Industrialization and Diversification

For the first three hundred years after European settlement, the economy of Newfoundland and Labrador depended almost solely on the fisheries, and the culture of the province to this day is dominated by references to the sea and to the fishing way of life. Hundreds of coastal communities continue to have the fisheries as their main economic base even today. The recent groundfish crises and moratoria have demonstrated, dramatically and tragically, just how dependent the society has been on this single resource industry.

The Need for Diversification

The recognition of the need to diversify Newfoundland's economy from its over-dependence on a single industry is not new, but has a long and chequered history. It was not until the 19th century, however, that economic diversification became public policy when it was included as an integral part of the colony's home-rule movement. For the past century and a half, a succession of Newfoundland governments, commissions and task forces have offered proposals for diversifying the economy to reduce dependency on the fisheries, generate new forms of wealth and create new forms of employment.

The results of these efforts have been mixed. While no miracle cure has been found, and many coastal communities are still overly dependent on the fisheries, the provincial economy as a whole has become widely diversified. Most of the activity has been concentrated in the capital city, St. John's, and its surrounding communities, in towns based on non-fisheries resources, and in a number of towns that have grown to prominence as regional service centres.

None of the efforts at diversification proved entirely successful, and almost all entailed expensive mistakes and were much criticized. At the same time, however, they have almost all been partially successful and have left some residue of industrial diversification which persists to this day. The over-dependency and vulnerability of many coastal communities notwithstanding, the structure of the Newfoundland and Labrador economy as the province enters the 21st century is much more diversified than is generally appreciated, and much more like that of mainland Canada and other modern societies.

Approaches to Industrialization and Diversification

Over the years, virtually every known approach to industrialization and diversification has been tried in Newfoundland and Labrador - import substitution, export-led growth, building infrastructure to open up the economy, promoting local and small-scale enterprise, attracting outside investment for large-scale manufacturing, maximizing resource developments and their spin-off benefits, investing in education and training to take advantage of new economic opportunities. Newfoundland and Labrador has, unintentionally, been something of a laboratory for trying out different approaches to economic diversification. The mix has been untidy and inconsistently applied. Not surprisingly, the results have also been untidy and inconsistent.

With some oversimplification of the historical record, and recognizing that there has been much overlapping of approaches, it is useful to distinguish among six main approaches to economic diversification, some of which have been repeated as they have come into and subsequently fallen out of fashion. These are:

(1) Opening up the interior

Beginning in the mid-19th century, the main approach to diversification was to build roads and a railway to open up the interior of the island part of the province. The aim was to discover and then exploit land-based resources, especially minerals and forest products.

(2) Small-scale manufacturing

From time to time, there have been efforts to encourage small-scale manufacturing which would make equipment for the fishery and other resource industries, and manufacture consumption goods that were being imported into the country/province. This approach enjoyed limited success prior to Confederation in 1949, and became a major but mainly unsuccessful part of J.R. Smallwood's economic development efforts in the 1950s. Recently, manufacturing for export into niche markets has enjoyed a promising resurgence as part of Newfoundland's diversification efforts in the new global economy.

(3) Industrialization/Urbanisation

In keeping with the conventional economic thinking of the time, the major thrust of Smallwood's development policies from 1949 to 1972 was industrialization through large-scale manufacturing and resource projects, and urbanization through a community centralization program under which people from hundreds of small fishing outports were resettled into larger growth centres. Although partially successful - several new industrial projects were developed and most communities did receive better municipal services - this strategy was beset by many failures, domination by outside interests, social dislocation and charges of corruption.

(4) Resource-led growth

The Progressive Conservative governments (1972 to 1989), under Frank Moores and then Brian Peckford, focussed most of their economic development energies on trying to gain control of the province's rich resources and to manage them so as to maximize local benefits. This was largely a reaction against Smallwood's approach, and especially against the Churchill Falls hydroelectric project in Labrador, the financial benefits of which went mostly to the Province of Quebec.

Churchill Falls and Bowdoin Canyon, Central Labrador
Churchill Falls and Bowdoin Canyon, Central Labrador, 1969
The falls and the gorge were cut by forward migration of the Churchill River as it gradually cut down into the central Labrador plateau. This view was taken prior to the diversion of much of the water to the hydroelectric plant.
©1998, Geological Survey of Canada, Natural Resources Canada.

This strategy was partially successful with respect to the new resource, oil and gas, but was difficult to implement for the established resource industries. It did not achieve much for rural Newfoundland and Labrador, nor did it take into account sweeping changes in the international economy through which most new growth opportunities were in non-resource-based businesses.

(5) Rural development

At various times, such as during the early Commission of Government days during the 1930s, governments and local communities themselves have introduced schemes aimed at diversifying the local economies of rural communities. This approach had its strongest support at the local level as a reaction against the resettlement movement during the 1970s; and a "new", purportedly more professional and business-like approach to community economic development has recently been instituted under the Liberal governments of Clyde Wells and Brian Tobin.

(6) New economic opportunities

The most recent effort at economic diversification was outlined in the province's strategic economic plan, Change & Challenge, which was published in 1992. This approach is based on the premise that technological changes, especially in telecommunications, and the opening up of new markets in the global economy, have created new economic opportunities in a host of sectors, ranging from adventure tourism to information industries to health products and services. Several Newfoundland firms are now competing successfully in these new industries, but it remains to be seen how important they will become in the overall economy.

While none of the efforts to industrialize and diversify the economy of Newfoundland and Labrador has proven as successful as its advocates hoped, and unemployment is still a major problem especially in rural areas, the net effect over the years has been positive. Moving toward the 21st century, Newfoundland and Labrador can best be described as having a diversified resource-based economy with significant employment and wealth generation in many different sectors: fisheries and aquaculture, mining, forest products, hydroelectricity, oil and gas, manufacturing, construction, tourism, agriculture and secondary food processing, technical and information industries, and a host of public, professional and business services (see table below). What the province needs, but currently lacks, is a clear strategy for the future including pre-eminently a plan for the future of the fisheries and outport communities which is consistent with an overall, integrated strategic plan for the province as a whole.

Labour Force 15 Years and Over by Selected Industry Divisions and Major Groups, 1996.

Industry Number Percent
Agriculture 1,820 0.7
Fishing 8,775 3.6
Logging 2,430 1.0
Mining 2,800 1.1
Petroleum 775 0.3
Fish Products 9,660 3.9
Pulp and Paper 2,450 1.0
Other Manufacturing 9,975 4.1
Construction 17,215 7.0
Transportation 9,950 4.0
Communications 4,230 1.7
Wholesale Trade 8,110 3.3
Retail Trade 31,760 12.9
Finance and Insurance 4,250 1.7
Business Services 7,320 3.0
Government Services 21,485 8.7
Educational Services 20,715 8.4
Health and Social Services 26,465 10.8
Accommodation Services 3,600 1.5
Food and Beverage Services 10,345 4.2
Personal and Household Services 6,455 2.6
Total Labour Force 246,065 100.0

Based on the 1980 Standard Industrial Classification, 1996 Census (20% Sample Data). These are selected categories for illustrative purposes. Source: Statistics Canada-Catalogue No. 93F0027XDB96008.

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