Develop or Perish
When J.R. Smallwood’s Liberal government took office, it immediately announced that the central item on its agenda was to develop, diversify, and modernize the economy of Newfoundland and Labrador.
“We must develop or perish,” said Smallwood in July, 1949. “We must develop or our people will go in the thousands to other parts of Canada. We must create new jobs .... Develop, develop, develop — that’s been my slogan and that will remain my slogan.”
Thus there was to be a break with a past characterized by poverty, uncertainty and backwardness. Under the new dispensation, the province was to be brought into the mainstream of the 20th century world, using large amounts of government money. This was to be a program of forced growth, with the government subsidizing, encouraging and working with private business.
Development: A Government Approach
Smallwood did not have a well-defined plan, already developed and in place, and does not seem to have consulted the reconstruction plan presented in 1944 by the Commission of Government. Impatient for results and impetuous by nature, Smallwood threw himself and his inexperienced government into a frenzy of activity. The pace was extraordinary, with decisions being taken on several fronts at the same time. Nevertheless, the broad outlines of the government’s approach can be described.
First, the modernization of the fishing industry, already under way, had to continue. In practice this meant that priority was given to developing the offshore trawler fishery, with the catch being processed in newly-built fish plants, frozen, and marketed mainly in the United States. The shipyard created by the government at Marystown in the late 1960s was designed to service the offshore fleet. The traditional inshore, small-boat salt fishery gradually declined into insignificance, and the Labrador schooner fishery disappeared.
Second, the government wanted to diversify the provincial economy by encouraging the establishment of new industries. At first, this programme was associated with the Latvian émigré Alfred Valdmanis, who Smallwood hired as Director General of Economic Development in 1950. Using the financial surplus left by the Commission of Government and provincial government loans, and exploiting Valdmanis’ business contacts in Germany, the government oversaw the establishment of sixteen new industries on the west coast and on the Avalon Peninsula between 1950 and 1957. Few of these “new industries” lasted more than a few years, and only two survive today.
Third, Smallwood wanted to stimulate the development of the province’s natural resources - its forests, minerals and hydro power. The government’s first step in this direction was to establish the Newfoundland and Labrador Corporation (NALCO) in 1951, and vest it with extensive exploration and development rights on the island and in Labrador. NALCO proved unable to raise the necessary capital, and most of its rights were transferred to the British Newfoundland Corporation (BRINCO), which was formally established in 1953. BRINCO was not a Crown corporation like NALCO, but a private consortium of British and Canadian banks and other businesses prepared to invest in natural resource development.
BRINCO became closely associated with the development of hydro power at Churchill Falls (begun in 1966), through its subsidiary the Churchill Falls (Labrador) Corporation (CFL Co). Smallwood saw in cheap and plentiful electricity an important key to the province’s future prosperity, above all because it would attract industry. Churchill Falls was a part of this strategy, as was the large-scale power development at Bay d’Espoir (begun in 1965). It was the availability of cheap power that lay behind the phosphorous plant at Long Harbour, where construction began in 1968, and schemes for an industrial complex at Come by Chance, which in time led to the construction of an oil refinery there by the American promoter, John Shaheen. It opened in 1976.
Another American businessman with whom Smallwood had close (and equally controversial) ties was John C. Doyle. In 1953 his firm, Canadian Javelin, bought NALCO shares, and acquired mining rights in Labrador. He then went on to establish an iron mining operation at Wabush in the early 1960s, not far from the Iron Ore Company of Canada’s site at what was to become Labrador City. Smallwood had always wanted a third paper mill in the province, and Doyle obliged by forming Labrador Linerboard Ltd., which began construction of a heavily-subsidized mill at Stephenville in 1971.
Structural and Educational Development
The government understood that if industry was to come to the province, and if its people were to be employed in the sector, then improved educational facilities were vital, as well as roads and air fields. As a result, the government invested heavily in these areas, relying to a considerable extent on federal funds. At the same time, the government encouraged the resettlement of small, isolated communities to that basic services, like education and health, could be more readily provided.
Reviewing the province’s record in 1980, the Economic Council of Canada concluded that the “new industries”scheme of the 1950s had been an expensive failure, and with reference to natural resource development, wrote that in many cases, “— the government largely overlooked the concept of economic rent - the fact that natural resources normally have an intrinsic market value over and above the costs of exploiting them. Such rents might have been tapped more carefully for government revenues.... Newfoundland is already left with the fact that benefits in mining and forestry, and in hydro-electric generation, have been foregone.” (Economic Council of Canada, 7). In the rush to attract industry and generate jobs, the government had failed to gather the revenues that it might and should have obtained, in spite of sometimes massive subsidization. Much the same applied to large industrial developments such as Long Harbour and Stephenville, where the return on huge government investment seemed to have been limited.
By the time Smallwood left office in 1972, he could point to some dramatic changes in the economy and society of Newfoundland and of Labrador. The population had increased by over 40 percent to 522,000, per capita income by almost 300 percent, and there was no question that the average standard of living had improved significantly. Yet per capita income was only 50 percent of the Canadian average, and there was still a heavy outflow of people to mainland Canada and elsewhere - an average of almost 4,000 a year by the late 1960s - since for all its efforts and expenditures, the government had not been able to create enough jobs to meet the demands of an expanding, youthful population. The unemployment rate remained stubbornly high, and the provincial government reliant on federal transfer payments. In a real sense, the province was still undeveloped.