Great Moments in Industrial Policy

Newfoundland version

Before finding that financial wizard, [Joey] small wood [first premier of Newfoundland, which became a Canadian province in 1949] Alone made his first investiture on Christmas Eve 1949 when four “wise men” appeared from the East (or so they appeared to the Prime Minister). They were actually Icelandic herring fishermen who promised to take their boats to Newfoundland and establish a large herring fishery and processing industry. Ancient Oriental travelers with their gifts of gold, frankincense, and myrrh could not have been more welcome than these modern-day entrepreneurs. Smallwood gladly offered them a contract to establish their prized herring fishery, some cash and equipment to get their boats out of the hawk, and seed capital for a processing plant.

The following spring, they returned with four herring boats, which experienced Newfoundland fishermen deemed ready for the scrap heap. The Icelanders spent nine months searching for the elusive fish in their dilapidated craft, but after catching only nine barrels of herring and spending $412,000 in government money, they gave up and went home. The provincial government spent three years trying to sell their abandoned boats. When a buyer was finally found the government had to loan him the $55,000 purchase price. So ended Smallwood’s first attempt at developing a new industry.

This is from Brian Slamming, “The Mad Mad Schemes of Joey Smallwood.” next citySpring 1999.

I sat in my cottage and saw the newspaper. Smallwood’s article is long, detailed, persuasive and frustrating. I grew up in Canada remembering his name as the Premier of Canada’s 10th province. People often made fun of him, but I didn’t know how corrupt and hellish he was. Of course, it’s easier to do this with other people’s money.

The above quote is not the worst example of his industrial policy planning. As with all industrial policies, the incentives are all wrong: public officials are not paid for bad decisions and rewarded for good ones. Whether it’s done by numerous people like Smallwood [his innumeracy comes out in another part of the article] Or done by relative sophisticates like Transportation Secretary Pete Buttigieg, industrial policy ends in disaster.

Another example that is stunning but believable:

Smallwood hoped the massive machine factory outside St. John’s would become the crown jewel of his industrialization. In a parliamentary statement, he claimed that the plant would need 58,000 blueprints of the machinery it would manufacture. Flour mills, crushing machinery, oil drilling machinery – if you name it, the new mill will manufacture it. Initially the plant would train and employ 500 people, but Smallwood promised to grow to 3,000 and then 5,000 workers; Its 1952 salary would be $2 million. “It looks likely to become Newfoundland’s largest single employer of labour, apart from fisheries,” he told House. Like the tannery, the province built the plant away from the main railway line and failed to follow through with a link. In 1958, six years after the grand announcement, the St. John’s Evening Telegram reported: “For these six years the five million dollar ‘machinery plant’ has sat on the banks of Octagon Pond, but never a machine has been produced.”

Unfortunately, I cannot find the publication on line: it has gone out of business. But I found this article McLean’s Magazine from 1956 that covers some of the same territory.

Here is David R. Contains entries on industrial policy in Henderson, ed. Concise Encyclopedia of Economics.

The photo above is of Joey Smallwood.

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