THE CANADIAN NORTHERN
The Opportunity--The Canadian Northern
The first quarter-century of Confederation failed to redeem the glowing
promises and high hopes of the founders of the new nation. Much had
been done: the half-continent from ocean to ocean had been brought into
the fold of one union; national consciousness was slowly growing; great
efforts had been spent in linking the scattered parts by railways and
waterways. But still political unity and economic prosperity both
lagged. The country was torn by racial and religious bickerings. In
the East, the exodus to the United States bled the country white; in
the West, drought, frost, and the low prices of grain kept settlers
away. Canadian Pacific stock, selling in the middle nineties at 35,
registered the market's estimate of the future of the Canadian West.
Then, slowly at first, and soon with cumulative momentum, came a
transformation. {182} World-wide causes worked with local factors to
change the whole face of affairs. New discoveries of gold and rising
prices gave everywhere a fillip to trade. In the United States the
disappearance of free land set its farmers looking elsewhere. In
Canada change of methods, or the favourable turn of a climatic cycle,
enabled the lands of the North-West to prove their abounding fertility.
The discovery of gold in the Klondike afforded good advertising for
Canada if little more of permanence. In the government and in the
financial, the railway and the industrial worlds there were men who
rose to the opportunity: no longer was Canada's light hid under a
bushel. The most was made of the alluring gifts she had to offer to
men the world over who strove to better themselves, and the flood of
immigration began.
The first result of the swarming of thousands to the West was a demand
for new railways, to open up plain and prairie and mineral range, and
to make connection with East and West. The building of the railways in
its turn gave a stimulus to every industry. As in the early fifties
and early eighties, this period of rapid railway expansion--much
longer, however, than previous periods--was {183} an era of optimistic
planning and feverish speculation.
First to seize the golden opportunities were the group of men who built
the Canadian Northern. Railway history offers no more remarkable
record than the achievement of these few men, who, beginning in 1895
with a charter for a railway one hundred miles long in Manitoba,
leading nowhere in particular, succeeded in building in twenty years a
road from ocean to ocean, and in keeping it in their own hands through
all difficulties and vicissitudes.
Yet it is not exactly correct to say that they began in 1895. A long
apprenticeship had been served before that time. William Mackenzie and
Donald Mann, the leaders in this group, had both been trained in
railway construction. Both were Canadian-born; and had fared forth as
youths to make their way in the world. William Mackenzie, born at
Kirkfield, Ontario, in 1849, had been in turn school-teacher,
country-store keeper, and lumberman before a contract on the Victoria
Railway--part of the Midland--revealed his destiny. Donald Mann, born
four years later at Acton, Ontario, near James J. Hill's old home, had
been brought up for the Christian ministry, but by {184} twenty-one he
was foreman in a lumber camp. At twenty-five he joined in the first
rush to Winnipeg, and next year he undertook the first of many
contracts on the Canadian Pacific. William Mackenzie had also carried
through much work for this company. In 1886 the notable partnership of
Mackenzie and Mann was formed. The firm built the Calgary and
Edmonton, the Qu'Appelle, Long Lake and Saskatchewan, the Canadian
Pacific short line through Maine, and many minor railways. They
developed capacities which made each the complement of the
other--Mackenzie a master of finance, and Mann as successful in
extracting a subsidy from a politician as in driving ahead the work of
construction. Later Z. A. Lash, a shrewd and experienced corporation
lawyer, joined them, and the three, with able lieutenants, carried
through their ambitious plans without more than momentary pause, until
within sight of the goal.
It was in 1895 that William Mackenzie and Donald Mann, along with two
fellow-contractors, James Ross and H. S. Holt--it is noteworthy how
many Canadians eminent in finance and industry found their start in the
building of the Canadian Pacific--decided to buy some of the charters
of projected western {185} roads then going a-begging, and to build on
their own account. They secured the charter of the Lake Manitoba
Railroad and Canal Company, carrying a Dominion subsidy of 6000 acres a
mile for a line from Portage la Prairie to Lake Manitoba and Lake
Winnipegosis, and induced the Manitoba government to add a valuable
guarantee of bonds and exemption from taxes. In 1896 running rights
were secured over the track of the Manitoba and Northwestern from
Portage to Gladstone, and construction was pushed a hundred miles
northwest from Gladstone to Dauphin. Next year Lake Winnipegosis was
reached. Then the partners looked eastward. The coming need of the
West was an outlet from Winnipeg to Lake Superior, to supplement the
Canadian Pacific. Accordingly in 1898, under powers given by Dominion,
Ontario, and Minnesota charters, construction was begun both at
Winnipeg and near Port Arthur. Three years later the line was
completed. Meantime the earlier road had branched westerly at Sifton,
and by 1900 had crossed the border into Saskatchewan at Erwood; while
in 1899, in amalgamation with the Winnipeg Great Northern, chartered
and subsidized to Hudson Bay, the name of the {186} combined roads was
changed to the Canadian Northern.
Then came the coup which first made the public and rival railways
realize the ambitious reach of the plans of the new railway. It will
be recalled that when, in 1888, the ban upon competition southward with
the Canadian Pacific had been lifted, the Northern Pacific had entered
Manitoba. It had gradually built up a system of three hundred and
twenty miles, but had not given the competition looked for, dividing
traffic with the Canadian Pacific rather than cutting rates. Now the
parent line was in the receiver's hands, and its straits gave the
Manitoba government its opportunity. It leased for 999 years all the
Manitoba lines of the Northern Pacific, but decided it could not
profitably operate them itself without connection with the lakes. The
only question was whether to re-lease them to the Canadian Pacific or
to the Canadian Northern. After a lively contest the younger road
secured the prize. At a stroke it thus obtained extensive terminals in
Winnipeg, a line south to the American border, branches westward
through fertile territory, and a link which practically closed the gap
between its eastern and its western roads.
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The Canadian Northern had now become the third largest system in the
Dominion, stretching from Lake Superior to Saskatchewan, with nearly
thirteen hundred miles in operation in 1902. The feeders were
extending through the rich farming lands of the West; the line to Port
Arthur supplemented the Canadian Pacific, providing a second spout to
the funnel. But this merely local success did not long content its
promoters. They announced their intention to build from sea to sea.
Transcontinental railways were then much in the air: the Grand Trunk,
the Trans-Canada, the Great Northern all planned extensive projects.
Reviving prosperity and new-found confidence were making a dollar look
as small to government and public alike as a dime had seemed some years
before. Aid might confidently be looked for--but by which aspirant?
In 1902 and 1903 a junction of forces between the Grand Trunk and the
Canadian Northern was proposed, and would have had much in its favour.
The negotiators could not come to terms, however, and each road
continued on its independent plan. Nothing daunted by the Dominion
government's decision to recognize and aid the Grand Trunk, {188} the
Canadian Northern turned to a policy of piecemeal construction, seeking
aid from the provinces as well as from the Dominion.
Making hay while the subsidy sun shone and the prosperity of the
Laurier regime was at its height, the Canadian Northern pressed forward
extensions, flung out branches, filled in gaps on every side. The main
line was pushed westward to Edmonton in 1905. Branch lines were thrown
out freely in all the prairie provinces. In Ontario the gap north of
Lake Superior was bridged by a line from Port Arthur to Sudbury, not
completed until 1914. Toronto and Ottawa were linked with the western
lines, and several feeders were acquired which gave connection with
Kingston and Brockville. In Quebec the Great Northern, running from
Hawkesbury on the Ottawa to Quebec City, was absorbed in 1902, and the
Quebec and Lake St John five years later. By building a tunnel three
miles long under Mount Royal, an entrance was secured into the heart of
Montreal. Nova Scotia did its part by lending money to another
Mackenzie and Mann enterprise, the Halifax and South-western. The
Inverness Railway in Cape Breton and the Nova Scotia Central with minor
lines were built or acquired, giving the {189} Canadian Northern first
place in mileage in the province.
The most difficult task still remained--building a third railway
through the mountains to the Pacific. Surveys for a road from
Yellowhead Pass to Vancouver by Sandford Fleming's old route were begun
in 1908. By the aid of lavish guarantees and subsidies this last link
in the transcontinental system was pushed to completion in 1915.
The financial and political aspects of this great enterprise were as
striking as was the construction. Governments have many a time given
lavish aid, promoters have often built roads entirely out of the
proceeds of bond issues, financiers have dominated great railway
systems by a majority or controlling interest in the stock. But never
before did a group of men plan to unite, on such a scale, all three
arrangements--to build ten thousand miles of railway without themselves
investing a dollar and still retain control. The men behind the
Canadian Northern not only planned such a project, but carried it
through, displaying in the process, and at every stage of the
undertaking, a mastery of political diplomacy, an untiring persistence,
and great financial resourcefulness. They are, {190} therefore,
entitled to a special place among the world's railway builders.
Their plan was simple in principle, if wondrously complicated in
working out. It was to build the road by government subsidies and the
proceeds of the bonds guaranteed by government, and to control the road
by issuing to themselves, for their services of promotion and
management, practically all the common stock. To carry out this
audacious plan, political influence, public enthusiasm, and the
confidence of outside investors in Canada's future were all required
and were all forthcoming.
Dominion and province vied in aid. This aid took many forms. The
Dominion had abandoned in 1894 its policy of giving land-grants, but
the original companies which combined to form the Canadian Northern had
previously been promised and later received over four million acres: up
to 1914 about eighteen million dollars had been realized from the sale
of parts of this land, and the grants unsold were worth at least ten
millions more. In addition, Ontario gave two million acres and Quebec
one-third as much. Cash subsidies were not wanting. The Liberal
government of Sir Wilfrid Laurier voted something {191} less than two
millions in cash to aid in building the link between Winnipeg and Lake
Superior. It declined to recognize or aid the extension to the Pacific
coast; but in 1912 the Conservative government of Sir Robert Borden
gave over six millions for this work, and in the following year fifteen
millions more for the Ontario and western Alberta sections of the main
line. The provinces were less lavish, Quebec, Ontario, and Manitoba
offering all told six millions.
But it was neither to land-grants nor to cash subsidies that the
Canadian Northern looked for its chief aid, but to government
guarantees. This device, the main form of state aid given in our first
railway era, had long been discredited by the unlucky fate of the Grand
Trunk and the Northern guarantees, and had been sparingly used since.
To the Canadian Northern its revival was chiefly due. It was a
seductive form of aid: provided that the railway thus helped had good
traffic prospects, the government stood little chance of loss and the
railway greatly gained by the certainty of the sale of its bonds and
the higher price secured. But, like other forms of the extension of
public credit, such as the issue of paper money, state guarantees are
{192} difficult to keep within bounds, and compel ever-fresh extensions
to save the old liability. So Dominion and province alike found. From
1903 to 1911, under Sir Wilfrid Laurier, the Dominion guaranteed bonds
of the Canadian Northern system to the extent of fifty-six millions;
from 1912 to 1914, under Sir Robert Borden, it endorsed the Canadian
Northern's notes for forty-nine millions more. Nor were the provinces
behindhand. Mainly in the seven years from 1908, the five westernmost
provinces pledged their credit on behalf of the same system to the
astounding amount of over one hundred and thirty millions, British
Columbia leading; Nova Scotia made a loan of another five millions.
Thus endorsed, usually as to both principal and interest, the bonds of
the Canadian Northern were floated with little difficulty, so long as
money was to be had at all by any seeker.
In the meantime, while the road was being built by state gifts and
bondholders' lendings, the great bulk of the stock of the parent road
and of the chief subsidiaries was conveyed to Messrs Mackenzie and Mann
for their services in promoting and managing the system. This method
of financing had its dangers. It meant that there was no large
commitment {193} of shareholders' capital, to secure support in
difficulty and compel responsibility in management. It meant that the
control of the vast enterprise was in the hands of a few men, unchecked
by public inquiry or the criticism of independent
shareholders--whatever that might be worth. It meant that with all the
cash capital taking the form of bonds, any failure to make ends meet,
any lengthened depression, would bring risk of the mortgage-holders'
foreclosure and receivership--not merely the shareholders' waiting for
a turn of the tide--except in so far as the burden could be shifted to
the governments that had endorsed the notes.
In the early years, thanks to general prosperity and to the strategic
location and careful management of the system, ends always met, and a
little over, and funds were always forthcoming for fresh expansion.
But early in 1914 a crisis arrived in the company's affairs. The
mountain section particularly, what with the higher cost of labour and
the unexpected engineering difficulties, was calling for tens of
millions more; the stringency in the world's money markets, following
the Balkan Wars, made investors chary of even gilt-edged offerings.
There were many {194} millions of subsidies and guarantees still to
come from the state, but they would come only as the road was
completed, and meantime construction had to be financed. The
partner-owners could not provide the ready cash needed for completing
the gigantic task. The bondholders had no inducement to do so unless
further guaranteed by the state. The western provinces were at last
becoming frightened of the load they had already assumed. There was
only one resource, the Dominion government. True, it had only in 1913
made a gift of $15,000,000 on solemn assurances that not a cent more
would be needed. But, it was urged, the emergency was real. The road
could not be left hanging half finished, after all the millions already
spent. Canada's credit must be protected, and so the government, after
a lively struggle, put through a positively last guarantee of
forty-five millions. In return it was given forty out of the hundred
millions stock to which the capital was reduced, and took the right to
appoint one government director. Whether this step meant that the
government was now going to share the control and the profits of the
company, or whether it meant that it was henceforth to be saddled with
the {195} responsibility for any deficits, was a point much in dispute.
Later, the outbreak of war in Europe delayed, but did not altogether
halt, the floating of the loan and the completion of the remaining
links.
Meanwhile, the many subsidiary enterprises, which the example of the
Canadian Pacific has caused us to think appropriate to the
transcontinental railway, had been undertaken by its youngest rival.
Fast steamers between Montreal and Bristol, grain elevators, hotels,
express and telegraph companies, all brought grist to the mill. Hardly
to be distinguished were the allied interests of the
partner-owners--iron-mines in the Lake Superior district, coal-mines in
Alberta and Vancouver Island, whaling and halibut fisheries on the
Pacific, and lumber-mills on the British Columbia coast--all bearing
some relation to the development of the railway system.
[Illustration: Canadian Northern Railway, 1914]
In 1896, a railway a hundred miles long, beginning and ending nowhere,
operated by thirteen men and a boy! In 1914, a great transcontinental
system practically completed, over ten thousand miles in length, and
covering seven of Canada's nine provinces! The impossible had been
achieved.
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