Canada was hit hard by the Great Depression. Between 1929 and 1933, the gross national product dropped 40% (compared to 37% in the US). Unemployment reached 27% at the depth of the Depression in 1933. Many businesses closed, as corporate profits of $396 million in 1929 turned into losses of $98 million in 1933. Families saw most or all of their assets disappear, and their debts become heavier as prices fell. Canadian exports shrank by 50% from 1929 to 1933. Worst hit were areas dependent on primary industries such as farming, mining and logging, as prices fell and there were few alternative jobs.
The depression started slowly but quickened as the entire world was affected and exports fell. Factories reduced work weeks due to fewer sales, and people were laid off. People without jobs were unable to buy products, and though stores dropped their prices, sales did not increase. Real wages of employees did not fall for those still employed, but their weekly work hours shrank. Wheat and corn production, which had previously began to intimidate production by the USA, became weaker and fell heavily in value.
Dependence on Few Primary Products - Canada's decrease in natural resources created a significant drop in sales causing an economical depression.
Dependence on the United States - Due to the dependency Canada had on the U.S., when an economic depression hit the States, Canada was thrust into one as well.
High Tariffs - Canada's efforts to get out of a recession by raising export tariffs only backfired due to competition from other countries and Canada's lack of variety in its exports.
Too Much Credit - Canadians bought too much on lease and credit including stocks. Therefore when the stock market crashed (partly due to the credit buying), Canadians were in debt and faced a trying time as they attempted to sell their personal belongings or were having their half paid-off possessions repossessed.
Canada did have some advantages over other countries, especially its extremely stable bank system that had no failures during the entire depression, compared to over 9,000 small banks that collapsed in the United States.
Canada was hurt so badly because of its reliance on wheat and other commodities, whose prices fell by over 50% and because of the importance of international trade. In the 1920s about 25% of the Canadian Gross National Product was derived from exports. The first reaction of the U.S. was to raise tariff via the Smoot-Hawley Tariff Act, passed into law June 17, 1930. This hurt the Canadian economy more than most other countries in the world, and Canada retaliated by raising its own rates on American imports and by switching business to the Empire.
The British introduction of trade protectionism and a system of Commonwealth preference during the winter of 1931-32 helped Canada and Australia avoid external default on their public debt. The onset of the depression created critical balance of payment deficits, and it was largely the extension of imperial protection by Great Britain that gave Australia and Canada the opportunity to increase their exports to the British market. By 1938 the United Kingdom was importing more than twice the 1929 volume of products from Australia, while the value of products shipped from Canada more than doubled, despite the dramatic drop in prices. Thus, the British market played a vital role in helping Canada and Australia stabilize their balance of payments in the immensely difficult economic conditions of the 1930s.
Further damage was the reduction of investment: both large companies and individuals were unwilling and unable to invest in new ventures.
In 1932, industrial production was only at 58% of the 1929 level, the second lowest level in the world after the United States, and well behind nations such as Britain, which only saw it fall to 83% of the 1929 level. Total national income fell to 55% of the 1929 level, again worse than any nation other than the United States.
The contraction period of the depression in Canada lasted from May 1929 until 1933.
World War I veterans built on a history of postwar political activism to play an important role in the expansion of state-sponsored social welfare in Canada. Arguing that their wartime sacrifices had not been properly rewarded, veterans claimed that they were entitled to state protection from poverty and unemployment on the home front. The rhetoric of patriotism, courage, sacrifice, and duty created powerful demands for jobs, relief, and adequate pensions that should, veterans argued, be administered as a right of social citizenship and not a form of charity. At the local, provincial, and national political levels, veterans fought for compensation and recognition for their war service, and made their demands for jobs and social security a central part of emerging social policy.
The Liberal Party lost the 1930 election to Richard Bedford Bennett and the Conservative Party. Bennett, a successful western businessman, campaigned on high tariffs and large scale spending. Make-work programs were begun, and welfare and other assistance programs became vastly larger. This led to a large federal deficit, however. Bennett became wary of the budget shortfalls by 1932, and cut back severely on federal spending. This only deepened the depression as government employees were put out of work and public works projects were cancelled.
One of the greatest burdens on the government was the Canadian National Railway (CNR). The federal government had taken over a number of defunct and bankrupt railways during World War I and the 1920s. The debt the government assumed was over $2 billion, a massive sum at the time, but during the boom years it seemed payable. The Depression turned this debt into a crushing burden. Due to the decrease in trade, the CNR also began to lose substantial amounts of money during the Depression, and had to be further bailed out by the government.
With falling support and the depression only getting worse, Bennett attempted to introduce policies based on the New Deal of Franklin Delano Roosevelt in the United States. Bennett thus called for a minimum wage, unemployment insurance and other such programs. This effort was largely unsuccessful, the provinces challenged the rights of the federal government to manage these programs. Unlike Roosevelt, who simply threatened to sack the Supreme Court of the United States to defeat any constitutional challenges, Canada's supreme court at this time was the Judicial Committee of the Privy Council, an institution controlled by Great Britain.
The judicial and political failure of Bennett's New Deal legislation shifted the struggle to reconstitute capitalism to the provincial and municipal levels of the state. Attempts to deal with the dislocations of the Great Depression in Ontario focused on the "sweatshop crisis" that came to dominate political and social discourse after 1934. Ontario's 1935 Industrial Standards Act (ISA) was designed to bring workers and employers together under the auspices of the state to establish minimum wages and work standards. The establishment of New Deal style industrial codes was premised on the mobilization of organized capital and organized labor to combat unfair competition, stop the spread of relief-subsidized labor, and halt the predations of sweatshop capitalism. Although the ISA did not bring about extensive economic regulation, it excited considerable interest in the possibility of government intervention. Workers in a diverse range of occupations, from asbestos workers to waitresses, attempted to organize around the possibility of the ISA. The importance of the ISA lies in what it reveals about the nature of welfare, wage labor, the union movement, competitive capitalism, business attitudes toward industrial regulation, and the role of the state in managing the collective affairs of capitalism. The history of the ISA also suggests that "regulatory unionism," as described by Colin Gordon in his work on the American New Deal, may have animated key developments in Canadian social, economic, and labor history.
Nevertheless, by this time the worst of the Depression was over. King's government implemented some relief programs such as the National Housing Act and National Employment Commission, and it established Trans-Canada Airlines (1937, the predecessor to Air Canada). It took until 1939 and the outbreak of war for the Canadian economy to return to 1929 levels, however.
The dissatisfaction with the government during the Depression resulted in a rise of third party activity in Canada. Some remnants of the Progressive Party from the 1920s organized to form the Social Credit Party of Canada (Socred). In Alberta in 1935, radio evangelist William Aberhart led the newly formed Social Credit Party of Alberta to electoral victory when he was elected premier. According to "Bible Bill," as he was called by his detractors, the capitalist economy produced goods and services but did not provide people with sufficient purchasing power to enjoy them. This could be remedied by the distribution of money in the form of social credit. In office, he found he could not translate his ideas into reality. The party nonetheless proved durable at the provincial level, notably with the Social Credit Party of British Columbia that ruled that province for decades under W.A.C. Bennett.
Elements of the progressive left consolidated to form the Cooperative Commonwealth Federation (CCF), a socialist party that achieved some success and was the precursor to the New Democratic Party. J.S. Woodsworth, the party's leader, was a vocal fixture in the Canadian House of Commons, and CCF candidates routinely won a portion of seats in provincial and municipal elections. The radical left also consolidated in the 1930s under the leadership of the Communist Party of Canada, which provoked great controversy as the government made the party illegal under Section 98 of the criminal code.
During the depression, there was a rise of working class militancy. Organized labour largely retreated in response to the ravages of the depression at the same time that significant portions of the working class, including the unemployed, clamoured for collective action. Filling this leadership void was the Communist Party's Workers' Unity League, which sought to building a revolutionary trade union movement under a policy of dual unionism. Numerous strikes and protests were led by the Communists, many of which culminated in violent clashes with the police. Some notable ones include a coal miners strike that resulted in the Estevan Riot in Estevan, Saskatchewan that left three strikers dead by RCMP bullets in 1931, a waterfront strike in Vancouver that culminated with the "Battle of Ballantyne Pier" in 1935, and numerous unemployed demonstrations up to and including the On-to-Ottawa Trek that left one Regina police constable and one protester dead in the "Regina Riot." Although the actual number of Communist Party militants remained small, their impact was far disproportionate to their numbers, in large part because of the anticommunist reaction of the government, especially the policies of R. B. Bennett who vowed to crush Communism in Canada with an "iron heel of ruthlessness." These conflicts diminished after 1935, when the Communist Party shifted strategies and Bennett's Conservatives were defeated. Agitation and unrest nonetheless persisted throughout the depression, marked by periodic clashes, such as a sitdowners' strike in Vancouver that ended with "Bloody Sunday." These developments had far-reaching consequences in shaping the postwar environment, including the domestic cold war climate, the rise of the welfare state, and the implementation of an institutional framework for industrial relations.
It took the outbreak of World War II to pull Canada out of the depression. From 1939, an increased demand in Europe for materials, and increased spending by the Canadian government created a strong boost for the economy. Unemployed men enlisted in the military. By 1939, Canada was in the first prosperity period in the business cycle in a decade.
This coincided with the recovery in the American economy, which created a better market for exports and a new inflow of much needed capital.