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Compare and Contrast the Response to the Great Depression of Two Countries in the Region

By Nakul94 Feb 27, 2013 1070 Words
Compare and contrast the response to the Great Depression of two countries in the region. The outbreak of the Great Depression in 1929 caused economic hardship for society in the Americas. World trade was quelled and the consequences devastated the United States of America and Canada. Both countries suffered a breakdown in world trade and resulted in a decrease of domestic revenue. The governments were tasked with restoring an economy that faced a 40% and 37% drop in their GDP in Canada and the U.S respectively. Additionally the increased rates of unemployment heightened the difficult situation. In 1933-34 during the hardest parts of the depression, Canada faced 28% unemployment and the US 25% forcing the government to act on various policies and inevitably spending on recovery. The long term laissez faire approach from the government had to be reconsidered and simply instilling austerity measures were not going to be effective in balancing the federal budget. The attitudes of ‘business of America is business’ was also evident in the initial Canadian response. Similar to Herbert Hoover of the U.S, Prime Minister Mackenzie King believed that the crisis was a passing phase and refused to provide federal aid. This was partly attributed to the fact that Canada was already in debt due to expansion of infrastructure and education during the 1920s and only introduced moderate relief efforts. Hoover’s highly economically republican outlook was not popular and by 1932 Franklin D. Roosevelt was elected President. Correspondingly in Canada a new Prime Minister; Richard B. Bennett was tasked with alleviating the situation. Roosevelt initiated a New Deal, which would provide America with relief, recovery and reform from the economic depression. In response to the Great Depression Congress accelerated its tariff policies, culminating in the Reciprocal Trade Agreements Act of 1934 which enabled the President to negotiate tariff reductions on a bilateral basis. In an angered response to the Smoot–Hawley tariff of republican government in 1930, the Mackenzie government welcomed the British introduction of trade protectionism and a system of Commonwealth preference during 1931-32. In addition Canadian congress retaliated by raising its own rates on American imports. However this was not sustainable in the long run as the Canadian export economy had a dependence on a few primary products as it shrank by 50%. The worst hit industries such as farming, mining and logging saw prices collapses with little opportunity to find another job. In 1935 the Bennett Government eventually initiated a Canadian New Deal. Mirroring the ideas of Roosevelt, Industrial Standards Act was designed to bring Canadian workers and employers together under the auspices of the state to establish minimum wages and work standards. In America between1933-4 the National Recovery Administration also encouraged competitive wages to encourage spending and purchasing power for society. Roosevelt was also successful in his Job creation policies. In 1933 ‘Alphabet agencies’ were designed to put people back into work and in turn reducing unemployment. The Civilian Conservation Corps (CCC) made it possible for 3 million young men to develop national and state park systems. Contrary to the highly capitalist system in America the Federal Emergency Relief Administration (FERA) was set up to give relief to the unemployed with a budget of 500 million dollars. In contrast the Canadian government were comparatively more unsuccessful in creating more jobs. The bailout of the Canadian National railway took the debt to a further debt of $2 billion and while losing popularity Bennett could only settle for minimum wage, unemployment insurance programs. These efforts were largely unsuccessful; the provinces challenged the rights of the federal government to manage these programs. A return of the Mackenzie King government in 1935 meant a turning point in Canadian–American economic relations. The government passed the 1935 Reciprocal Trade Agreement undoing the devastating trade war of 1930–31. The second new deal from the Roosevelt government added changes to labour policy. The Works Progress Administration became the most significant relief agency in the New Seal. It received $4.8 billion and was particularly noteworthy in helping women, artists, young people and the African American population. During Roosevelt’s tenure unemployment rate returned to 9% and continue to fall until the Second World War. Along with the fiscal strategies used by the American government there was also a prominent use of monetary policy to help the recovery. In the Gold reserve Act of 1914, the dollar was pegged to the price of Gold at $35 an ounce, making exports considerably cheaper and imports cheaper. In another attempt Federal silver supply was increased to 30% of Gold’s stock to raise prices Silver Purchase Act of 1914. Moreover Bennett's government created legislation to establish the Bank of Canada  to regulate monetary policy; in 1935 the Canadian wheat board was created to market and establish a minimum floor price for wheat. In actuality the monetary strategies had little impact as they were not radical enough. On the other hand Premier of Alberta William Aberhart felt like farmers were being exploited by high society in Toronto and Montreal. His radical and evangelist stance led to Social Credit movement 1932 to handing out a dividend of $25 a month to every man and woman. This ultimately failed but Aberhart did pass a Debt Adjustment Act in 1936 that cancelled all the interest on mortgages since 1932 and limited all interest rates on mortgages to 5%. This was an indication of some of the far-reaching changes that were needed to drive growth. The Canadian recovery can also be credited to the foundation CRBC- Canadian radio broadcasting council 1932. The depression was not just an economic term but also a feeling; in order to raise spirit and keep morale high the radio was used as an escape for the Canadian people. Conversely the productivity in the U.S recovered much quicker while the labour force sustained a melancholy feeling. Canada’s Crown in council also helped to create another national corporation; Bank of Canada. It was used to regulate currency and credit which had been badly managed amongst citizens. Another goal of the BOC was to serve as a private banker’s bank and to help the government on its own debts and financial matters as it eventually steered Canada to prosperity after the Second World War. This coincided with the recovery in American economy which created a better market for exports and a new inflow of much need capital.

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