Term Paper on "Canadian Economic History"

Term Paper 10 pages (3154 words) Sources: 10

[EXCERPT] . . . .

foreign direct investment was a necessary precondition for Canadian economic development. In the opinion of this author, foreign direct investment (FDI) was not only the necessary precondition for economic development, but also the necessary precondition for Canada's existence first as a British colony and later as a sovereign member of the British Commonwealth. The pattern of British FDI set the pattern for the U.S. And later the globalist model for FDI in Canada.

As will be noted, France's reality as a continental power that was less dependent upon maritime made her colonies less of an economic than as a military and religious imperative. Indeed, the period of the beginning British ascendance was laid down with the establishment of the Hudson Bay Company came at the same time that the British East India Company and Dutch East India Companies were laying the cornerstones of modern corporate capitalism. In essence, the British Hudson Bay company constituted not just foreign direct investment in Canada, but one of the first three examples of it on the planet.

The focus of this paper will be upon FDI as a formative element in the growth of the Canadian economy primarily in the form of the Multinational Entity (ME) as opposed to the free-standing company (such as the Hudson Bay Company) which were the kick-starters of British Colonial investment. Therefore, the focus will be more upon the nineteenth and twentieth century periods of Canadian economic history.

This author's analysis flies headlong in opposition to the standard knee-jerk reaction to NAFTA and FDI as a bad thing for Canada and an assault upon Canadian sovereignty. Indeed, as we will show in the historical model and case study of FDI presented in this essay, quite the opposite is true. FDI has made Canada more sovereign, stronger and more prosperous than ever.

Mercantilism and the Colonial Economy in New France and Acadia

FDI was important to the French colonies in Canada as it would be for the British colonies later. Unfortunately for France, much of its policy failed to succeed.

The basis of economic theory in the time of the beginning of French colonial settlement in Canada revolved around mercantilism, which fueled the first foreign investment in Canada by the French government in the 1600's and well into the nineteenth century, people believed that the world's wealth was limited. Any nation could increase its power and prosperity only at the expense of another. States created colonies in order to consume the home manufactures of the mother country as well as to properly tap into and exploit the natural resources of the colony.

The French crown engaged in its seed investment in order to get New France's economy up and running until the colony was self-sufficient enough in its supplies of clothing, food and shelter. In addition, tanneries, fisheries and a shipbuilding industry were invested in and created in order that the colony could trade with the French West Indies. In both the French and British colonial periods, the fur trade provided a magnet for foreign incorporation and investment.

The drive to make New France self-sufficient fueled the programs of French statesman Jean-Baptiste Colbert. He and Louis IVth appointed Jean Talon as the first intendant in Canada (1665-72) to supervise the self-sufficiency campaign. Unfortunately, the campaign brought few successes. Ships were cheaper to build in France. Fewer craftspeople were available in the colony and labor was expensive there. Competition from Britain and Holland to supply the West Indies was cheaper because their costs were lower though such exchanges violated the law. Enforcement of mercantilist regulations was too difficult and costly to work. Due to this face, New France continued to rely almost exclusively upon the export of beaver while Acadia depended upon fishing. Even into the 18th century, furs were over 70% of Quebec's exports. The French colonies' timber resources were uneconomical to tap. All in all, Colbert's mercantilist policies were amongst the least successful of his programs for New France. While mercantilism promoted colonial trade (much of which with British and Spanish colonies was done illegally in foreign ships), it stunted other aspects of economic development that might otherwise have benefited the mother country (Crowley, pp.15-16).

Why was mercantilism a failure? In addition to factors inherent to the Americas that we have noted above, the British also experienced and overcame these same barriers later in Canada. The answer lay in the fact that France was a continental power and as such was less dependent upon maritime trade than England. English power tended to concentrate on the seaboard of North America which made these colonies into a more cohesive body. French power was spread over a much huger land mass.

In addition to her lessened emphasis upon maritime power, France's colonies had more importance in terms of military and religious terms. Hence, they were seen more as outposts than as functioning economic entities. The British were dependent upon maritime trade for her very survival. There fore, she fought harder for the colonies in the New World. This, in combination with her industrial growth helped her to overcome France in Canada (Easterbrook and Aitken, pp. 10-11).

The British Period and the Free Standing Company.

The famed Hudson Bay Company represented a formative step not just in foreign direct investment in Canada, but globally as well. While the Hudson Bay Company was not the only such company, it was the biggest and the first and set the prototype for those that followed it. Founded at about the same time as the much larger British East India Company that was to prove so powerful an engine for expansion of British power in Asia, Hudson Bay was to do so for the British Empire in Canada. The British Africa Company that trafficked in slaves also provided a model (Jones and Wren, p. 12).

The British Hudson Bay model was not unique. The British model of company set the pattern worldwide for the Empire. These free-standing companies usually had a small British head office in London and British capital will all of its assets invested abroad. The British were the most active users of the free standing model (Floud and McCloskey, p. 178).

While dependent upon foreign direct investment since the earliest days, it also set the prototype for Canada's primarily resource-based economy. While such trends were evident already in the earlier times of New France, this paradigm became more impressed and permanent during the period of British colonialism before and after the French and Indian War. Scholars have more recently begun to pay renewed attention to the economics of the British Empire in various countries. This includes Canada where they focus on the requirements of Britain's economy and they relate to the activities of imperial businesses.

Within this field, financial questions such as British FDI to the colonies of the empire provided a great and large field for Canadian business to play in first in the Empire and later in the British Commonwealth. In this critical period stretching from 1865 to 1914, the template was set for FDI import to Canada that stretched into the era of the dominance of Britain's successor, the United States of America. British FDI was inadequate to grow Canadian business at a proper rate. This caused Canadian business to seek out and American capital to seek out the Canadian market to fill the vacuum (Holland and Porter, pp. 86-87).

This entangling and later dominance of American capital made a permanent impression in Canada that plays itself out to this day.

Multinational Entities and the Transition to U.S. Corporate Dominance

Around the mid-nineteenth century problems occurred with such companies, the problems were graphically illustrated in the complete failure of the free standing model during the 1857 mutiny in India. For this and other reasons, the Multinational Entity began to triumph over the free-standing company. Certainly, with a larger and more expansive base of investment, disasters such as the 1857 mutiny would not strike the investor base as squarely (Floud and Deidre, 178-179).

The FDI efforts of British corporations were dominant in Canada until the twentieth century when the United States began to overtake it as the greatest source of FDI in Canada. One classic example was in the timber industry. In the U.S. rush to develop America into an industrial power in the 19th century, natural resources became depleted. This forced American industrial firms to seek out supplies elsewhere. To begin with, the first Canadian resource upon which Americans took most heavily was timber. These were not really branches of U.S. firms. The men who established and owned them eventually became Canadians. However, the investors were American.

The first significant branch plants were paper mills, built by U.S. papermakers to process newsprint for America's burgeoning newspaper industry where moguls such as William Randolph Hearst churned out their works of yellow journalism. The first of many was the Powell River Company which began operations in 1912 as the first newsprint mill in western Canada where it processed newsprint for publishers… READ MORE

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