by J. Andre Faust (Nov 19, 2025)
Canada has offered incentives to businesses since the nineteenth century, but the meaning and purpose of those incentives have changed over time. Early support for industry was tied to national development, such as railway construction and western expansion (Norrie, Owram, & Emery, 2008). In the modern era the logic shifted as corporations became international and gained the power to relocate production. This mobility allowed them to pressure governments for tax breaks, grants, and subsidies, a pattern widely documented in political economy research (Helleiner, 2006).
Early Canada: Tariffs and Land Grants (1867 to early 1900s)
In the first decades after Confederation, business incentives were focused on building the country. The National Policy of 1879 introduced high protective tariffs to support Canadian manufacturing (Creighton, 1956). Railway companies received land grants, low interest loans, and other support because transportation infrastructure was essential for national unity and settlement (Berton, 1970).
These early incentives were not tax breaks in the modern sense. Businesses could not threaten to relocate internationally. Canada’s economy was territorially anchored, and incentives were tools for nation building rather than corporate negotiation.
The First Modern Incentives (1930s to 1950s)
The Great Depression, the Second World War, and post-war reconstruction brought the first recognisable business incentives. Capital cost allowances, implemented in the 1940s, permitted companies to deduct machinery depreciation from taxable income (Perry, 1955). Wartime industrial expansion required grants and procurement contracts, which later transformed into peacetime industrial support (Granatstein, 1990).
By the 1950s the federal government also began regional development initiatives to address economic disparities among provinces (Savoie, 1992). Canadian corporations still lacked international mobility, and incentives did not arise from relocation threats.
The Global Shift: Mobility and Leverage (1960s to 1980s)
During the 1960s and 1970s, economic globalisation accelerated. Multinational corporations expanded internationally, production chains spread across borders, and trade policies liberalised. This period marked a major turning point in the bargaining power of corporations (Levitt, 1983).
Canada responded with targeted incentives, including investment tax credits, research and development subsidies such as the Scientific Research and Experimental Development credit, and regional industrial development grants (Dobbin, 1994). These measures were no longer about building the country. They were designed to keep corporations from leaving.
The Contemporary Period: Competing for Global Corporations (1990s to Present)
By the 1990s the mobility of global capital had reached full maturity. Trade agreements such as NAFTA, along with WTO rules, allowed firms to reorganise production on a continental or global basis (Clarkson, 2002). Corporations gained significant leverage by threatening to move production to jurisdictions with lower taxes or better subsidies.
Canada responded by lowering federal corporate tax rates and offering increasingly targeted incentives for automotive plants, aerospace manufacturing, technology firms, natural resource developers, and film and digital media industries (Standing Committee on Finance, 2009). Provincial governments often competed with one another to attract or retain major employers.
This dynamic mirrors global trends where governments provide incentives not solely for economic development but to prevent corporations from relocating to other countries. Researchers describe this pattern as a race to the bottom in corporate taxation and industrial subsidies (Swank, 2006).
Conclusion: How Mobility Shifted Power to Corporations
The history of Canadian business incentives reveals a clear pattern. In the nineteenth century grants and support programmes were aimed at building national infrastructure. In the twentieth century they promoted industrial growth and regional equality. In the late twentieth and early twenty-first centuries the meaning shifted. Once corporations gained the ability to operate globally, they also gained leverage. Today incentives are often responses to this mobility. Governments compete for investment while corporations can choose where to locate production.
This change represents a structural shift in the relationship between governments and global capital. It explains how public money began to finance what critics call corporate welfare, and how national economic policy became shaped by international corporate strategies.
References
Berton, P. (1970). The National Dream. McClelland and Stewart.
Clarkson, S. (2002). Uncle Sam and Us: Globalization, Neoconservatism, and the Canadian State. University of Toronto Press.
Creighton, D. (1956). The Road to Confederation. Macmillan of Canada.
Dobbin, F. (1994). Forging Industrial Policy. Cambridge University Press.
Granatstein, J. L. (1990). Canada's War: The Politics of the Mackenzie King Government, 1939–1945. University of Toronto Press.
Helleiner, E. (2006). Towards North American Monetary Union? McGill-Queen's University Press.
Levitt, T. (1983). The globalization of markets. Harvard Business Review, 61(3), 92–102.
Norrie, K., Owram, D., & Emery, J. C. H. (2008). A History of the Canadian Economy. Thomson-Nelson.
Perry, J. (1955). Canadian tax policy and capital cost allowances. Canadian Journal of Economics and Political Science, 21(4), 449–462.
Savoie, D. (1992). Regional Economic Development: Canada's Search for Solutions. University of Toronto Press.
Standing Committee on Finance. (2009). Tax Incentives for Industry. Parliament of Canada.
Swank, D. (2006). Tax policy in an era of globalization. International Organization, 60(4), 847–880.
About the Author
J. André Faust explores the structural entanglements of politics, economics, and society through a layered systems perspective. His work follows the principle that understanding emerges when we trace connections, map feedback, and revise beliefs as new information appears. The Connected Mind examines how local events are linked to global networks that shape behaviour and outcomes.
