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. 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 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 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 compliment 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 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. 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 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 to the lakes. The only question was whether to re-lease them to the Canadian Pacific or 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.
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, 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 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 Southwestern. The Inverness Railway in Cape Breton and the Nova Scotia Central with minor lines were built or acquired, giving the 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, 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 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 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 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 millions of subsidies and guarantees still to come from the state, but they would come only as the road was completed, and mean-time 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 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 of the British Columbia coast—all bearings some relation to the development of the railway system.
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.