A Northern Province for Ontario? – by Livio Di Matteo (Part 1 of 2)

Originally published in February,1997

Livio Di Matteo is Professor of Economics at Lakehead University in Thunder Bay, Ontario.  Visit his new Economics Blog “Northern Economist” at http://ldimatte.shawwebspace.ca/

Between 1867 and 1899, the timber industry produced about 28 percent of total provincial revenues. These revenues contributing greatly to the welfare of Ontario citizens. Whereas northern Ontario accounted for at best 10 percent of the province’s population it consistently provided about one quarter of the province’s total revenue. – Livio Di Matteo

There are periodic calls for Northern Ontario to form a separate province, which seem to surface whenever the north feels it is being poorly treated by the provincial government.  The demand for a separate province feeds on the large amount of northern lore regarding the supposedly exploitative nature of the relationship between the north and southern Ontario.  A persistent theme in northern Ontario history is that it served as a natural resource frontier for the economy of the industrialized south by providing resource inputs into southern industry.  Moreover, much importance is attached to the natural resource rents from forests and mines which provided the Ontario government with a large proportion of its tax revenue in the first half of this century.

The case that usually follows is that northerners should have their own province so that the economic benefits from northern resources are retained for northerners.  The failure of the north’s economy to grow at the same rate as the south over the last 30 years, with the subsequent outmigration of youth, is blamed on the absence of provincial status and the ability to control our own economic destiny.  The implicit argument is that the North would be better off economically as a province though there have not been any arguments rooted in economic analysis to evaluate this point.  Moreover, given that the market for natural resources is international in scope, no explanation of how being a separate province might change the terms of trade for northern Ontario resources has been offered.

The best case for a province of northern Ontario rests in the past during the period 1870 to 1920 which was a time of rapid growth on par with the Prairies.  However, the Prairies were federal territories which obtained provincial status while northern Ontario remained part of Ontario. Ontario was indeed fortunate to have the vast, resource rich expanse of northern Ontario to draw upon as it industrialized.  Along with abundant resources which served as industrial inputs, the expertise acquired in accessing those resources paved the way for Ontario’s economic dominance nationally.  For example, the development of the mining frontier in Ontario’s north allowed the acquisition of experience and expertise in mining ventures that positioned Toronto as a national center for mining knowledge and finance in the twentieth century.

In the nineteenth century, the potential of northern Ontario as a source of government natural resource revenue was foreseen by several governments eager to control land development in northern Ontario.  The Federal government had subsidized construction of the Canadian Pacific Railway through northern Ontario and ownership of the land would have enabled some cost recovery through timber revenues. The Federal government wished to restrict the western limit of Ontario to a line just east of Thunder Bay so as to administer much of northern Ontario as a territory.  On the other hand, by securing its north, Ontario stood to benefit immensely because construction of the CPR provided access to its north at a minimal cost.  Manitoba also sought jurisdiction over the westernmost portion of Ontario and for a while both Ontario and Manitoba conducted courts and elections at  Kenora.  The boundary disputes were not completely resolved until 1912 when the northwestern portion of Ontario was officially  added to the province.

Ontario envisioned its north or “New Ontario” as it was called then, as an agricultural frontier whose settlers would form a market for the manufactured wares of the south.  This view was reflected in popular publications of the period though today some of the claims made would seem optimistic to anyone familiar with the geography and landscape of northern Ontario.  As time wore on, it became obvious that northern soils were simply not as productive as southern ones.  Agriculture in northern Ontario was extended past the point of commercial viability and many farms were abandoned in the 1930s and 1940s.  The remaining agriculture in the north was confined to mixed and dairy farming which served local rather than export markets.

Land in northern Ontario had more value for its timber potential than for its agriculture and many settlers were more interested in stripping the land of its timber. Timber was also a valuable source of government revenue and created healthy surpluses for the provincial treasury in the late nineteenth and early twentieth centuries.  Between 1867 and 1899, bonuses, dues and ground rents from the timber industry produced about 28 percent of total provincial revenues. These revenues paid for railroad subsidies, roads, public institutions, hospitals, public works and even the new parliament buildings at Queen’s Park contributing greatly to the welfare of Ontario citizens.  Whereas northern Ontario accounted for at best 10 percent of the province’s population it consistently provided about one quarter of the province’s total revenue.

Nevertheless, the presence of these transfers do not appear to have had a negative impact on economic growth on the north during the nineteenth century for the north was a booming economic region with population growth rates which exceeded the south.  The economic opportunities afforded by the private sector exploitation of timber and minerals and agricultural settlement compensated for the outflow of economic resources.  As well, there was a rapidly expanding manufacturing sector that filled the local consumer needs of the growing population.  Moreover, the federal government was also generating growth and employment in the north by helping put through a series of transcontinental railroads.  

If the north had become a federal territory during the period of border disputes with Manitoba and Ontario, then during the period of western development the north might have obtained provincial status like Alberta and Saskatchewan did in 1905.  Given that the north was already supplying 25 percent of Ontario’s revenue, the new province would definitely have been self-supporting in fiscal terms.  Though economic growth was robust in the north during this time period, if the north had been a province and retained the revenues garnered through natural resource taxation, it could have used these funds to attract even more industrial development resulting in a larger and more diversified northern economy. 

Of course, whether this diversification could have been sustained in the face of high transport costs and competition from southern Ontario and American manufacturing is a question that history does not allow us to examine.

End of Part 1