therefore not that comfortable.

  “We’ve still got a long way to go to transition to the international economy,” adds the historian. “We’re babes in the woods.”

  THE REAL PIONEERS

  So if the Dominion, as the Canadian Manufacturers’ Association counselled in 1890, could enjoy “the acme of prosperity, although it has never a ship upon the ocean and has no foreign trade whatever,”78 how did Canadians get where they are today? With their eyes trained on the vast territory they had inherited, were they scouring the glacier-scarred bedrock and wind-whipped plains in a breathless bid to unlock the country’s hidden riches? Did they take high-stakes risks to harness the power of Quebec’s roiling rivers or, defying the odds, sink shafts deep into the rust-flecked granite of northern Manitoba? Was it their wit, pluck and dauntless ambition that breathed life into the untamed hinterland, laying the foundations for what would become bastions of Canadian natural-resource and industrial might?

  There were, without doubt, some amazingly resourceful and entrepreneurial Canadians, from the rush of hardscrabble mining prospectors out to stake their claim, to Fred McMahon, the indomitable wheeler-dealer whose company, Westcoast Transmission, carved the first pipeline through the Canadian Rockies to Vancouver. But if we dig below the surface, to the roots of not only many of the country’s mining and lumber towns but also its most important companies, we invariably find American money, management and ingenuity. Whether it was Nova Scotia steel, Saskatchewan potash, B.C. logging, Alberta oil, Quebec aluminum or Ontario uranium and copper, “Yankee promoters,” as they used to be called, were behind them all.

  Our story begins with Samuel J. Ritchie, an irrepressible entrepreneur always on the lookout for the next great windfall. A school teacher by trade, he dabbled in the lumber industry and owned a carriage manufacturer before a fire destroyed his sewer-pipe factory in 1878. He turned his attention north, buying a stake in a railroad and fifteen thousand acres of a mining property in central Ontario that soon proved worthless. By 1885, he was on the verge of bankruptcy when a sample of copper-rich rock from Sudbury, on display at an Ottawa museum, caught his eye.*

  Ever the itinerant salesman, Ritchie lost no time convincing his Ohio business partners to purchase a number of mining properties in Sudbury, forming the Canadian Copper Co. in 1886 with headquarters in Cleveland. He begged, borrowed and bought second-hand mining equipment, only to discover his supposed copper mines had a significant percentage of nickel, at the time a minor metal of very limited use. After spending months in Washington lobbying the American government to lower the tariffs on the import of unrefined nickel, he set about cajoling the U.S. military to investigate potential military applications for the resilient metal.

  Despite Ritchie’s doggedness, the “father of Sudbury” was beset by financial woes, and his backers ousted him from the company in 1891. He spent the next decade fighting them in the courts. In 1902, when a settlement was finally reached, the company was sold and amalgamated with a series of other mining American-controlled ventures to become the International Nickel Co. (inco), headquartered in New Jersey. Ritchie was compensated and built himself a sprawling mansion back home, but he would never reap the rewards of inco’s new majority owner, Charles Schwab,† president of U.S. Steel, and the American managers who would transform it into the world’s largest nickel company.

  A New York banker, Ambrose Monell, was the president of inco for its first fifteen years, before handing the reins over to Robert C. Stanley, an American engineer and inventor of a pioneering rust-resistant nickel alloy, who presided over the company for a quarter of a century. His successor, John Fairfield Thompson, after whom the northern Manitoba mining town Thompson is named, was a scientist from Maine and an early developer of the stainless steel sink. inco’s American tradition continued right up until 2006, when current chief executive Scott Hand, a former New York City lawyer and U.S. Peace Corps officer, sold the company to Brazil’s CVRD.

  Both Monell and Stanley were also involved in another major mining development just north of Sudbury, in Timmins. In the summer of 1909, prospector Jack Wilson discovered a vein of gold dubbed the Golden Stairway in an area known as the Porcupine. Wilson was financed by a Chicago businessman, W.S. “Pop” Edwards, who later recruited other American backers, including Monell, to launch what would become Dome Mines. In 1915, Dome was listed on the New York Stock Exchange, and under the t
utelage of Jules Bache, a New York investment banker who headed the company until 1942, Dome developed mines in Val-d’Or, Quebec, and branched out into oil and gas exploration, spearheading the ill-fated Trudeau-era push into the Arctic that bankrupted the company.

  A few years after the Porcupine discovery, Harry Oakes, a flamboyant gold digger who had travelled the world in search of his fortune, finally hit the jackpot at Kirkland Lake in 1918. Born in the sleepy town of Sangerville, Maine, Oakes joined the Klondike gold rush, was shipwrecked off the Alaskan coast and taken prisoner by the Russian czar, eventually making his way from Australia to the Belgian Congo before ending up in northeastern Ontario. His Lake Shore mine was, for a time, the largest gold producer in the western hemisphere. Oakes became a Canadian citizen in 1924, but after hefty campaign contributions to the Liberal Party failed to win him a Senate appointment and massive new taxes were levied on his property, he moved to Nassau, Bahamas. He was later found brutally murdered in his bed, his body doused with gasoline and burned.

  Just across the Quebec border from Kirkland Lake, another mine was developed a few years later, this time a copper-gold interest in the township of Rouyn.

  In 1922, a syndicate of American investors looking for mining opportunities bought the options to a claim that would form the cornerstone of one of Canada’s leading companies. The syndicate, led by Humphrey Chadbourne, a mining engineer, included former U.S. ambassadors, New York lawyers and former executives from U.S. Steel and the chemical company DuPont. A secretary in the syndicate’s New York office suggested a name for the new mine — since it was in northern Canada, why not call it Noranda?

  Around the time the Noranda mine was coming on stream, another American had made his way up to Sudbury to found that city’s other major mine. Thayer Lindsley was born in Japan to an American father working as an executive for the Canadian Pacific Railway. Endowed with the ability to “see into rocks,” Lindsley, together with a handful of colleagues, bought a group of claims from famed U.S. inventor Thomas Edison, in the Falconbridge Township. Edison thought the deposits could be a source of nickel for a storage battery he had designed, but he was discouraged by the difficult terrain. Lindsley kept drilling, however, and Falconbridge Nickel Mines was born.