by Greg Malone
The Terms of Union as presented to Governor Macdonald and the National Convention in December 1947 envisaged: “the payment to Newfoundland of a Transitional Grant of $3,500,000 annually for the first three years of union, thereafter the amount to diminish annually to $350,000.”8 These grants would be woefully inadequate to cope with an estimated annual deficit of between $5 and $10 million. The problem with all the financial figures in the proposed Terms of Union, apart from the Canadian underestimates of revenues collected, was that they were based on Smallwood’s overly optimistic hypothetical budget from the summer of 1947.
By the time the delegation arrived in Ottawa, the members had been forced to one conclusion:
Secret.… It is apparent that there will be a wide gap between prospective revenue and expenditure, having regard to the amount reasonably required to maintain Provincial public services even at their present level, which is far below that of other Provinces.
It will not be possible for the Province to bridge this gap either by increasing its revenue from Provincial services or by reducing the present level of public services.
The existence of this gap presents a problem which is more than a financial one. It is one the solution of which is a prerequisite to workable union. It should therefore be placed in the forefront of the discussions.9
When the Second Delegation to Ottawa arrived in early October 1948, it was received with all the pomp and ceremony of the first delegation. The Canadian negotiating team again consisted of the prime minister, his top ministers from the various government departments, their deputies and aides, along with a raft of bureaucrats from the departments of External Affairs, Finance, and Reconstruction and Supply. The government of Canada was justifiably pleased and proud of the splendid array of officials and experts it had assembled to determine the Terms of Union for Newfoundland.
Sitting opposite this powerful and experienced group at the table were the seven delegates from Newfoundland, chosen by the governor, and their four recently engaged advisers. The lopsided situation of 1947 was reproduced in 1948: “The Canadian team included such stubborn negotiators as the axe-faced economist Mitchell Sharp and the formidable C.D. Howe, whose specialty was driving hard bargains with American multinational corporations in the course of transferring large blocks of the Canadian economy to their management. Such men were unlikely to be generous.”10
In his memo of October 29 to the deputy minister of finance, Mitchell Sharp, the director of the Economic Policy Division, confirmed that “the figures submitted by the Newfoundland delegation indicate an annual deficit in the area of $10 millions … it would be perfectly reasonable … if Newfoundland had to draw on her surplus to meet capital expenditures but the surplus would soon be exhausted if it had also to be used to meet a deficit on current account of the magnitude indicated by the Newfoundland estimates.” Nevertheless, Sharp concluded: “At this stage I would not say that it would be desirable to offer to increase the scale of transitional grants.”11 And so a stalemate developed: the Canadians refused to consider any changes to the terms of 1947, while the Newfoundlanders insisted that there must be some improvement in the financial package. For weeks the two sides faced each other, but even with the dream delegation from the governor, they remained at an impasse that lasted through October and into November.
Ten months earlier, on December 22, 1947, Ray Atherton at the American Embassy in Ottawa had sent this secret dispatch to the secretary of state in Washington:
Subject: Recent Drilling Results on the Labrador Iron Ore Deposits by Hollinger Mining Interests
I have the honor to refer to the Embassy’s report No. 424 dated December 22, 1947 on: The outlook of the Labrador Iron Deposits, and to present additional information revealed in the strictest confidence by Mr. Jules R. Timmins, President, the Labrador Mining and Exploration Company Limited of Montreal, and by Dr. J.A. Retty, chief geologist of this company and the outstanding authority on the ferrous deposits in Labrador and New Quebec where he has been working since 1936.
… Dr Retty substantiated his conclusions that the 1947 drilling results on the Hollinger concessions have been remarkably successful and the iron ore revealed by churn and diamond drilling was “marvellous.” The total tonnage of hematite iron ore now proven on the concession of both the Labrador Mining and Exploration Company and the Hollinger North Shore Exploration Company (the latter in Quebec province) could not be divulged but presumably well exceeded 200,000,000 tons of iron ore. John Knox, General Manager of the same company feels that 600,000,000 tons have now been indicated. The target of 300,000,000 tons considered requisite to the final decision of the construction of the 360 mile railway from Seven Islands and the beginning of production is now expected to become proven at the end of next year’s drilling program. This reserve would ensure production of 10,000,000 tons annually for 30 years and must be substantial to warrant the initial expenditures.
… Mr. Timmins stated the information given the Embassy’s emissary to Montreal had only been divulged to Mr. C.D. Howe, Reconstruction Minister, Mr. Hugh Keenleyside, Deputy Mines Minister, and the directors of the company. Some figures will be released to the shareholders and the public after a meeting next March, but full revelation of the extent of the favorable results might affect the Newfoundland constitutional referendum next year and arouse stock market speculations.”12
This mineral abundance was everything the Canadians had hoped for. Among other things, it was a large enough deposit to trigger the construction of the St. Lawrence Seaway to open up the Canadian heartland. Howe was naturally impressed and careful to keep the valuable information from the Newfoundland delegation, though the good news was not entirely unexpected. In December 1946 the Mackenzie King Record had noted: “St. Laurent was quite strong about bringing the Island in, believing that if we secure Labrador as part of the Dominion territory in connection with terms, Canada might come into possession of valuable mineral deposits.”13
The Canadians, like the Americans and the Newfoundlanders, suspected there were rich deposits, but the report confirming the “marvellous” size of the expected motherlode had a motivating effect on Howe. Thereafter, bringing the “liability” and “financial burden” of Newfoundland into Confederation became his number 1 priority. One week after Sharp’s memo to Finance at the end of October 1948, he asked MacKay what it would take to “carry union through successfully.” MacKay replied:
Personal and Secret.… I think these boil down to making provision for Newfoundland’s financial gap. That is, this the only issue on which a breakdown of negotiations really threatens, and on which the Newfoundland delegation would be justified in refusing to proceed.
[He advised that:]
As between an increase of some $3½ million to $7 million, and an increase of from $3½ to $5 million, I would strongly recommend the increase to $7 million.
1. It is justified by the facts of the situation and desirable to speed up the necessary improvement in Newfoundland public service standards.
2. A substantial increase in the proposed subsidy will make it easier to develop an effective provincial tax system—which is the long-run solution.
3. Satisfactory settlement of the financial gap problem (and I think this would be taken as a satisfactory settlement) would make it possible to clear up practically all the other outstanding issues at the departmental official level and put an end to these interminable time-consuming conferences.14
The conferences were “interminable” because the Canadians refused to move on the Terms of Union from 1947. In their eyes the Newfoundland people had accepted the terms offered by Mackenzie King when a majority of 52 percent voted in the referendum to join Canada. The Newfoundland delegates were in an impossible position. As journalist Don Jamieson, later to be a federal Cabinet minister, put it: “The already demonstrated weakness in the Convention process became all the more apparent in Ottawa. It was a woefully inadequate instrument from which to launch the complex task of trying to
create a new Province.”15
All the delegates knew the financial provisions were totally inadequate. Although conditions on the Island would improve because of increased federal social benefits, the new province would run large annual deficits, and its own services, such as education and health care, would still be substandard. At this point the delegation, even the die-hard Confederates, felt they could not return to Newfoundland without something more to show the people. Backed into a corner and faced with signing the 1947 terms, they declared that they would “sooner go down as an independent country than an impecunious Canadian province.”16 Even the “right sort of people” have their limits.
Alexander Clutterbuck reported that Smallwood and Walsh told him that, unless Canadians were “more responsive and sympathetic … at least three members would refuse to sign the 1947 terms without substantial financial improvement.”17 The three referred to were Crosbie, Winter and Gruchy, but even Walsh and Bradley were resisting. In the end, because its own calculations were obviously wrong and the situation for the province untenable, but finally because the iron-ore deposit in Labrador was “marvellous” and of an excellent grade, Ottawa was obliged to bend its financial provisions. After all, the Canadian government was supposed to be an improvement over English tutelage and much more able than Britain to provide financial stability for Newfoundland. The case then for doing more than the 1947 financial terms was self-evident. But would it be enough?
Jamieson was in Ottawa to report on the negotiations for radio and newspapers back in Newfoundland and also to assist his boss, Ches Crosbie. He described the mood in the capital at the time: “In my interviews with ministers and officials one theme emerged persistently, the need to avoid an expensive settlement. Members of the delegation heard the message constantly from the moment the formal discussions began … there were frequent stand-offs on financial provisions with the Newfoundlanders insisting on more and the Canadians claiming there was nothing to give.… Such horse trading dragged on for weeks. Instead of being completed in a month as originally expected, the negotiations continued without conclusion through October into November.”18
Eventually, on December 11, the Canadian government presented its proposed increases in the financial terms—something Mackenzie King had repeatedly emphasized was impossible. The new terms fell short of MacKay’s recommendations and would still lead the new province into deficit, but more slowly. At this point all the delegates were under tremendous pressure to sign.
Smallwood regarded the new financial provisions as a bare minimum to be adjusted upwards. Crosbie made his projections on the actual figures offered in the new terms and concluded that they would lead the province into financial catastrophe. Smallwood, Bradley and McEvoy could be counted on to sign. Walsh held out until Canada threw in a redrafted Term 29: “the promise of a Royal Commission within eight years of union to ‘review the financial position of Newfoundland and to recommend the form and scale of additional financial assistance, if any, which may be required by the Government of Newfoundland to enable it to continue public services at their prevailing levels without resorting to taxation more burdensome having regard to capacity to pay, than that of the Maritime Provinces.’ ”19
St. Laurent kept insisting the Canadian government would be most sympathetic to Newfoundland when the Royal Commission reviewed Newfoundland’s financial situation later on. He kept reassuring Walsh in particular, who, according to the secretary of the delegation, J.W. Channing, was extremely unhappy with the whole process. “Walsh gave every indication of a man who wanted to go home and wash his hands of the entire affair,” said Channing. “He would sit stone-faced and listen to the presentations by the Canadian ministers and when they had finished he continued to sit there stone-faced. He didn’t react at all, he just sat there, totally shut down. Well, after their presentations these ministers were naturally looking for some reaction from him but there was none. He just sat there unmoved. He made them sweat. They knew he was unhappy. So St. Laurent worked on Walsh continually reassuring him that when the Royal Commission took place Canada would be most sympathetic to Newfoundland. Walsh had gotten an increase from the Canadians but he knew that what was being offered in the end was still not satisfactory.”20 However, as chairman of the delegation and a commissioner of the government, Walsh was hopelessly compromised. He could not allow the negotiations to collapse. He accepted Term 29 and agreed to sign. Gruchy secured the tax concessions he wanted for the Anglo-Newfoundland Development Co., and he too would sign. Crosbie consulted Gordon Winter, who was equally troubled about the shortfall in the financial provisions. But by then Winter felt he had done his best and he had no choice but to sign: that was the task Governor Macdonald had authorized him to do. That left only Crosbie undecided.
Crosbie had contributed significantly to the negotiations, and he genuinely wanted the best deal for Newfoundland. He was a businessman as well as a nationalist, with no ideological antipathy towards Confederation itself if the terms were sound, but he had no faith at all in Term 29. He consulted his large circle of friends and colleagues and finally summoned his financial adviser Phil Lewis to Ottawa to review all the relevant documents. Lewis confirmed Crosbie’s own doubts about the inadequacies of the deal.
On the day before the signing ceremony in Ottawa, Crosbie announced that he could not support the final terms. Smallwood again offered him any position he wanted in the new administration, but Crosbie declined and left town. All the other Newfoundland delegates signed the document, satisfied that a future royal commission would sort out the intractable fiscal situation that Crosbie believed they were creating. Alexander Clutterbuck’s assessment of the final agreement was every bit as enthusiastic as for the old terms:
The Newfoundland Delegation were adamant that they would not agree to financial terms which in their opinion would confront the new province with the prospect of bankruptcy in a few years’ time. Indeed at one stage in the negotiations it looked as if the negotiations might reach a deadlock on the question of finance. The Canadian Government, however, could not afford to let it be said that, when both sides had come so far towards union, they had allowed the negotiations to break down on account of a few million dollars, and in the end they were persuaded to offer an increase in the transitional grant during the first eight years. Under the terms as signed the grant is to be increased to $6½ millions in each of the first three years, tapering to $2¼ millions in the eighth year. The grant for the final four years shows no change from the 1947 offer.…
As part of the general settlement, it was acceptable to all members of the Newfoundland Delegation, except—as it turned out—Mr. Crosbie, who at the twelfth hour refused to sign the Terms on the ground that the financial arrangements were inadequate. Even his refusal it may be said, “It’s an ill wind—” since it has been cynically remarked in Ottawa that, if the entire Delegation had accepted the Terms without any reservation, the existing Provinces would certainly have complained that they were too generous.21
In his formal reply to Governor Macdonald, Crosbie laid out his reasons for not signing:
I would like to state here, that the budgets prepared by these gentlemen are in my opinion bare bone.…
… I must point out also that our surplus account is to be used to cover the deficits … over a period of eight years approximately $30,000,000.00 of our surplus will be used for what I call ordinary expenditure.… But what of the succeeding years? … the province will be left with large deficits in the vicinity of $7,000,000.00 … when the disappearing transitional grants are at their lowest.…
In my opinion it would be unsound to subscribe to any financial scheme, whether private or public, in which deficits must be met out of accumulated surplus, and this is exactly what we are proposing to do, right from the date of union.…
… It is true that a Royal Commission will be appointed to study our financial position in the eighth year, after the bulk of our surplus is spent when we are on the verge of bankruptc
y. There is no assurance given that this report will be fully implemented, and that the province will be put on a sound financial basis.…
… The Canadians themselves realized it was doubtful if the financial aid was sufficient, but in spite of this minute nothing further was done.…
… In view of what I have said I could not possibly sign the terms agreed to by the majority, and only hope that my forecast of the financial position will prove wrong.22
Crosbie’s forecast did not prove wrong, and the financial record of the first eight years of the new province of Newfoundland would play out exactly as the figures had shown they would. Britain’s oldest colony was destined to become Canada’s newest have-not province.
The Canadians and the British were thrilled. They did not care about Crosbie’s refusal to make the decision unanimous. In fact, it looked good for them: it helped them handle the other provinces and prevented any suggestion of a “fix.” Smallwood and the rest of the delegates returned home, where they announced the new final terms and called them “generous.” That day marked the successful completion of the Canadian conspiracy with the British to “bounce” Newfoundland into Confederation while she was in constitutional limbo, with no elected government and no legislature of its own to debate the terms and represent Newfoundland’s real interests.
12
CELEBRATION
Shortly after the vote Judge J.G. Higgins wrote to Sir Alan Herbert: “The story of the manner by which Newfoundland has been railroaded into confederation is a sordid one, a contemptible piece of political chicanery.… If Confederation eventually goes through, there will be a blot on English politics which will never be erased.”1