Chapter 8. The Economy since 1920

8.6 The New Economy

Doug Owram, Department of History, University of British Columbia - Okanagan

The years after World War I marked the emergence of the modern Canadian economy. As a means of comprehending the longer-term trends underlying this development, it is useful to think in terms of continuities and changes. As a nation with a vast geography and small population, the Canadian economy would continue to be shaped by resources and the need to sell its goods internationally. However, urbanization, continuing industrialization, and the shifting international landscape altered the precise way in which these factors interacted, often in a disruptive fashion.

The years preceding WWI had been marked by the great expansion of the wheat economy. The so-called Laurier boom was a rapid expansion of agricultural production and exports that, in turn, helped to fuel the overall Canadian economy. The 1920s marked a transition. Agriculture continued to expand for a few more years but would recede in scale and relative importance in subsequent decades. By the end of the 20th century, the change was summed up in a statement of the Canada Year Book: “In 1941 some 3.3 million people, then 27% of Canada’s population, lived on a farm. In 1996 this had dropped to only 267,000 people, or 2% of the working population…. Once a mainstay of Canada’s economic health and security, [in 1996 ] farming represented just 2% of the country’s GDP.” [1] Instead, Canadian employment growth depended much more on a new, non-agricultural base.

This budding economic foundation was manifested both directly and indirectly. Directly, the 1921 census marked the first time that more Canadians were counted as urban than rural. This trend would never reverse. In the West, major centres like Calgary, Edmonton, and Vancouver grew rapidly and were no longer just small service centres for the surrounding agricultural communities. In Central Canada, new technology especially automobiles and related sectors created significant employment opportunities. By the end of the 1920s, more than a quarter-million vehicles were being produced annually. Vehicle production stalled during the depression of the 1930s and in the face of wartime demands throughout 1939-1945, but took on an even greater importance thereafter. By the 1960s, autos and auto parts would become Canada’s most important secondary industry.

The indirect impact of the new economic order came in the commodity sector. The growing urban, industrial, and North American-wide market created a tremendous demand for materials. For example, minerals like nickel, copper, and iron-ore were mined to feed industrial production in Canada and the United States. Two products deserve particular mention. First, in the inter-war years, pulp and paper expanded rapidly to support the rapid growth in newspapers. Canadian production increased six-fold in the decade after the Great War, and Canada became the largest pulp and paper producer in the world. Newsprint was very much an export product with some 80% of interwar-era production going south of the border.

The second emergent commodity was oil. Beginning in the later 19th century, oil grew in importance to feed the demand for kerosene lighting, and then industrial production and automobiles. Initially Canada produced very little oil from only a few small fields in the Turner Valley of southern Alberta and near Sarnia, Ontario. However, a major strike at Leduc, Alberta in 1947 ushered in a new era. Oil production increased from practically nothing in the late-1940s to more than half a million barrels a day 20 years later, and more than two million barrels a day by the turn of the 21st century.

Oil can be viewed as one segment of Canada’s overall energy sector. Coal and natural gas also grew in these years, but especially important was hydroelectric power. Major developments in the early 20th century, at Niagara Falls and along Quebec’s numerous rivers, created new opportunities for cheap industrial power, and convenience for an increasing number of Canadian homes. Hydroelectric power also quickly became another export industry, which continues to the present day.

However, as important as hydroelectricity is, oil is the most important energy product of the late 20th and early 21st centuries. Prices are notoriously volatile, but the commodity is always a vital part of a modern industrial society. As with other key industries, oil has a series of important linkages that increase its importance. Pipelines criss-cross Canada and the United States, transporting products to market. Refineries, which transform oil into gasoline, were originally clustered near Edmonton and in southwestern Ontario for the most part. At the same time, the exploration for new sources of energy became a significant employer in its own right. Most recently, the oil sands around Fort McMurray have added a layer of intensive investment (and controversy) to the industry. Energy overall, and oil in particular, remains a major engine of economic growth, creating a westward tilt in Canadian politics, regional population movements, and income.

Oil sands were first exploited as a readymade source of asphalt. Mining "tar sands" near Waterways, AB, in 1925.

Figure 8.11 Oil sands were first exploited as a ready-made source of asphalt. Mining “tar sands” near Waterways, AB, in 1925.

For all the changes that have occurred in the last century, commodities remain a central part of Canada’s economy. Another related continuity is Canada’s reliance on international markets. Due to a strong commodity base and small population, Canada is dependent on international trade for much of its prosperity. This hit home in an unfortunate way when the world sank into the Depression of the 1930s. International trade collapsed as corporations ceased to purchase materials and equipment, while nations increasingly retreated behind tariff barriers. Canada, already affected by poor agricultural conditions, was hit harder than most. Indeed only two nations, the United States and Germany, had a greater decline in overall economic activity in that decade.

Long after the depression ended, however, Canada remained a trading nation, dependent on international markets. Once again, though, changes have occurred over time. In the interwar years, trade with the United States and Great Britain predominated. After 1945 the United States was by far Canada’s largest trading partner. By the mid-60s, Canada’s exports to the United States were five times greater than the next largest partner, and represented more than 60% of all Canadian exports. The importance of the United States was recognized with the Canada-United States Free Trade Agreement of 1988, which subsequently was expanded into the North American Free Trade Agreement (NAFTA) when Mexico joined in 1994. Most recently, the rise of the Asian economies has moderated this trend, and countries like Japan and especially China have become important markets for Canadian goods. However, the constants continue: commodities dominate, and trade remains vital to Canada’s economic well-being.

Key Points

  • As Canada’s economy modernized after the Great War, its focus shifted increasingly from farming to industry and services, from rural to urban.
  • In 1921 the population of the country as a whole was more urban than rural for the first time.
  • Despite slowdowns in the 1930s and during WWII, the automobile industry emerged as a leading sector.
  • New sectors specifically pulp and paper and oil/petroleum emerged in the 1920s and 1940s, as did hydroelectricity.
  • The energy sector as a whole grew throughout the 20th century.
  • Commodity sales remained important throughout the century, and trade relations with the United States only grew in importance.


Figure 8.11
Tar sand for bituminous pavements, 1/2 mile East of Waterways Station, Alta. (Online MIKAN no.3372785) by Canada. Dept. of Mines and Technical Surveys / Library and Archives Canada / PA-019904 is in the public domain.

  1. Statistics Canada, Canada Year Book 1999 (Ottawa: Minister Responsible for Statistics Canada, 1999), 337.