Great Moments in Industrial Policy

Newfoundland Edition

Before he could find that economic wizard, [Joey] Smallwood [first premier of Newfoundland, which became a Canadian province in 1949] made his first investment alone on Christmas Eve 1949 when four “wise men” appeared from the east (or so they appeared to the premier). They were actually Icelandic herring fishermen who promised to move their boats to Newfoundland and establish a giant herring fishery and processing industry. The original eastern travellers with their gifts of gold, frankincense, and myrrh could not have been more welcome than these modern-day entrepreneurs. Smallwood gladly gave them a contract to establish the precious herring fishery, some cash to get their boats out of hock, and seed capital for equipment and a processing plant.

The next spring, they returned with four herring boats, which experienced Newfoundland fishermen deemed ready for the scrap heap. The Icelanders spent nine months in their dilapidated craft searching for the elusive fish, but after catching just 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 it finally found a buyer the government had to lend him the $55,000 purchase price. So ended Smallwood’s first attempt at developing a new industry.

This is from Brian Slemming, “The Mad Mad Schemes of Joey Smallwood,” The Next City, Spring 1999.

I found the magazine sitting around in my cottage. The article on Smallwood is long, detailed, persuasive, and depressing. I grew up in Canada memorizing his name as the premier of Canada’s 10th province. People often made fun of him, but I had no idea how corrupt and harebrained he was. Of course, it’s easy to do that with other people’s money.

The excerpt above is not the worst example of his industrial policy schemes. As with all industrial policy, the incentives are all wrong: government officials don’t pay for bad decisions and don’t get rewarded for good decisions. Whether it’s done by innumerate people like Smallwood [his innumeracy comes out in another part of the article] or done by relative sophisticates like Transportation Secretary Pete Buttegieg, industrial policy ends up in disaster.

One more example that’s stunning but believable:

Smallwood hoped the great machinery plant outside St. John’s would become the diamond in his industrialization crown. In a parliamentary statement, he claimed the plant would need 58,000 blueprints of the machinery it would produce. Flour mills, crushing machinery, oil drilling machinery–if you could name it, the new mill would manufacture it. Initially the plant would train and employ 500 people, but Smallwood promised that the workforce would expand to 3,000and then 5,000; its 1952 payroll would be $2 million. He told the House, “It seems likely to become the largest single labor-giving enterprise in Newfoundland, apart from the fishery.” As with 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: “The five million dollar ‘machinery plant’ has been sitting on the shores of Octagon Pond these six years, but has never turned out a machine.”

Unfortunately, I can’t find the publication on line: it’s long since gone out of business. But I did find this article in Maclean’s magazine from 1956 that covers some of the same territory.

Here’s the entry on Industrial Policy in David R. Henderson, ed., The Concise Encyclopedia of Economics.

The picture above is of Joey Smallwood.