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The 1950s

When I was sixteen years old, I started a landscaping business. That was what my grandfather did for a living (he ran his own crew), so I had access to the tools and expertise. In mid-March of my second-last year in high school, I went around the neighbourhood, knocking on doors and lining up work for when spring arrived.

One of my first customers was a lovely couple, the Smiths. Mr. Smith was an older gentleman, retired, and didn’t have the energy to cut his own lawn anymore. Mrs. Smith was exceptionally kind, treating me almost like a grandson. There was always a glass of cold lemonade on a hot day. One afternoon she invited me into their home to drink it with them. It gave us time to get to know each other better. Up to then it had been mostly business.

It was a modest home — but very much a home — with family pictures everywhere. One of the photographs that drew my attention was of a group of young soldiers; as it turned out, Mr. Smith was one of them. He had been born in 1899 and was fifteen years old when the First World War started. He lied about his age so he could enlist. His unit was among the first of the Canadian contingents to land in France, and Mr. Smith ended up spending four years in the mud and the blood, until the Armistice was signed in November of 1918.

He returned home and married his high-school sweetheart — that was Mrs. Smith — and they started raising a family. Then war reared its ugly head again, and in 1939 Mr. Smith once more volunteered. He spent six years in different combat zones, finally returning home for good in 1945.

At the time, I didn’t fully appreciate how truly extraordinary this gentleman was. And he was truly a gentle man — you could sense it through and through. Duty compelled him to do what he felt was the right thing, which was to throw himself into the line of fire for his country.

QUESTION 13

In twice volunteering during wartime, Mr. Smith was what?

☐ Noble beyond belief.

☐ A complete sucker.

What Mr. Smith did was extraordinary. But he wasn’t alone. A total of 1.1 million Canadians served during the Second World War. More than 40 percent of males aged eighteen to forty-five wore their country’s uniform. In addition, one million Canadians worked in essential war industries while two million were engaged in “essential civilian employment,” which included agriculture, communications, and food processing. At the time, Canada’s population was just over eleven million. This meant that — once you separated out the very young and very old — more than half of all Canadians participated directly in the war effort.

And even if you didn’t participate “directly,” your life would have been affected. Commencing in 1942, basics like meat, sugar, and gasoline were rationed. Everyone was called upon to sacrifice.

However, those sacrifices were trivial compared to the one made by the 45,000 who gave their lives.1 That represented 0.4 percent of the population. The high school I went to had 1,200 students. Simple probability would suggest that at least five young (most likely) men from Etobicoke Collegiate would have lost their lives. My guess is that most Canadians knew at least one person who never came back. It’s a sobering thought. Yet I believe that there were positive consequences. A world view was forged by the fire of war; a common mission unified Canada and laid the foundation for the spectacular success of the 1950s and 1960s.

I try to put myself in the shoes of Mr. Smith and others like him and think what would have driven them when they returned home. I’m guessing it came down to something like this: the Second World War was so horrific that sensible people wanted to do everything in their power to ensure it never happened again. (This desire was made even stronger by the recognition that with the development of nuclear weapons a Third World War might mean the end of civilization as we knew it.) A very clear line could be drawn between the outbreak of the Second World War and the rise of Hitler. An equally clear line could be drawn between the rise of Hitler and Germany’s economic ruin after the First World War. Rational, peace-loving people saw the connection between prosperity and peace, and so (as of 1950) 13.7 million2 Canadians set themselves to building the country.

I wasn’t around at the time. But my gut tells me that a general consensus emerged around the following:

 we can’t afford another world war;

 we only made it through and won because everyone who was able-bodied did his or her fair share and just flat-out sucked it up when the going got tough;

 after all we’ve been through, we deserve to enjoy some of the good things in life — but you’ll only get those if you work for them. Nothing in this world comes delivered on a silver platter; and

 all Canadians are in this together. Bombs don’t differentiate between the rich and the poor.

It was around these principles and the desire for peace and prosperity that the 1950s unfolded.

The desire for peace, the desire not to see another world war led to Canada’s enthusiastic support for the United Nations and peacekeeping missions.

And key to the country’s economic progress was the view that individuals, not the government, were responsible for themselves and their well-being. Government took care of “peace and order.” There was no belief that it was the duty of the government to take care of individuals. That was each person’s responsibility.

However, government did play an important role in economic development. It was called upon to provide essential services; then citizens, acting either as individuals or as part of a group — whatever they preferred — would take care of producing the goods and services that made life worth living.

One of the things that government provided was infrastructure. Two important initiatives from that era were the Trans-Canada Highway Act of 1949, which saw the construction of the Trans-Canada Highway begin in 1950, and the building of the Yonge subway line in Toronto. (A quick aside. I’ve lived in Toronto all my life and it is the biggest city in Canada. I’m using the Yonge line as representative of the kind of projects that were happening all across Canada and, indeed, North America.)

Work on the subway began in September 1949. A technique called “cut and cover” was employed. A large trench was dug into Yonge Street and steel beams were then laid across the trench and covered with dirt and asphalt, which allowed cars and pedestrians to keep using Toronto’s main thoroughfare while work proceeded under tires and feet. Fourteen thousand tons of steel, 1.4 million bags of cement, and five years later, there was a line that ran from Eglinton Station to Union Station, allowing more people to get to where they had to go more quickly and efficiently.3

The building of the highway system did essentially the same thing: it facilitated activity that produced goods and services of real value.

There is a great deal of confusion about how infrastructure spending creates wealth. Most people — mistakenly — believe that the value is in the work itself. Nothing could be further from the truth. The value of infrastructure spending is that it creates efficiencies that otherwise wouldn’t exist.

Imagine that there are three towns of equal size, located several hundred miles apart. Right now, it’s physically impossible to get from any of the three towns to any of the others. This means that each must be self-sufficient in producing what it needs. For example, Town One would have a small factory that makes furniture, a small factory that makes shoes, and a small factory that makes clothing. Let’s say that each factory employs twenty people. The same situation is true for Towns Two and Three. They have similar factories of similar size, and altogether 180 people work to make the necessary furniture, shoes, and clothing for the people of the three towns.

Then, a highway is built that joins them. You can now quickly get from Town One to Town Two, Town One to Town Three, and Town Two to Town Three.

Economies of scale are critically important in manufacturing — the opposite of diminishing returns. If it takes twenty people to produce one hundred pairs of shoes a week, it won’t take forty to produce two hundred — it might only take thirty. Instead of needing sixty people to produce the necessary shoes for all three towns, thirty-five might be enough.

Look what just happened. The same output is accomplished with thirty-five people, meaning that twenty-five can turn their energies to something else. This is the kind of efficiency that is fostered by the right kind of infrastructure spending.

Note — and this is important: It wasn’t the building of the highways that made Canada wealthier.

Again, a simple model helps make the point.

Let’s imagine that instead of building a highway that linked Towns One, Two, and Three, the same resources were spent on roads that went nowhere, that were never used by a single person. How can that possibly be understood as adding value? There would have been negative value, because the time and energy wasted could have been used for productive activity — that is, making more furniture, shoes, and clothing!

The subway system or any good public transit system impacts the real economy in a slightly different way. It makes it possible for the human capital of a municipality to be used in the most effective way possible.

Another example: I am a highly skilled carpenter who lives in the west end of a city. But all the factories that need my services are in the east end and I have no way to get there. Meanwhile, there is a highly skilled welder who lives in the east end of that city. But all the factories that need his services are in the west end and he has no way to get there. It might be that I’m okay at welding and the welder is okay at carpentry, so we are able to get jobs close to where we live. However, in this case, human capital is not being maximized.

Public transit systems that get people quickly to and from where they can add the most value are clearly accretive to growth. It’s not the spending on infrastructure, per se … it’s what the infrastructure facilitates that drives economic progress.

Infrastructure spending was key in propelling the Canadian economy forward in the 1950s. In addition, there was a great deal of attention paid to education, which improved the country’s human capital.

My mother graduated with a commercial certificate from an inner-city public high school, the equivalent of a Grade 10 education. She came from a family where neither of her parents were formally educated, and English was not spoken at home. By her own admission, she was an average student. From what I remember about my mother’s basic skills in the three Rs, her grammar and spelling were far better than mine … even with Microsoft’s assistance (if you doubt me on this one, please get in touch with my editor), and this after four years of university and a master’s degree in business administration.

But as excellent as my mother’s communication skills were, they paled compared to her math. I grew up in an era when Canada used the imperial system of measurement. Everything was in ounces, pints, and quarts. My mother grew up in a household where every penny mattered, and this was never lost on her. While she and my father worked as a team to provide wonderfully for me and my sister, my mother was acutely budget-conscious. I have distinct memories of grocery shopping at the local Loblaws, and as we walked the aisles, she would work out to a decimal place — in her head — where the best value would be found, comparing one brand’s thirty-two-ounce size with another’s forty-eight. If that doesn’t speak to the quality of public education at the time, I don’t know what does.

In 1955, there were 74,000 Canadians enrolled full-time in post-secondary institutions,4 which represented a very small fraction of the population. The vast majority of young Canadians (and this included my mother) joined the workforce after graduating from high school, equipped with the basic skills to add value immediately.

This was a good thing. Some more simple arithmetic: If you were born in 1930, life expectancy was sixty-one. If you started working straight out of high school at the age of eighteen, 70 percent of the years you had on this planet were spent in productive activity. If you started working after four years of university at the age of twenty-two, that dropped to 64 percent. Aggregate that across a population that numbered into the millions, and it adds up.

Remember Cobb-Douglas: Everything else being equal, more hours worked means higher economic growth.

Something else was going on during that decade. Even while government was ploughing huge amounts of money into infrastructure, the ratio of government debt to gross domestic product was shrinking spectacularly. In 1945, the last year of the Second World War, debt as a percentage of GDP stood at 160 percent. By the beginning of the 1950s, it had come down to a manageable 90 percent; then, ten years later, it was only 40 percent.5

How was that possible?

It’s easily explained. A growing economy meant that tax revenues were increasing, and given that government limited its role, things took care of themselves.

It’s almost impossible to overstate how important it is to minimize debt, whether it be for a household or nation. If you look at the budgets of most governments today, one of the biggest single line items is that for public debt charges. This year in Canada — at the federal level alone — interest payments will cost each Canadian close to $1,000.6 It was a different story in the 1950s. Even as government revenue was exceeding expenditures and debt was being reduced, even while the standard of living and quality of life of Canadians were improving, the personal savings rate was increasing. It ranged between 6 percent and 10 percent throughout the decade,7 and if there is one thing that history tells us — if we’re not blind to the obvious — it’s that there’s a positive correlation between savings and economic growth. In fact, higher savings rates drive higher growth.

Time for the next question … and this one is a lob ball.

QUESTION 14

Which economy experienced the higher rate of economic growth from 2000 to 2010?

☐ The United States of America.

☐ The People’s Republic of China.

According to the World Bank, the American economy grew by approximately 2 percent per year while China’s clipped along at 10 percent.8

QUESTION 15

Which country had the higher savings rate from 2000 to 2010?

☐ The United States of America.

☐ The People’s Republic of China.

Question 15 might have been even easier than 14. China’s gross savings rate for the decade exceeded 50 percent while America’s was in the teens.9 It is unanimously agreed that China’s savings rate is the highest in the world.

Wait a second. Isn’t it a mantra of conventional economic thinking that spending is “good” and saving is “bad”? When you spend money, aren’t you’re moving things around and making things happen? Don’t you hear this all the time? Aren’t we continually told that we’ll solve the country’s economic ills by getting more money into the hands of consumers?

There’s only one problem with this argument — it’s simplistic nonsense. Because it confuses the wealth-creation process (working and making goods and services of real value) with the consumption function (using things that have already been made). It puts the consumption cart before the production horse.

There are two logical reasons why higher savings rates contribute to higher economic growth. The first is grounded in the Cobb-Douglas framework. When someone makes money, there are only two things she can do with it: spend it today or save it now to eventually spend down the road. One way or the other, the money will be spent. But a benefit of saving is that it allows pools of capital to accumulate, which facilitates investment and the creation of that much more wealth in the future.

A characteristic of the poorest countries in the world is that their savings rates are very low. This makes sense. If you’re living in abject poverty, it takes every single peso or pula to make it through the day. You can’t afford the luxury of putting money aside. But what that means, unfortunately, is that tomorrow will be just as bleak as today.

There’s another reason why a high savings rate leads directly to higher growth and it’s firmly grounded in behavioural economics. Say I currently make $50,000 a year. If I would like to enjoy the lifestyle of someone who makes that much, I will have to spend every cent. At the same time, it’s a priority of mine to save 10 percent of my income. I understand that this is what I need to ensure a dignified and comfortable retirement. Seems that I’m stuck between a rock and a hard place. If I save that 10 percent, then I’ve got only $45,000 to live on.

Except, I’ve got other options. I can increase my income. I can work harder and longer at my current occupation, putting in overtime. I can get a part-time job. Or I can upgrade my skills, increase my value as a marketable employee, and make that extra $5,555 annually.

Then I can enjoy a $50,000 standard of living and accomplish my savings goals.

And drive real economic growth.

Let’s get back to the 1950s. One of the most significant events in that decade was the large increase in the number of immigrants that Canada accepted. Of course, Canada is a nation of immigrants, and immigration has always been critical to this country’s development. In 1947, Prime Minister Mackenzie King enunciated the principles that guided policy for at least the following decade:

The policy of the government is to foster the growth of the population of Canada by the encouragement of immigration. The government will seek by legislation, regulation, and vigorous administration, to ensure the careful selection and permanent settlement of such numbers of immigrants as can be advantageously absorbed in our national economy.

It’s hard to argue with any of that. A “careful selection” of immigrants and efforts to ensure that immigrants would be quickly integrated into the fabric of Canada would be a win-win situation for both Canadian-born citizens and immigrants.

However, Mackenzie King wasn’t finished. He continued, “The people of Canada do not wish as a result of mass immigration to make a fundamental alteration in the character of our population. Large-scale immigration from the Orient would change the fundamental composition of the Canadian population.”10

This is much easier to argue with, particularly given present sensibilities. But it did reveal something important about the thinking of the day. And that was that most Canadians were more “comfortable” with immigration from Europe than from other continents.

This is something that Canada has struggled with and continues to struggle with — and it speaks directly to one of the questions posed earlier: Should this country be understood as a collection of individuals or groups? Mackenzie King saw it in terms of the latter.

However, one of the positive and unintended consequences of this world view was the policy of allowing many “displaced persons” to enter the country from Europe. With so much of that continent in ruins, many people didn’t have a home to go back to. Between 1947 and 1962, 250,000 displaced persons were admitted into Canada, which was more than the rest of the overseas countries (United States, Australia, and New Zealand) combined.11 This was a case where this country did the right thing and benefitted immensely.

Many of those folks are still alive today, and if you’re reading Stalled I have one thing to say: “THANK YOU!” Because you helped build what I’ve enjoyed all my life.

Think about the self-selection process that made someone leave the Ukraine or Germany or Poland and roll the dice in a strange land. It’s not right to stereotype, I know, but I’m going to anyway: If there were one single characteristic that bound them all — men and women — it was that they had cojones the size of bowling balls. In most cases, these brave people came to Canada with the shirts on their backs and nothing else. The cultural barriers were huge; the social safety net non-existent. All they had were all the disadvantages anyone needs if they want to truly succeed, and succeed they did, making both their lives and those of future generations that much richer because of their hard work and sacrifice.

Before we leave the 1950s, a few anecdotes that tell us so much about the zeitgeist of the age.

The 1950s was the Golden Age of television. Shows like Gunsmoke and Have Gun —Will Travel were especially popular, and hearkened to a past where individual, strong men did the right thing and ensured that justice was done.12 Those stories inspired future generations, but none more than the series Perry Mason.

It was America’s longest running and most successful show about lawyers. Canadian-born Raymond Burr, starring as Perry Mason, week after week took the side of an innocent person accused of murder, and by the end of the hour, not only had he exonerated the innocent, he’d broken down the guilty party and elicited a confession!

Who wouldn’t want to be a lawyer? It seemed the noblest profession known to mankind.

Of course, Perry Mason was a fictional character, but there were men doing great things in real life. In his book The Right Stuff, Tom Wolfe writes about a group of combat aviators who later became test pilots and ultimately the first American astronauts. A story from the book tells of a dogfight during the Korean War. I’ll let Wolfe take it from here:

Combat had its own infinite series of tests, and one of the greatest sins was “chattering” or “jabbering” on the radio. The combat frequency was to be kept clear of all but strategically essential messages, and all unenlightening comments were regarded as evidence of funk, of the wrong stuff.

A Navy pilot (in legend, at any rate) began shouting, “I’ve got a MIG at zero! A MIG at zero!” — meaning that it had maneuvered in behind him and was locked in on his tail.

An irritated voice cut in and said, “Shut up and die like an aviator.”13

“Shut up and die like an aviator.”

This era unapologetically saw courage as a virtue and, to some degree, demanded and expected it. It wasn’t about being touchy-feely and feeling sorry for yourself; it was about getting it done and showing grace under pressure.

In 1953, Charles Wilson was CEO of General Motors when then-President Dwight David Eisenhower tapped him for Secretary of Defense. In hearings before Congress (there were concerns about his holdings of GM stock and whether he could be objective), he made the following statement: “For years, I have thought that what was good for our country was good for General Motors, and vice versa.”14

This quote may surprise many of you. There’s a widespread misconception that he said “What’s good for General Motors is good for the United States, and vice versa.” I’ve heard several people use that statement as an indictment of the 1950s, that is, business came first at the expense of the general good.

Let’s revisit Wilson’s actual words. He was implying that steady, non-inflationary growth, a rising tide that lifted all economic boats, along with peace and prosperity — the phenomenon that people organize into political units to help achieve — would by definition benefit General Motors, which happened to be the biggest consumer discretionary company in North America at that time.

The 1950s taught us that sound public policy dovetails with strong economic growth.

One of GM’s rivals was AMC, the American Motor Company. Its CEO from 1954 to 1962 was George Romney. When he took the helm, AMC was floundering and there’s a compelling argument that he saved it from bankruptcy, before making it extremely profitable.

The company’s board of directors believed that he should be rewarded. Romney was making a salary of $225,000 (this was at a time when the median family income was $5,600) and they thought he deserved $100,000 on top of that (equivalent to $1.5 million in today’s dollars) — Romney refused.15 His argument was that no one needed any more money than he was already getting.

What do you think that did for morale at AMC? I’m sure there were some workers who thought, Look, the guy is already making so much money that he can’t know what to do with it! But I’m equally certain that there were more than a few who argued: “He didn’t have to turn it down. Pretty righteous thing to do, if you ask me.”

Romney was making about forty times the median family income. According to the Canadian Centre for Policy Alternatives, Canada’s one hundred top-paid CEOs make 171 times more than the average Canadian worker. By 1:11 p.m. on January 2 — the first working day of the year — members of this select group have earned more than the typical working stiff makes in twelve months.16

There has always been income disparity in North America. It is likely that there always will be. But a symbolic gesture like the one Romney made matters and was a sign of the times.

The 1950s in fifty words: Immigrants join the native-born in building the country. Massive wealth-generating infrastructure projects are initiated, even while government reduces debt. Individuals take responsibility for their own futures, saving mightily. And while Canada’s population went up by 30 percent, real GDP per capita increased at an annual rate of 2.5 percent for each year.17

And the next ten years would be even better.