1941: Canada

The mobilization of the Dominion's resources for an all-out war effort continued to dominate all other aspects of Canadian life during 1941. The need for such effort was intensified when, on Dec. 7, Prime Minister King announced that Canada was at war with Japan. Twenty-four hours earlier war had been declared on Finland, Hungary, and Rumania. By the end of the year it was estimated that Canada was spending nearly half of its $6,000,000,000 national income on the war. This was approximately twice the proportion of the national income that the United States was devoting to defense and lend-lease needs. Direct war expenditures in the Dominion were approximately $1,500,000,000 and assistance for England amounted to about $1,200,000,000. Shipments to Britain consisted largely of munitions, foodstuffs, and lumber. No repayment is expected for this assistance.

Political and Military.

In the political field the war has thus far brought no serious challenge to the government of Prime Minister W. L. Mackenzie King. Although the Canadian public was required to make great sacrifices, these sacrifices do not appear to have caused any marked political discontent. The issue of conscription is generally regarded as the only one which might conceivably upset Mr. King's government. It will be recalled that this issue was the cause of a bitter dispute in the first World War when the attempt to apply conscription in the French areas of Canada led to riots and attempts at wholesale evasion. With these bitter memories in mind, both of the major political parties went on record at the beginning of this war as opposing conscription as a means of raising a force for overseas duty. Although there is conscription for the home forces, the Government relied solely on the recruiting of volunteers for overseas service.

Despite this handicap, Canada mobilized six divisions for its active army which is trained for overseas service. This is one more division than the Canadian Corps had in France in the first World War. Although numerically the present-day divisions are somewhat smaller than their predecessors, the mechanical striking power is much greater. Five divisions had been sent to England by the close of 1941, together with certain additional units. Some Canadians are known to have been sent to northern Russia and others have been reported in action in Libya. The first Canadian force ever to be sent to the Far East was declared by Prime Minister King on Nov. 15 to have arrived safely at Hongkong. It was reported early in November that these overseas contingents totaled 110,000. The total number of Canadians under arms at the close of the year, including home forces, numbered over 400,000. Of these, 90,000 were in the air force, and 230,000 were in the active army, eligible for service abroad.

This would seem to represent a major effort for a country with a population of barely 11,000,000. But a considerable section of the Canadian public believes that far more could be done if the Government worked out a plan for total war. They feel that the Government should make up its mind as to how many Canadians should serve in the armed forces and how many remain in civilian life. Although the pressure for conscription has not taken partisan form, it is particularly strong among Conservatives. At one of the opening sessions of the Canadian Parliament in November, Prime Minister King made his position clear when he declared:

'Without any consultation of the people on that subject I do not intend to take the responsibility of supporting any policy of conscription for overseas service.'

At the same time he outlined plans for the extension of the already approved principle of compulsory service within Canada.

Economic Changes.

Two years of intensive war effort have virtually transformed Canadian economy. The changes are of particular interest to residents of the United States because they tended to anticipate by about a year similar changes south of the border.

At the outbreak of the war in September 1939, not a Canadian worker in a hundred was engaged in the production of war materials or enrolled in the armed forces. Less than one per cent of the Dominion's national income was being utilized for national defense. By the end of 1941 one worker out of every four was directly engaged in the war effort and another was indirectly contributing through aid for England. This meant a drastic change in the occupations of a large part of the population. Plants producing for civilian demand had to surrender a considerable portion of their skilled labor to the defense industries; there was a huge drain in labor from agricultural regions to supply unskilled workers for defense plants and to meet the needs of the armed forces.

The task of organizing the country to meet the unprecedented economic demands of the war fell chiefly on the Department of Munitions and Supply headed by C. D. Howe. The functions of the Department of Munitions and Supply are two-fold. The first is that of purchasing or procurement. With certain minor exceptions, it has exclusive authority to make the purchases required for the defense effort. It does not, however, decide what is to be purchased. It buys only what is requested either by the various Dominion defense agencies or the British. Its second function is to organize, mobilize, and conserve the resources of Canada for the war effort.

The Department of Munitions and Supply was established in April 1940, to take over the duties of the War Supply Board. The Department built up a number of semi-autonomous branches. These include divisions to handle aircraft production, defense projects, arsenals, naval construction, munitions production, purchasing, priorities and others. In addition, the Department created two other forms of administrative agency: the Controllers and the Government Corporations. These are even more autonomous. The Controllers are entrusted with the duty of supervising certain basic war materials and services such as steel, metals, timber, oil and machine tools. Nine Government corporations were created. They have business men as executives but the Government owns the capital and appoints the directors. Two of them were set up to produce new types of war product — small arms and optical instruments. Another is responsible for certain construction work. Three others were entrusted with building up stocks of imported commodities. And two of the remaining ones have administrative responsibility in connection with the production of explosives and training planes.

Some idea of the extensive nature of the work of the Department of Munitions and Supply may be gained from the fact that by Sept. 30 1941, contracts were placed totaling $2,600,000.000. Capital assistance totaling some $550,000,000 was furnished to Canadian industry for new factories, machines and equipment to facilitate defense production. The Department keeps in close contact with the British Purchasing Commission and the British Supply Council in North America, and maintains representatives in London to keep in touch with the various British ministries.

As a considerable amount of material, particularly of machine tools and aircraft engines, had to be purchased in the United States, close cooperation was established with the Office of Production Management and other defense agencies in the United States. This was especially true of the Priorities Branch which had to work very closely with the authorities handling priorities in this country.

While the Department of Munitions and Supply occupies the key position in Canada's economic reorganization to meet the war crisis, it is by no means the only agency concerned with the war effort. The Wartime Prices and Trade Board was established early in the war, but became increasingly active in recent months. Its job corresponds closely with that of the Office of Price Administration and Civilian Supply in the United States. Its responsibility is to see that prices do not rise to an unjustifiable extent. During the first year its activities were chiefly in connection with rents. A serious shortage of houses existed in many of the defense centers, and the Board sought to combat this situation by 'freezing' rents at the level of Jan. 2, 1940, except in special cases. But it has not found a way of allotting the existing housing facilities among those in need of it.

The powers of this board were considerably expanded at the end of the year when a ceiling was imposed on all prices by a Government order-in-council. Full responsibility for enforcement of the decree was placed on the Board. Beginning Dec. 1, the maximum price at which a person or a firm could sell or supply goods or services was fixed at the highest price at which they supplied goods or services 'of the same kind and quality' during the period from Sept. 15 to Oct. 11, both days included. Quantity discounts and other conditions of sale resulting in a lower net price must be continued. Fines up to a maximum of $5,000 and two years imprisonment, or both, were specified as the penalty for violation of the order. Wages were also stabilized under the new price control arrangement by extending the cost of living bonus principle previously applied to munitions industries to all industries on a mandatory basis. This does not 'freeze' wages in the same manner as prices, but permits adjustment upward only to the extent that the cost of living has risen. Since the outbreak of the war, the cost of living has risen approximately 14 per cent.

The reasons why a general ceiling was considered preferable to the selective control practiced in the United States were outlined to Parliament by the Minister of Finance, J. L. Isley, as follows: (1) it could be more quickly applied; (2) general price control is less discriminatory; (3) appearances to the contrary, general price control involves fewer and less difficult administrative problems; (4) the selective control plan would require thorough investigation of individual industries; (5) the general control method is the only kind of price control which really makes it possible to justify the stabilization of wages; (6) as the fundamental reason, the piecemeal method of selective control would not prevent the inflationary spiral from developing.

In view of the enormous increase of work falling on the Wartime Prices and Trade Board as a result of the price ceiling, Finance Minister Isley appointed Donald Gordon, Deputy Governor of the Bank of Canada, as associate chairman of the Board to work with the acting chairman, Hector B. McKinnon.

Among other wartime agencies set up to meet special needs are the Foreign Exchange Control Board, designed to prevent a speculative flight of capital from Canada, and the National Labor Supply Council which has as its job the task of assuring an adequate supply of skilled labor for the war industries.

Finances.

The budget estimates for the year extending from April 1, 1941, to March 31, 1942, called for direct war expenditures of from $1,300,000,000 to $1,450,000,000, expenditures for non-war purposes of $468,000,000 and a contribution of from $800,000,000 to $900,000,000 to finance Britain's Canadian dollar deficit. This compared with actual expenditures for the 1940-1941 fiscal year of $792,000,000 for the war effort, $475,000,000 for non-war purposes, and $246,000,000 for financing Britain's dollar deficit. It was estimated that $1,400,000,000 would be raised by taxation and that borrowings would total $1,250,000,000 for 1941-1942 as compared with revenues of $872,000,000 and borrowings of $641,000,000 in 1940-1941. To meet this tremendous increase in the budget, taxes were substantially increased. The defense tax was increased from 3 to 7 per cent for bachelors and from 2 to 5 per cent for married men. Income tax rates were increased to a point where they are between two-thirds to three-fourths of the British tax rates. A married man with an income of $2,000 is now required to pay $175 in income and defense taxes as against $75 in the previous year. A married man with an income of $5,000 pays approximately $1,000 in taxes.

The new graduated rates start at 15 per cent for the first $1,000 of net taxable income in place of the 6 or 8 per cent in 1940. They rise to 20 per cent on the next $1,000; 25 per cent of the third $1,000; and upward to a maximum of 80 per cent on taxable income between $300,000 and $500,000 and finally to 85 per cent on all income of more than $500,000. Basic exemptions remain at $750 for single persons and $1,500 for married men. The exemption for the defense tax was increased from $600 to $660 a year. Taxes on corporate incomes were also raised. There is a 75 per cent war tax on excess profits, and a further provisions which requires a company to pay at least 40 per cent of its net income to the Government whether it makes excess profits or not. In addition, special excise taxes have been imposed on a long list of articles including: automobiles, household appliances, travel fares, moving pictures, and cosmetics.

In his report to Parliament on Nov. 12, J. L. Isley, the Finance Minister, predicted that the 1942-1943 budget would be materially higher, probably surpassing $3,000,000,000. He declared that the tax revenue for the 1941-1942 fiscal year would exceed the budget estimate of $1,400,000,000 and possibly reach a total of $1,500,000,000. He announced that the $600,000,000 loan of the previous June had been oversubscribed to the extent of $236,000,000 and that the sale of war savings certificates was expected to yield $120,000,000 for the year.

The Dominion Bureau of Statistics estimated the national income of Canada for the first eight months of 1941 at $3,446,000,000 as compared with $3,118,000,000 in the same period of 1940. The national income for the whole of 1940 was officially estimated to be $4,784,000,000 as compared with $4,409,000,000 in 1939. Official predictions are that the 1941 national income may exceed $6,000,000,000. A considerable part of the rise is, of course, attributable to increased prices, but it also reflects increased production of war materials.

Labor Relations.

The past year was marked by comparative stability in labor relations. Strikes were infrequent, except in the Maritime Provinces, and the situation was generally more satisfactory at the close of the year than at the beginning.

Credit for the improvement in the labor situation is given, in part, to the practice of stabilizing wages in accordance with the cost of living which has been in effect in the war industries for many months. It is hoped that the extension of this principle to the non-essential industries will also have good effect. Observers also believe that establishment of unemployment insurance on July 1 has contributed to better feeling among workers and should substantially reduce the problems of post-war adjustment. Approximately 2,000,000 workers are covered by this insurance. Payments into the fund are about $4,000,000 monthly.

Among the steps taken to prevent industrial sabotage was an order-in-council issued early in August authorizing the use of troops to keep war industries in operation. This has not been used, however, to break strikes. Another order-in-council, issued in September, outlawed strikes called by minorities. Previously workers had been forbidden to strike until a Board of Conciliation had investigated their grievance. After the Board of Conciliation has issued its findings, the workers may not strike until three conditions have been fulfilled: (1) notice of the intended strike must be given to the Minister of Labor; (2) a general vote must be taken under the supervision of the Department of Labor and subject to the regulations issued by the Minister; and (3) it must be established that a majority of the employees concerned have voted to strike. Penalties of $500, or twelve months imprisonment, or both, are applicable against persons striking or inciting others to strike until these conditions have been fulfilled.

Previously, an order-in-council prohibited Conciliation Boards from recommending wage rates higher than those of December 1940, or in 1926-1929, whichever was the higher. They were permitted, however, to recommend bonuses which would protect workers against increases in the cost of living. Peacetime legislation limiting hours of work was suspended for certain of the war industries for the duration of the conflict.

These and the other limitations previously imposed on labor have, in general, been accepted by organized labor as a wartime necessity. The labor organizations however, urged the passage of new legislation to protect labor against having to bear the entire brunt of the war. Speaking before the 57th annual convention of the Trades and Labor Congress, held in Calgary at the end of September, Tom Moore, president of the organization, pointed out that there was no strike in any industry where collective agreements had been reached and warned employers that 'cooperation is not a one-way street.' The convention went on record as favoring Dominion legislation similar to the Wagner Labor Relations Act in the United States, to protect the wage earners in their right to join labor unions and to make collective bargaining compulsory. It asked both Dominion and provincial governments to make it compulsory that the employer recognize and deal with a trade union if one is organized by his employees. It also asked the Dominion Government to restrain the Department of Munitions and Supply from interfering in labor disputes and to abolish the Office of Labor Relations in that Department. Other resolutions adopted included those urging 'equal pay for equal work' in all war industries; holidays with pay for all workers; a maximum 48-hour week for all restaurant employees; and a six-hour day and a maximum five-day week as a post-war measure.

Civil Liberties.

Although the stringent Defense of Canada Regulations were liberalized to some extent during the year, there was still widespread criticism of the Government's interference with civil liberties under these regulations. On the recommendation of a Special Investigating Committee of the House of Commons, a series of amendments were adopted to the Defense of Canada Regulations during the summer. As the regulations were first drafted, they provided virtually no appeal to arrests and detentions ordered by the Minister of Justice and the powers invested in the Secretary of State. The amendments created a number of advisory committees to whom an internee may appeal for review of his case. While the Minister does not have to take the advice of the committees, a check on his powers is provided through the reports he must make to the House of Commons on the reasons why he ignored the committees' suggestions. Changes were also made in the regulations regarding the forfeiture of articles seized under the Defense of Canada Regulations. Internees were also given the privilege of receiving visitors provided the authorities do not hold this to be 'against the public interest.'

The restrictions that have provoked the greatest dissatisfaction within Canada were those interfering with the press. Freedom of the press as it was formerly understood no longer exists in Canada. Eleven publications have been suppressed since the outbreak of the war. Seven of these were in Ontario, three in Quebec, and one in Manitoba. Of the total, three were French-Canadian, two Nazi, one Communist, and most of the remainder foreign language publications. Also a number of American publications, including some of the best known, were temporarily or permanently banned from Canada. These restrictions contrast with the relatively liberal attitude shown in Great Britain toward publications alleged to be subversive of the war effort. The greater severity of Canada's actions are usually justified by officials on the ground that Canada's heterogeneous population makes subversive activity more dangerous than similar activities in England. This is denied by critics of the Government position who insist that the danger of subversive activity is slight in a country like Canada many thousand miles removed from the war zone. It is probably fair to say that the restrictions are more of a reflection of the lethargy of Canadian progressivism than of the danger of sabotage and anti-war activity.

Somewhat less controversial were the restrictions placed on liberty of assembly although it was under these regulations that the Communist Party of Canada remained banned despite the fact that Russia was a war ally. In addition to the Communists, twenty-seven other organizations and societies were suppressed. These included more than a half a dozen Communist Front organizations, three Nazi-Bundist groups, two Fascist and Fascist-sponsored societies, Jehovah's Witnesses and variety of Bible student associations, and certain Polish, Croatian, and miscellaneous bodies. It is not only illegal to belong to these organizations, but speak in their behalf, or to distribute their literature.

Although many of the hundreds of arrests that were made under the Defense of Canada Regulations doubtless were unjustified, the enforcement of the law was not as unenlightened as many people feared when the law was passed. Proponents of civil liberties readily admit that the fault lies chiefly with the loose, sweeping language of the regulations rather than with the enforcement officers. The 1941 amendments, although they provided some means of redress, have not struck at the fundamental problem of placing too much power in the hands of the administrative authorities.

It should be pointed out that the infringement of civil liberties under the Defense of Canada Regulations in no way destroyed, or materially hampered the essential functioning of democracy in the Dominion. Elections are still held periodically, and the recent successes of the Cooperative Commonwealth Federation attest to the fact that they are still free. The debates in Commons are marked by penetrating and creative thinking and the utmost freedom. There is no failure to criticize the Ministers for mistakes or negligence. And although a few papers have been suppressed, there remain several distinguished opposition papers which serve to maintain a high degree of genuine democracy within Canada.

United States-Canadian Relations.

The coordination of defense activities between the United States and Canada, started in 1940 with the establishment of a Permanent Joint Board on Defense, was extended on Nov. 2, 1941, by the establishment of a Joint Defense Production Committee. Announcement of the creation of this agency came after a two-day conference between Prime Minister Mackenzie King of Canada and President Franklin D. Roosevelt of the United States at the President's home in Hyde Park, N. Y. This was the fourth intergovernmental agency to be formed affecting the joint defense of the two countries. The others, in addition to the Permanent Joint Board on Defense and Joint Defense Production Committee, are the Materials Coordination Committee and the Joint Economic Committee.

The Materials Coordination Committee was set up on May 1 as a result of an informal agreement between the heads of the Canadian Department of Munitions and Supply and the Office of Production Management of the United States. Its membership at the end of the year consisted of W. L. Batt and Philip Reed, Director and Deputy Director of Materials of the Office of Production Management, and G. C. Bateman, the Canadian Metal Controller, and H. J. Symington, the Power Controller, together with one American and one Canadian secretary. This committee is concerned primarily with the coordination of the raw material resources of the two countries.

The Joint Economic Committees were established on June 17, 'to study and report to their respective governments on the possibilities of (1) effecting a more economic, more efficient and more coordinated utilization of the combined resources of the two countries in the production of defense requirements (to the extent that this is not now done) and (2) reducing the probable post-war economic dislocation consequent upon the changes which the economy of each country is presently undergoing.' The Canadian representatives on the Committees consisted of G. C. Bateman, W. A. Mackintosh, of the Department of Finance, J. G. Bouchard, of the Department of Agriculture, and Alex Skelton, of the research division of the Bank of Canada.

Besides these formal committees, many other means of cooperation between the two countries have been developed. Since the outbreak of the war, the stall of the Canadian Legation in Washington has been expanded until it now includes fifteen officials with diplomatic standing. Early in 1941 the office of financial attaché was established to deal with the complicated foreign exchange problems. Representation of the United States at Ottawa has also been greatly expanded since the war although not to as great an extent as Canadian representation in Washington.

Another link in United States-Canada cooperation was forged in the spring when a formal agreement for the construction of the St. Lawrence Seaway was signed. But the agreement had not yet been implemented by Congressional appropriations by the end of the year. Although majority opinion in both countries continued to favor the agreement, there was opposition to it in Canada as well as in the United States. The Canadian opposition came principally from the French Canadian groups under ex-Premier Duplessis of Quebec who disapproved of greater cooperation with the United States on political grounds.

Ratifications of the Canadian-American Permanent International Commission for the conciliation of disputes, a replica of the Bryan conciliation commissions, were exchanged on Aug. 13, 1941. Joint commissions were also set up during the year for the consideration of certain aspects of St. Lawrence River power and navigation development.

It is believed that Prime Minister King's conference with President Roosevelt early in November dealt in part with financial relief for Canada although no specific agreement was announced. It is estimated that Canada's adverse balance of trade with the United States since the beginning of the war, including invisible items but deducting Canadian purchases for Great Britain, amounted to approximately $470,000,000 by Nov. 1, 1941. It is estimated that Canadian purchases in the 1941-1942 fiscal year will amount to $953,000,000 of which $428,000,000 will represent purchases for war purposes. Under the Hyde Park agreement of April the United States agreed to buy $200,000,000 to $300,000,000 of Canadian raw materials. But it is obvious that the trade deficit which remains will have to be met with credit of some sort. Whether this will take the form of lend-lease aid or advances by the Reconstruction Finance Corporation against the $1,250,000,000 worth of American securities held by Canadian nationals had not been announced at the end of the year.

General Political Developments.

In many respects 1941 was the quietest year in the political sphere for more than a decade. Provincial elections were held only in Nova Scotia and British Columbia. In the former there was practically no change in the relative standing of the parties, the Liberals retaining the control that they had held for the past eight years. In British Columbia, the Liberals again won the largest number of seats of any party although surprising gains were achieved by both the Conservatives and the Cooperative Commonwealth Federation and the Liberals failed to win a majority of the total number of seats in the legislature.

New leadership was given to the national Conservative Party when Senator Arthur Meighen accepted the post of leader of the party on Nov. 12, following election at a conference of party leaders. He first rejected the post when it appeared that there was considerable opposition to his selection, but after the vote had been changed to make the election unanimous he was persuaded to accept. Senator Meighen has twice been Prime Minister of Canada for brief periods. He was defeated in three elections — 1921, 1925, and 1926 — twice as leader of the Government. He represents the extreme right in Canadian polities, and has long been regarded as a voice of orthodox finance. He is strongly in favor of extending conscription to cover service in the overseas forces. When appointed to the Canadian Senate, it was presumed that he would retire from active political life. But he has returned more active than for many years. The new leader replaces R. B. Hanson who was forced to retire because of ill health. His selection dealt a death blow to the effort of younger Conservative leaders to make the party an instrument of reform, and thus left the party lines blurred with no recognizable right, and no left except the Cooperative Commonwealth Federation which has not yet developed into a truly national party.

Mr. St. Laurent was chosen Minister of Justice to replace Ernest Lapoint who died recently. See also Articles on UNITED STATES; WORLD WAR II.