Industry, in its broadest sense, includes all economic activity, but for convenience commentators divide it into three sectors: primary, secondary and tertiary. Primary manufacturing involves harvesting natural resources; secondary, manufacturing; and tertiary, the service industries. All these elements make up Canada's industrial system, which has become increasingly complex over time. Canada is considered a “developed” country in that it has, as part of its economy, a developed industrial base. (See also Economic History; Regionalism; Regional Economics; Technology.)

Sectors

Primary Manufacturing

The primary sector includes establishments involved in the exploitation and initial processing of natural resources. For example, coal mining includes establishments that break, wash, grade or otherwise prepare coal for use as a fuel. Other examples include mining precious and other metals, oil and gas, and forestry.

Secondary Manufacturing

The secondary, or manufacturing, sector is made up of primary and secondary manufacturing establishments. Primary manufacturing companies process raw materials to produce such supplies as iron and steel, pulp and paper, and petroleum products. Secondary manufacturing establishments are those that produce consumer goods (e.g., clothing) and capital goods (i.e. goods used to make other goods, for example, machinery, equipment, parts).

Tertiary Manufacturing

The tertiary, or service industries, sector includes establishments in both the private and public sectors. These range from food services to laundries to the Bank of Canada. These are establishments that do not harvest or make goods, but provide services to the population (including the sale of commodities and goods to people).

Colonial Period

Industrial development has long been linked to the exploitation of Canada's rich resource endowment, especially since the colonial era began with contact between Aboriginal peoples and Europeans starting in the 1500s. In the earliest years of fish harvesting in the Atlantic region and the fur trade, there was little related industrial development. Emphasis was on commercial activity related to the exportation of resources and trade relations with Aboriginal peoples. As settlement proceeded, domestic industry began to grow in areas that facilitated the exploitation of resources, such as railway equipment, shipbuilding and farm machinery. For example, a small iron foundry was operating near Trois-Rivières, Québec, as early as the 18th century.

As Canada developed as a source of staple goods (that is, natural resources such as fish, furs, forestry and farming) during the French and British colonial regimes, it became part of a “mercantilist system,” providing raw resources to the imperial home countries in exchange for finished goods from those places — first, France, then Britain. This system was seen by some, such as University of Toronto scholar Harold Innis (1894–1952), as creating a dependency on the export of natural resources, leading to relative industrial underdevelopment. This idea is referred to as the “Staples Theory,” an important concept in Canadian political and economic thought.

19th Century: National Policy

In the 19th century, secondary industrial development began in earnest, as the Industrial Revolution swept across Europe and North America. Powered by steam engines, railroad development and early machinery, by 1850 there were paper mills and foundries in both Canada East and Canada West. Steam engines and farming implements were also being produced. By the end of the 19th century, larger scale and more mechanized manufacturing facilities began to appear, mostly in Montréal and Toronto. To further spur industrial development, the National Policy was set in place in the late 1870s and 1880s by the Conservative government of John A. Macdonald.

The policy had three thrusts. First, domestic industrial development was stimulated through the establishment of National Policy tariff barriers in 1879. These tariffs were designed to encourage infant Canadian industries by placing a 35 per cent tariff on products entering the country, thereby making Canadian goods less expensive. Second, immigration was encouraged in order to develop the agricultural potential of the West and to create a large domestic market. Finally, the government worked to complete the Canadian Pacific Railway as rapidly as possible. They wanted to establish a “wheat economy” whereby Western wheat flowed east to foreign export markets, and Eastern-made manufactured goods flowed west to the growing immigrant farming populations. Originally, the National Policy referred to the tariff protection put in place in 1879, but eventually it came to include all three of these components: tariffs, immigration and the railway.

The National Policy, after a long worldwide recession in the 1880s and early 1890s, eventually succeeded. With the settlement of the West, agriculture, mining, lumbering and fishing expanded. The government supported this type of industrial development by encouraging development of appropriate infrastructures (e.g., railways, ships, grain elevators, roads), much of it paid for by the British. The National Policy, and western settlement (and development more generally), paid little heed to the Aboriginal populations of the region, who were dispossessed of their territory and harshly treated; the National Policy also exacerbated regional tensions between the agricultural West and the manufacturing East.

First World War and 1920s Expansion

Manufacturing industries that supported development of Canada's natural resources were centered along the St Lawrence River and the Great Lakes in Québec and Ontario. These developments were accompanied by the emergence of an expanded service sector (e.g., commercial and financial institutions, public administration), particularly as population grew during a great immigration boom between 1896 and 1914, when Canada accepted approximately three million immigrants, mostly from Europe. Canada became a major trading nation, sending raw and semi-processed natural resources to the large metropolitan markets of Europe and the United States. During this period, industrialization increased, and became larger and more mechanized with the embrace of the moving assembly line and larger facilities. Industrial development was given a further boost by the First World War. War materiel poured out of Canadian plants, strengthening manufacturing. The Canadian economy continued its shift from primary extraction and processing — largely based on agriculture — to one based on wage labour in industrial manufacturing. These developments increased urbanization and heightened inequality, reflecting the rise of industrial capitalism. Increased industrialization also meant increased unionization, and conflict between capital and labour, most notably during the 1919 Canada-wide labour revolt (see also Winnipeg General Strike).

This growing strength encouraged the great expansion of the 1920s. By 1929 pulp and paper, Canada’s largest single industry, had captured approximately 64 per cent of world trade. Government continued to encourage the development of infrastructure and undertook large programs, such as mineral exploration and plant-breeding research (e.g., for hardy wheat strains), which directly assisted the private sector in industrial development. (See also Geological Survey of Canada.)

While primary industries dominated the scene, manufacturing in areas such as the automotive industry grew as well, which by the end of the 1920s had become the world’s second largest producer of cars. This great postwar expansion required large-scale capital investment, much of which came from the United States in the form of direct investment in branch plants of US firms, which were therefore able to serve the Canadian market and circumvent tariff walls set up by the National Policy. In fact, US investment rapidly replaced the British investments of the previous century. Canadian proximity to the United States both increased Canadian capacity and productivity, but also increased dependency on American capital and ownership, as well as the American market.

Great Depression and Second World War

This rapid industrial expansion came to a sudden halt with the Great Depression of the 1930s. Between 1929 and 1933, Canada's export income dropped by 67 per cent. Firms closed and unemployment soared. Export-oriented industries (e.g. wheat, fish, lumber, pulp and paper) were most severely affected. Industries such as manufacturing, which had expanded dramatically, principally to serve the Canadian market and were mainly situated in central Canada, also faced a sharp decline, though they were in a much better position to respond to the industrial requirements of the Second World War, which lasted from 1939 to 1945.

The war brought demands for sophisticated products such as aircraft parts, cars and trucks. Shipbuilding, other military equipment and basic commodity and foodstuff production also increased dramatically as Canada expanded its wartime industrial capacity dramatically. Many of these products required new techniques of production, which became integrated into Canada's industrial system. The federal government also established a host of crown corporations (government-owned firms and factories) to produce important or strategic wartime goods, such as synthetic rubber. Uranium mining and nuclear energy (atomic energy) were also important government-facilitated developments during the war. Much of this industry was conducted on a continental basis, as wartime allies Canada and the United States worked together to maximize their economic cooperation for the wartime effort. Canada emerged at the end of the Second World War as a major industrial power.

Postwar Boom

The period between 1945 and the 1970s was marked by Canada’s longest period of sustained economic prosperity, one that was largely driven by increased industrial activity. Increasing population in the 1950s (the “baby boom” and immigration), pent-up consumer demand following more than a decade of depression and war, and pro-growth government policies helped to spur economic and industrial growth.

Extraction of resources boomed as the US economy sought natural resources to feed its massive economy: Canada’s oil and gas industry, largely dominated by US firms, grew dramatically following the oil strike at Leduc, Alberta, in 1947; Canadian pulp and paper fed the giant US publishing and magazine industry; foodstuffs and minerals also fed the American appetite. At the same time, manufacturing industries boomed, including the automotive industry and consumer goods manufacturers creating appliances, personal products and other for an increasingly prosperous Canadian population. The service industry also grew dramatically, as banks expanded lending to provide mortgages for an increasingly suburban population, and malls, fast food outlets and retail stores benefitted from low interest rates and government programs that expanded Canadians’ purchasing power.

Much of this postwar growth was fuelled by American investment, and was built on an American model of consumption. By and large, Canadians embraced this Americanization: Canadians joined US-based unions such as the United Auto Workers; bought American cars; consumed American television; and accepted a suburban lifestyle of work and living that was based on the American Dream. Few Canadians worried about the domination of American firms in most sectors of the Canadian economy, though by the end of the 1960s there was a growing chorus of academic and political voices raised against Americanization.

Industrial Decline

By the end of the 1970s the situation had reached the stage where the federal government felt that it had to establish policies favouring development of Canadian-owned industries. The most striking example was the National Energy Program of 1980, which aimed at increasing Canadian ownership of Canada's petroleum industries to 50 per cent by 1990, up from 28 per cent in 1980.

The federal government also established a mechanism to control foreign direct investment by creating the Foreign Investment Review Agency. This organization was created to evaluate the intentions of foreign investors and to try to extract maximum benefits for Canada. Federal and provincial governments created policies that favoured Canadian industrial development.

Nonetheless, by the 1970s, the Canadian economy faced difficulties brought by worldwide problems that particularly affected North America: a 1973 oil embargo by petroleum exporting countries caused economic disruption and inflation; while deindustrialization in the United States, and to a lesser degree, Canada, hurt the industrial base of each country.

The economic difficulties of the late 1970s and early 1980s caused many to question the prevailing postwar Canadian economic model; instead new voices called for a final end to protectionist policies (many of which had been slowly disappearing since the 1950s), and an embrace of free trade, less regulation and smaller government — so-called neo-liberal policies. For example, the Foreign Investment Review Agency gave way to Investment Canada, an agency dedicated to attracting foreign investment rather than to vetoing it. By the mid-1990s, Canada had enacted the Canada-United States Free Trade Agreement (1989) and the North American Free Trade Agreement (1993). Canada also continued to embrace policies that facilitated further trade and economic globalization.

21st Century

The result of these dramatic changes was a sharp decline in manufacturing in the 2000s, and a return to export-oriented natural resource extraction as the main basis of the Canadian economy. These themes intensified following the Great Recession of 2008, led by a financial crisis in the United States (one which Canada mostly avoided). Nonetheless, after 2008, industrial jobs decreased significantly as manufacturing facilities closed or moved to the southern US or Mexico, particularly in the Ontario-dominated automotive assembly and parts industries. Technology and manufacturing firms such as Nortel and BlackBerry also closed or downsized. The oil and gas industry, which had focused on the development of the Alberta oil sands deposits, especially since the 1990s, faced difficulties as the price of oil declined to unprofitable levels and oil pipelines, such as the Keystone XL, were delayed or rejected.

Despite these difficulties, Canada remains a relatively prosperous and open economy. Notwithstanding the global turndown in commodities, Canada's strength remains primary industries, as secondary manufacturing as a proportion of GDP has shrunk since the 1970s.

Overall, the growth in the service economy has increased significantly, and is the largest segment of economic output. In addition, information technology, financial services, retail and foodservice have all become key aspects of the tertiary industrial sector.