Economic Impacts of WW II

Although at the root of immeasurable and widespread suffering, the Second World War also initiated a time of great economic prosperity in Newfoundland and Labrador. The Canadian and American governments spent millions of dollars to build military bases at St. John’s, Goose Bay, and other areas; thousands of local workers found high-paying jobs on the bases or enlisted in various Allied Armed Forces; and visiting troops spent large sums of money at local stores, restaurants, and other businesses. By 1941, Newfoundland and Labrador boasted a financial surplus for the first time in years and unemployment, severe since the First World War, had almost disappeared.

Early Stages of the War

When war broke out in 1939, Newfoundland and Labrador’s economy was in a weakened condition. Unemployment was rampant, almost one-third of the population was on government relief, and the country’s public debt had risen to approximately $100 million following the First World War, Great Depression, and collapse of the salt fishery.

Unaware of the financial windfall that the second war would bring, the Commission of Government braced for further economic hardships and attempted to match its contributions to the war effort with what the country could reasonably afford. Newfoundland and Labrador did not raise its own overseas regiment – as it had done during the First World War at tremendous cost – but allowed residents to enlist for service in other Allied Forces. It also reduced all grant-in aid requests from England, allowing those funds to be redirected towards the war effort. However, within months of taking these steps, the Commission was able to cancel its grants-in-aid altogether and began loaning millions of interest-free Canadian dollars to Britain.

The Bases

The construction and maintenance of foreign military bases contributed most to the economic revival in Newfoundland and Labrador. Early in the war, the Canadian and American governments realized that an undefended Newfoundland and Labrador could greatly undermine North American defence; an enemy invasion there would leave the continent’s east coast open to attack and threaten convoy routes. Aware that the Commission of Government could not afford to properly maintain defences, the Canadian and American governments offered to help.

Before hostilities ended, the United States had spent more than $100 million to build military bases in St. John’s, Argentia, and Stephenville. Canada spent approximately $65 million to expand the airports at Gander and Botwood, build a naval base at St. John’s, and establish air bases at Torbay and Goose Bay. The resulting construction boom created thousands of jobs for local civilian workers, who flocked to the bases from all over the country. For many, it was a period of unprecedented prosperity – by the end of 1942, approximately 20,000 men and women were working at the bases and the number of people receiving government relief had plummeted from 75,144 in 1939 to 6,907.

Base construction offered workers steady, year-round employment at comparatively high wages. Many labourers from rural communities (where the credit system still persisted) were earning money for the first time and in 1944, the Commission passed legislation requiring all employers to pay wages in cash, not credit.

By 1943-44, the construction boom had tapered off and about 5,000 local men and women worked on the bases. Employment, however, remained plentiful as contractors in Canada and the United States began recruiting thousands of labourers from Newfoundland and Labrador for jobs on the mainland. The armed forces provided another avenue of employment, and recruited approximately 7,628 of the country’s volunteers.

Other Industries

Although largely beneficial to Newfoundland and Labrador’s economy, the base construction boom also had its drawbacks. Traditionally, the country’s economy largely revolved around three sectors: the fishery, pulp and paper manufacturing, and mining. The construction boom disrupted all three industries in the short term by drawing away experienced labourers. Even though the war created an increased demand for copper, lead and zinc, the Buchans Mining Company operated far below capacity during the first portion of the 1940s because of a worker shortage. Similarly, paper companies on the island could not find enough workers, nor could the offshore fishery.

At the same time, the war did much to help many of Newfoundland and Labrador’s industries and businesses. Base contractors purchased much timber and raw materials from local lumber companies. Restaurants and retail stores greatly benefited from the thousands of visiting troops, as did suppliers of fresh milk, soda, and other specialty goods. The value of cod spiked during the war, and by 1943 Newfoundland and Labrador fishers could charge three times their pre-war rates. By supplementing their incomes with work on the bases during the off-season, many fishers quadrupled their earnings, and between 1935 and 1945, their average annual income jumped from $135 to $641.

Public Funds

Alongside private incomes, the public purse also benefited from the establishment of foreign military bases in Newfoundland and Labrador. In 1941, and for the first time in years, the country reported a financial surplus of $400,000. This jumped to $7.2 million the following year and did not fall below $3 million until 1947. In contrast to this are the consecutive $4-million deficits the country ran in 1939 and 1940.

As a sign of the good economic times, the country stopped receiving grants-in-aid after the 1939-40 fiscal year, and thereafter began making interest-free loans to Great Britain; by 1946, Newfoundland and Labrador had loaned $12.3 million to its former creditor. The wartime prosperity allowed the Commission to implement much-needed reforms in education, health care, and other social services. In 1942, for example, school attendance became mandatory for all children between the ages of seven and 14.

The Commission also began importing additional food and other goods for the civilian population, increasing its spending from $28.4 million in 1940 to $57 million in 1944. Most dramatic was the jump in food imports, which more than doubled from $11 million to $25 million. Nonetheless, the Commission began rationing tea in December 1942, and later expanded the program to include coffee, sugar, preserved meats, and various other goods.

Inflation was another problem during the war, causing the cost of living in Newfoundland and Labrador to increase by approximately 58 per cent between 1938 and 1945. The price of eggs, for example, rose from 50 cents to $1.37 per dozen. Cushioning any negative impact on the population, however, was its new-found access to unusually large amounts of disposable cash.

Political Impacts

Alongside allowing Newfoundland and Labrador to regain its financial self-sufficiency, the Second World War also helped the country integrate its economy into North America’s. The flow of workers between Newfoundland and Labrador and the mainland increased, as did the number of imports. In contrast, ties with Britain were weakened – in 1939, for example, Newfoundland and Labrador imported 37 per cent of its goods from Canada and 24 per cent from the United Kingdom; by 1945, Canada’s share jumped to 61 per cent while Britain’s dropped to four.

Following the war, England recognized that its battered economy could no longer support the Commission of Government, while Newfoundlanders and Labradorians were anxious to usher in a new form or government. Although many advocated a return to a responsible government, others feared the current prosperity would not last and believed confederation with Canada was a more financially-sound choice. In the end, it was the relatively short-term economic impacts of the Second World War which cumulated in the single, far-reaching political decision to join Canada.

Article by Jenny Higgins. ©2007, Newfoundland and Labrador Heritage Web Site


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