Module #8: MODERN ERA
8.1 Overview of Post War Era
Continuous Growth
Real GDP increases from 127 billion in 1950 to 908 billion in 2004
Uneven Pattern of Growth and Inflation Rates
Real annual GDP rose at 6.4 % from 1950 to 1973
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2.8 % from 1974 to 1993
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4.2 % from 1994 to 2004
Fig P6-1 shows the sectoral composition of employment
Macroeconomic Performance
Unemployment 1949 - 2005
Fig P6-2
Inflation 1949 - 2005
Fig P6-3
Output by decade 1960 - 1993
Fig 21-1
Stagflation
Table P6.1
Sources of Economic Growth
Q = A Ka Lb R 1-a-b
Fig P6-4
Re-Organization of the International Economy
Marshall Plan
Organization for European Economic Co-Operation (later OECD)
European Payments Union
Common Coal and Steel Market
European Economic Community created with the Treaty of Rome in 1958
Bretton Woods (1944)
IMF to police Bretton Woods and provide temporary loans to members which
grew from 44 in 1947 to 107 in 1967
GATT founded in 1947 set a code of conduct for members to following in
international trade and a forum to reduce tariff rates
8.2 Era of Sustained Growth and Prosperity, 1946 - 1973
Overview 1946 - 73
Figure 19-1 shows the Annual Increases in Real GDP from 1947 to 1973
The sustained growth was supported by
I)
External Factors - liberalization of trade
- rapid growth in the U.S. and Europe
- inflows of foreign investment and labour
II)
Internal Factors - growing population
- rising labour force participation
- new infrastructure
- education and training
- reallocation of resource inputs to growth sectors
- discovery and development of new natural resources
Conversion from a ‘Hot’ War
to a ‘Cold’ War Economy, 1945 – 50
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cut back in military expenditures was slower than World War I
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federal government undertake major projects such as the trans-Canada
highway
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provided export credits to European economies undergoing reconstruction
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commitment to post-war Keynesian planning preventing shortages and
consistent increase in pent-up consumer demand.
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Discovery of major petroleum reserves in Alberta in 1947
Stabilization Policies
Fiscal – taxes reduce in each year from 1945 to 1949
Exchange Rate Policy – initial commitment to Bretton Woods system
1946 – fixed exchange rate raised to parity with U.S. dollar
1949 – devaluation of 10%
1950 – adopted flexible exchange rate
The Korean War and a Resource Boom, 1951- 56
- military conflict began in 1950 and ended in 1953
- government expenditures rose 30% in 1951 and 23% in 1952
- rapid expansion of mineral resource industries throughout the 1950s closed the
net import gap in this sector of the economy
Stabilization Policy
Monetary policy - becomes more counter-cyclical
- establishment of a money market in Canada
Exchange Rate Policy – floating Canadian dollar served as an effective antiinflationary device.
Slower Growth in the Short-term, 1957 - 1961
Diefenbaker elected in 1957 trumpeting a ‘northern vision’
Established the National Energy Board in 1959
National Oil Policy introduced in 1961
Stabilization Policy
Read page 379 on your own
The Sustained Economic Boom from 1962 to 1973
The Annual Real GDP growth from 1957 - 1961 was 2.9%
The
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‘ 1962 - 1973 was 5.2% to 7%
All components of aggregate demand increased as the capacity of the
economy increased at or near full-employment
All resource sectors expanded : agriculture, minerals, forestry,
fisheries
Auto Pact signed in 1965 created free trade for the American car
companies
Stabilization Policy
Read page 381 - 83 on your own
8.3 Second National Policy, 1930 – 1985
Recall Fowke’s description of the First National Policy (1825-1930)
V. C. Fowke; ‘The National Policy: Old and New’ (CJEPS, 1952)
I) Second National Policy, 1930 - 50
The hypothesis which will be advanced here is that after 1930 the federal
government worked gropingly and against substantial constitutional
difficulties toward the formulation of a new set of national policies to
replace the old which had been accomplished. It is argued that the main
outlines of this new collective policy can be observed with reasonable
clarity in two or three areas of activity: the broad field of public welfare;
agricultural policy; and possibly monetary management. Within the limited
space of this paper, attention will be centred on the first, that of public
welfare.
Source: Page 247-48
-thrust of federal government initiatives
I) Public Welfare
A) old age pension act (1927) Canada/Quebec pension plan (mid
1960's)
B) Unemployment insurance - first proposed in 1922 but required
constitutional amendment in 1937
C) Grants in Aid - large transfer payments to the provinces starting in
the 1930's
D) Family Allowance (1944)
II) Monetary Management
- world lost faith in the old gold standard
- established the Bank of Canada in 1925
III) Agricultural Policy
- shift emphasis from growth and prairie settlement to stabilization
and support as its relative importance falls
- federal focus on price supports, crop failure insurance, low interest
loans etc.
III) Second National Policy, 1946 – 1973
Overview of Chapter #20 in the Textbook
- the supply response was market-driven and public policies facilitate the increase
in productive capacity through : immigration policies
foreign investment
policies to improved efficiency in commercial
& transportation
social investments in health and education
- long-term commitment to improve equity via : income security
equalization
regional development
Figure 20.1 shows the domestic savings – investment trend from 1860 to 1990
Figure 20.2 shows the distribution of the Population by Age Group in 1941,
1961 & 1981
Figure 20.6 shows the participation rates for male,s females and youth from 1966
to 1982
Figure 20.4 shows immigration from 1860 to 2000
Change in Federal - Provincial Fiscal Arrangements
- several intermediate steps to decentralized tax collection and sharing in first 15
years after the War.
- major reforms in 1962 whereby
- Ottawa lowered its own rates
- each province had to pass legislation setting own tax rates
- Ottawa collected taxes for free is provincial rates were a percent of
federal rates but Ontario agreed for personal income taxes and
introduced its own corporate income tax system while Quebec opted
out
Social Policies Promoting Equity
I) Family allowance payments in 1944
II) Veteran’s Rehabilitation Act in 1945
III) Federal Green Book proposals for sweeping reform with a comprehensive
national social policy was abandoned
IV) Equalization payments
V) Saskatchewan lead health reform with its Hospital Services Plan in 1947 and
its comprehensive health insurance scheme in 1961.
VI) Federal government passed Medical Care Act in 1966 and came into effect in
1968 as a shared cost program
VII) Old Age Security Act of 1951 gave sole jurisdiction of pensions to the
federal government. The guaranteed income supplement was added in 1967
VIII) Canada and Quebec Pension Plans
Regional Development and Policy
Figure 20.7 shows the per capita GDP for each province in 1973
- income supports for agriculture and assistance to rural development
- Department of Regional Economic Expansion
III) Second National Policy, 1973 - 1986