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The Newfoundland lesson: during the 1930s, long before the IMF, the British Empire coped with a debt crisis in a small country. This is a tale of the choice between debt and democracy. It shouldn't be forgotten. (Globalization).



As the frequency of developing country debt crises will testify To provide evidence as a witness, subject to an oath or affirmation, in order to establish a particular fact or set of facts.

Court rules require witnesses to testify about the facts they know that are relevant to the determination of the outcome of the case.
, there is often a contradiction CONTRADICTION. The incompatibility, contrariety, and evident opposition of two ideas, which are the subject of one and the same proposition.
     2. In general, when a party accused of a crime contradicts himself, it is presumed he does so because he is guilty for
 in the modern era between democracy and debt. Voters elect governments that pursue populist pop·u·list  
n.
1. A supporter of the rights and power of the people.

2. Populist A supporter of the Populist Party.

adj.
1.
 policies which lead to debt crises. The countries then turn to the International Monetary for help. The IMF IMF

See: International Monetary Fund


IMF

See International Monetary Fund (IMF).
 attempts to impose conditions that set the stage for economic slumps. The governments became highly unpopular and sometimes suffer counterrevolutions. The recent histories of Indonesia and Argentina are case studies in such a process. But there are other less dramatic examples in Latin America Latin America, the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. , Africa, and Asia of tension between democracy and IMF-driven austerity Austerity
See also Asceticism, Discipline.

Amish

conservative Christian group in North America noted for its simple, orderly life and nonconformist dress. [Am. Hist.
.

What has been missing from contemporary debates about the IMF's role is any memory of what the world was like before its creation. There were numerous defaults by Latin America countries during the 19th century. They sometimes occurred because of political revolutions and sometimes because of collapsing export prices. On three occasions, the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area.  deployed military forces to collect debts from troubled countries (Haiti, Dominican Republic Dominican Republic (dəmĭn`ĭkən), republic (2005 est. pop. 8,950,000), 18,700 sq mi (48,442 sq km), West Indies, on the eastern two thirds of the island of Hispaniola. The capital and largest city is Santo Domingo. , Nicaragua) or to keep away European powers threatening to do the same. But the most extraordinary debt restructuring Debt Restructuring

A method used by companies with outstanding debt obligations to alter the terms of the debt agreements in order to achieve some advantage.

Notes:
 of the pre-1945 era was not in Latin America. It was in a dominion dominion, power to rule, or that which is subject to rule. Before 1949 the term was used officially to describe the self-governing countries of the Commonwealth of Nations—e.g., Canada, Australia, or India.  of the British Empire British Empire, overseas territories linked to Great Britain in a variety of constitutional relationships, established over a period of three centuries. The establishment of the empire resulted primarily from commercial and political motives and emigration movements , the country of Newfoundland. During the early 1930s, Newfoundland experienced a form of political punishment and national humiliation for its debt problems which is unsurpassed by any other country since the emergence of government debt markets in the 17th century.

FROM SOVEREIGNTY TO TAKEOVER

Newfoundland was first explored by the Vikings one thousand years ago and then again by John Cabot for Britain in 1497. The British established settlements to exploit the island's fishing resources and Newfoundland became Britain's oldest colony. The King authorized au·thor·ize  
tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es
1. To grant authority or power to.

2. To give permission for; sanction:
 the governor to establish the island's first parliament in 1832, the same year as the great reform bill which democratized Britain's parliament.

Newfoundland became the first self-governing dominion of the empire in 1855, twelve years before Canada, forty-five years before Australia, and fifty years before South Africa South Africa, Afrikaans Suid-Afrika, officially Republic of South Africa, republic (2005 est. pop. 44,344,000), 471,442 sq mi (1,221,037 sq km), S Africa. . In the late 19th century, Newfoundland negotiated trade agreements with the United States over the protests of Canada and enjoyed all the other traditional trappings of sovereignty.

Newfoundland's history took a unique turn during the early 1930s compared to all other dominions of the British Empire because of its public debt. The government had borrowed heavily to finance military expenditures during the First World War, to finance the construction of a railway, and to cover operating deficits incurred on the fiscal account throughout the 1920s. By 1933, there was a public debt of over $100 million compared to a nominal national income of about $30 million. Newfoundland's major export was fish. As a result of economic crisis and defaults in the Catholic countries of Latin America, there had been a sharp decline in the price of fish. The decline in export prices coupled with the other effects of the Great Depression made it impossible for the government to continue borrowing. In 1933, the budget deficit was $3.5 million or over 10 percent of the island's GDP GDP (guanosine diphosphate): see guanine. .

The Newfoundland government turned to the British government for help and London obliged o·blige  
v. o·bliged, o·blig·ing, o·blig·es

v.tr.
1. To constrain by physical, legal, social, or moral means.

2.
 by appointing a royal commission under Lord Amulree (Viscount viscount

European title of nobility, ranking immediately below a count, or earl. The wife of a viscount is a viscountess. In the Carolingian period, the vicecomes were deputies or lieutenants of the counts (comes), whose official powers they exercised by delegation.
 William Worrender McKenzie) to investigate the country's economic situation. The commission traveled to the island and held numerous hearings before producing a report that condemned con·demn  
tr.v. con·demned, con·demn·ing, con·demns
1. To express strong disapproval of: condemned the needless waste of food.

2.
 Newfoundland's fiscal policies for creating an unsustainable debt burden. The report said,
   "The twelve years 1920-1932, during none of
   which was the budget balanced, were characterized
   by an outflow of public funds on a scale as
   ruinous as it was unprecedented, fostered by a
   continuous stream of willing lenders. A new era of
   industrial expansion, easy money, and profitable
   contact with the American continent was looked
   for and was deemed in part to have arrived. In the
   prevailing optimism, the resources of the Exchequer
   were believed to be limitless. The public debt
   of the island, accumulated over a century, was in
   twelve years more than doubled; its assets dissipated
   by improvident administration; the people
   misled into the acceptance of false standards; and
   the country sunk in waste and extravagance. The
   onset of the world depression found the island
   with no reserves, its primary industry neglected
   and its credit exhausted. At the first wind of adversity,
   its elaborate pretensions collapsed like a
   house of cards. The glowing visions of a new
   Utopia were dispelled with cruel suddenness by
   the cold realities of national insolvency, and today
   a disillusioned and bewildered people, deprived in
   many parts of the country of all hopes of earning a
   livelihood, are haunted by the grim specters of
   pauperism and starvation."


The commission's proposed solution to the crisis was the most radical ever to occur in a dominion of the British Empire and has no parallels in any other sovereign debt restructuring. The royal commission proposed that Newfoundland should give up both independence and democratic self-government. In its place, the British government would establish a special six-man commission and royal Governor to govern the country until there was economic recovery and it could return to responsible self-government. The commission would not be responsible to the people of Newfoundland but to the Dominion office in London. The Dominion office, in turn, would be responsible to the House of Commons House of Commons: see Parliament. .

The notion that a self-governing community of 280,000 English-speaking people should give up both democracy and independence in order to avoid debt default was unprecedented but the commission stressed that the alternatives would be worse. It said,
   "No part of the British Empire has ever yet defaulted
   on its loan obligations; in the absence of
   any precedent, the consequences which would
   follow from a default by Newfoundland must remain
   to some extent a matter for speculation.
   But if no precedent can be drawn from the history
   of the Empire, instruction may be derived
   from the experiences of other countries, and it is
   clear from these that any play of default such as
   that outlined above could be approved with the
   greatest apprehension.
   The fulfillment of a private money contract depends,
   of course, in the last resort on the capacity
   of the debtor to pay, and the law provides accordingly
   for the bankruptcy of an insolvent
   debtor. But bankruptcy is at best an ugly word
   and carries a stigma which a nation even more
   than an individual would do well to avoid. Directly
   or indirectly, national bankruptcy is liable
   to affect the fortunes of every citizen."


Despite the extreme nature of the commission proposals, they were accepted by both the people and the government of Newfoundland for three reasons. First, the country truly was on the verge On the Verge (or The Geography of Yearning) is a play written by Eric Overmyer. It makes extensive use of esoteric language and pop culture references from the late nineteenth century to 1955.  of default and the political elite did not regard default as a real policy option. Second, public confidence in Newfoundland's own government had been eroded e·rode  
v. e·rod·ed, e·rod·ing, e·rodes

v.tr.
1. To wear (something) away by or as if by abrasion: Waves eroded the shore.

2. To eat into; corrode.
 by scandals during the late 1920s and early 1930s. In 1932, a group of demonstrators had actually occupied the parliament house and chased the prime minister through the streets in order to lynch him. In the election that followed, the ruling Liberal Party was reduced to only two seats out of twenty-seven while the conservative United Newfoundland Party The introduction to this article provides insufficient context for those unfamiliar with the subject matter.
Please help [ improve the introduction] to meet Wikipedia's layout standards. You can discuss the issue on the talk page.
 took twenty-three. When the vote came to terminate parliamentary democracy parliamentary democracy

Democratic form of government in which the party (or a coalition of parties) with the greatest representation in the parliament (legislature) forms the government, its leader becoming prime minister or chancellor.
, the Liberals left the assembly and the government won with no dissenting dis·sent  
intr.v. dis·sent·ed, dis·sent·ing, dis·sents
1. To differ in opinion or feeling; disagree.

2. To withhold assent or approval.

n.
1.
 votes. Third, as a result of the lack of confidence in the local politicians, many Newfoundlanders concluded that a British-appointed commission might provide a better public administration. Some members of the parliament were also seduced with promises of jobs in the new British administration.

A "HOLIDAY FROM POLITICS"

The willingness of Newfoundlanders to take a "holiday from politics" was probably less shocking in the early 1930s than it would appear today. As a result of the Great Depression, many countries abandoned democracy during the 1930s and turned to strong men to provide order, clarity, and direction. In the hearings of the Amulree Commission, some Newfoundlanders proclaimed pro·claim  
tr.v. pro·claimed, pro·claim·ing, pro·claims
1. To announce officially and publicly; declare. See Synonyms at announce.

2.
 that their country needed a Mussolini. A British publishing company commissioned a series of books entitled en·ti·tle  
tr.v. en·ti·tled, en·ti·tling, en·ti·tles
1. To give a name or title to.

2. To furnish with a right or claim to something:
 If I Were Dictator dictator, originally a Roman magistrate appointed to rule the state in times of emergency; in modern usage, an absolutist or autocratic ruler who assumes extraconstitutional powers. From 501 B.C. until the abolition of the office in 44 B.C., Rome had 88 dictators. . They sold well. But until 1933 there was still no precedent for a dominion of the British Empire giving up both sovereignty and democracy to resolve a debt problem.

There were a few precedents before 1933 for countries sharing sovereignty to resolve debt problems. The United States established a fiscal protectorate protectorate, in international law
protectorate, in international law, a relationship in which one state surrenders part of its sovereignty to another. The subordinate state is called a protectorate.
 in the Dominican Republic in 1907 in order to control the customs house and then occupied the country in 1916. The United States also intervened in Haiti and Nicaragua to control the customs house and obtain revenue for debt servicing. After World War I, the League of Nations played a major role helping the new Republic of Austria to restore financial stability after the dissolution of the Hapsburg Empire. With the consent of the Austrian parliament, the League appointed a resident commissioner to approve all spending legislation, supervise the central bank, and monitor economic reforms. The League Report explained how the Commissioner's power worked.
   "The successful accomplishment of the reform
   program, on which Austria's prosperity and value
   of her assets depend, would necessarily be a
   difficult and painful task. The scheme therefore
   included the appointment of a Commissioner
   General, whose duty was to ensure, in collaboration
   with the Austrian government, that the program
   of reforms was carded out and to supervise
   its execution. He would derive power from his
   control of the disposal of the loan."


The Royal Commission did not refer to the Austrian or Central American Central America

A region of southern North America extending from the southern border of Mexico to the northern border of Colombia. It separates the Caribbean Sea from the Pacific Ocean and is linked to South America by the Isthmus of Panama.
 precedents, but it was highly critical of Newfoundland's form of democracy. It said,
   "As a general statement, it is not too much to
   say that the present generation of Newfoundlanders
   have never known enlightened self-government.
   The process of deterioration, once started,
   could not be controlled. The simple-minded
   electorate was visited every few years by rival
   politicians, who, in the desire to secure election,
   were accustomed to make the wildest promises
   involving increased public expenditure in the
   constituency and the satisfaction of all the cherished
   desires of the inhabitants. The latter, as
   was not unnatural, chose the candidate who
   promised them the most. This might be said of
   other countries, but in Newfoundland the cajoling
   of the electorate was carried to such length
   that, until the recent crisis brought them to their
   senses, the electors in many cases preferred to
   vote for a candidate who was known to possess
   an aptitude for promoting his own interest at the
   public expense rather than for a man who disdained
   to adopt such a course. They argued that,
   if a man had proved himself capable of using his
   political opportunities to his personal advantage,
   he would be the better equipped to promote the
   advantage of his constituents; an honest man
   would only preach to them.

   "The country was thus exposed to the evils of
   paternalism in its most extreme form. The people,
   instead of being trained to independence and
   self-reliance, became increasingly dependent on
   those who were placed in authority; instead of
   being trained to think in terms of the national interest,
   they were encouraged to think only of the
   interests of their own district."


This political culture coupled with the dependence upon fishing created the preconditions for economic catastrophe during the early 1930s. As the report elaborated,
   "This political system, combined with the effects
   of the credit system in the fishing industry, weakened
   the fibre of the people and left them wholly
   unprepared for the intensive economic depression
   which was soon to cast its shadow over the Island.
   In 1929, the price of the fish was such as to
   yield the fisherman a fair margin of profit. In
   1930, prices began to fall; in 1931, they were
   lower still and by 1932 they had reached the lowest
   level recorded in the present century. Even in
   1930, the average fisherman was unable to do
   more than balance his account with the merchant.
   By the end of the season of 1932, he was hopelessly
   in debt to the merchant and had been reduced
   to abject poverty. During the winter of
   1932, no fewer than 70,000 persons or 25 percent
   of the population were in receipt of public relief,
   other than poor relief or relief for the aged poor.
   Such relief was distributed in kind, i.e., in rations
   of pork, flour, tea, and molasses of the maximum
   value of $1.80 per head per month. Even at this
   modest rate, the amount expended in relief during
   the year 1932-1933 was $1.1 million or one-seventh
   of the revenue of the country."


NO LOCAL BANKS OR CURRENCY

The 1933 debt crisis was not Newfoundland's first brush with economic calamity. There had also been a major financial crisis in 1895 when the two largest banks in the country failed. The bank failures destroyed many local businesses and left the government without adequate funds to make a payment on the public debt. The prime minister turned to London for help. Britain provided some emergency grants for relief but declined to take responsibility for the debt unless the country accepted a royal commission to propose political reforms which might include a confederation A union of states in which each member state retains some independent control over internal and external affairs. Thus, for international purposes, there are separate states, not just one state.  with the other dominion of British North America British North America also British America

The former British possessions in North America north of the United States. The term was once used to designate Canada.
, Canada. Newfoundland's politicians decided such a commission was too risky to consider. A new prime minister took office and turned to Canada, proposing discussions about a possible union of the two countries on their terms rather than Britain's. But the talks foundered because of disagreements about who would take responsibility for the debt. Canada asked Britain to assume responsibility for the debt but London declined. The crisis was finally resolved by the colonial secretary In British government usage, Colonial Secretary had two different meanings:
  • The Secretary of State for the Colonies, the Cabinet minister who headed the Colonial Office, was commonly referred to as the Colonial Secretary.
, Robert Bond Sir Robert Bond (February 25, 1857 – March 16, 1927) was the Prime Minister of Newfoundland from 1900 to 1909. He was born in St. John's, Newfoundland, as the son of merchant John Bond. Bond grew up in St. , traveling to Montreal, New York New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of
, and London to raise private loans for the government. Mr. Bond pledged $100,000 of his money as collateral for one loan in Montreal and then was able to obtain a loan of $850,000 from private bankers in London at an interest rate of 3.5 percent.

Newfoundland eventually recovered from the banking panic of 1895 and Mr. Bond went on to become one of the country's most highly regarded prime ministers. But the 1895 crisis set in motion changes which contributed to the crisis of the early 1930s. The collapse of the local banks opened the door for Canadian banks to take over the country's financial system. The Newfoundland Parliament enacted legislation making the Canadian dollar Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin"
loonie

dollar - the basic monetary unit in many countries; equal to 100 cents
 special legal tender. Newfoundland people also ceased to invest in the government's securities and so by 1930 about 95 percent of the public debt was held outside of the country. The primary owners were Canadian banks and investors. Two Canadian bankers served on the Amulree commission which proposed the end of Newfoundland's democracy. One of the bankers had arrived shortly after the crisis of 1895 and established the Bank of Nova Scotia Nova Scotia (nō`və skō`shə) [Lat.,=new Scotland], province (2001 pop. 908,007), 21,425 sq mi (55,491 sq km), E Canada. Geography
 there. Newfoundland's lack of local banks and a local currency increased her vulnerability to the economic shocks of the early 1930s. The government had no alternative to foreign banks in funding itself. The market for Newfoundland securities had also slumped sharply before the Amulree Commission. When other fish-exporting countries devalued de·val·ue   also de·val·u·ate
v. de·val·ued also de·valu·at·ed, de·val·u·ing also de·val·u·at·ing, de·val·ues also de·val·u·ates

v.tr.
1. To lessen or cancel the value of.
 their currencies, Newfoundland remained pegged peg  
n.
1.
a. A small cylindrical or tapered pin, as of wood, used to fasten things or plug a hole.

b. A similar pin forming a projection that may be used as a support or boundary marker.

2.
 to the Canadian dollar and thus could not resist deflation deflation: see inflation.
deflation

Contraction in the volume of available money or credit that results in a general decline in prices. A less extreme condition is known as disinflation.
 with currency depreciation. There were proposals to establish a Newfoundland currency pegged to the British pound (which had been devalued in 1931) but it was too late for such proposals to work effectively.

World War I had also imposed a great burden on the island's economy. Newfoundland borrowed $40 million to finance its role in the war. A large share of its mercantile Relating to trade or commerce; commercial; having to do with the business of buying and selling; relating to merchants.

A mercantile agency is an individual or company in the business of collecting data about the financial status, ability, and credit of individuals
 fleet also was diverted di·vert  
v. di·vert·ed, di·vert·ing, di·verts

v.tr.
1. To turn aside from a course or direction: Traffic was diverted around the scene of the accident.

2.
 for military purposes and never returned. As Lord Amulree explained in a speech defending his report, the province had suffered great losses during the war.
   "First of all it had lost its mercantile fleet. Before
   the war all of its products, including fish, were
   sent in its own sailing vessels to Europe and
   South America. These vessels were mainly built
   in the Dominion. There were a large number--some
   hundreds--of shipwrights, carpenters, sail
   makers, fitters and other skilled craftsmen engaged
   in building and repairing these vessels,
   and the mercantile fleet employed a large number
   of sailors. We had it roughly stated that perhaps
   as many as 4,000 or 5,000 people were engaged
   in that occupation. But during the war the
   bulk of those vessels were lost at sea, and others
   got worn out, and they have not been replaced.

   "Meanwhile, the great competitors of Newfoundland
   in fish--Norway and Iceland--have
   adopted a new system of sending their fish to the
   market--namely by steamer. The advantage that
   the steamer gives us is that you can more or less
   fix the date of the arrival of the cargo, whereas in
   the case of the sailing vessel the time was indefinite.
   That of course was a great thing in the competitive
   market. Another difficulty which the
   Newfoundlander found in regard to his vessels
   was that the insurance rate for a sailing vessel
   was enormous compared with the insurance rate
   for a steamer. One way or another, for these and
   other reasons, the whole of the mercantile fleet
   has disappeared and all the fish cargoes are carried
   in foreign bottoms, not British bottoms but
   bottoms of a foreign country."


The British parliament Noun 1. British Parliament - the British legislative body
British House of Commons, House of Commons - the lower house of the British parliament

British House of Lords, House of Lords - the upper house of the British parliament
 accepted the proposals of the Amulree commission and passed legislation suspending Newfoundland's status as a self-governing dominion. The Labour Party strongly opposed the Newfoundland proposals on grounds that they were undemocratic and that it was morally indefensible to rescue bondholders who had made a bad investment. The Welsh Labour M.P., David Grenfall, said,
   "If you invest in coal mines in this country you
   may lose money, as many investors have lost
   their money. If you invest in steel or railways
   you stand a chance of losing. Why should this
   (moneylending) class be subjected to special
   government protection, and why should we and
   the poor people of Newfoundland be pledged
   bodily, physically, socially, to guarantee the
   claims of the bondholders?"


The Labour leader, Clement Attlee Noun 1. Clement Attlee - British statesman and leader of the Labour Party who instituted the welfare state in Britain (1883-1967)
1st Earl Attlee, Attlee, Clement Richard Attlee
, suggested that default was preferable to giving up democracy. Referring to Britain's own default on its wartime loans from the United States, he said "All the best countries default nowadays." But in the early 1930s it was impossible to imagine a British dominion defaulting. In 1932, the provincial premier of New South Wales New South Wales, state (1991 pop. 5,164,549), 309,443 sq mi (801,457 sq km), SE Australia. It is bounded on the E by the Pacific Ocean. Sydney is the capital. The other principal urban centers are Newcastle, Wagga Wagga, Lismore, Wollongong, and Broken Hill. , Jack Lang Jack Lang may refer to:
  • Jack Lang (Australian politician) (1876–1975)
  • Jack Lang (sportswriter), an American sportswriter
  • Jack Lang (French politician) (born 1939)
, had proposed to default on the state's debts. He was promptly dismissed by the royal Governor and went on to lose an election for the provincial parliament. As with Gough Whitlam in 1975, the voters upheld the prerogative An exclusive privilege. The special power or peculiar right possessed by an official by virtue of his or her office. In English Law, a discretionary power that exceeds and is unaffected by any other power; the special preeminence that the monarch has over and above all others,  of the crown to dismiss prime ministers threatening the law or unable to obtain supply. In the world of the early 1930s, it was commonly accepted that democracy should be subordinate to debt.

OTHER MOTIVES

Some Newfoundland historians believe that Britain had motives other than just avoiding default in reassuming responsibility for the country's administration. Professor John FitzGerald of Memorial University says that Britain also had a strong interest in Newfoundland's potential role as an aviation center. During the early 1930s, trans-Atlantic aviation was starting and it was clear that Newfoundland could play a potentially important role providing a base for both civilian and military traffic. In fact, the British began construction of the large airport at Gander Gander, town (1991 pop. 10,339), NE Newfoundland, N.L., Canada. Gander's airport, an important base in World War II, is a hub for international flights; it also attracts many refugees. It was the site of a Dec.  only six months after they regained control of the island.

In the debate over the Newfoundland legislation in the House of Lords House of Lords: see Parliament. , Lord Amulree focused on the potential role of aviation in the island's future development. He said,
   "I need not remind your Lordships of the very
   important centre which Newfoundland may become
   in the matter of aviation. Only last July an
   agreement was reached between the British government
   and certain American interests whereby
   it is hoped that next summer there will be a regular
   aerial service between New York and St.
   Johns via a Canadian port. That only leaves the
   gap between Newfoundland and Great Britain to
   be filled up, and then we shall have a connecting
   link throughout the various parts of the Empire.
   We have already got an aerial service to the
   Cape, to India and Far East, and next year we
   must hope that the Australian government will
   complete the gap as far as they are concerned."


The aviation issue has not generated much discussion among historians but it provides an interesting analogy between the resolution of Newfoundland's debt problem and many recent IMF programs. In the modern era, the United States has always used the IMF to prevent countries with American military bases from defaulting. In 1933, it was obvious to some farsighted far·sight·ed or far-sight·ed
adj.
1. Able to see distant objects better than objects at close range; hyperopic.

2. Capable of seeing to a great distance.
 people that Newfoundland's geography would someday some·day  
adv.
At an indefinite time in the future.

Usage Note: The adverbs someday and sometime express future time indefinitely: We'll succeed someday. Come sometime.
 make her an important military asset as well as a center for commercial aviation. As a result, it was in their self-interest to gain control over the island's government in order to take advantage of the island's aviation opportunities. With the outbreak of war in 1939, it was not long before Newfoundland emerged as a vital military center. Britain gave the United States the right to construct a large base on the island while Canada opened a base in Labrador. It is possible that a Newfoundland government might have been less willing than the British government to permit such large military centers or at least charged a higher price for the rights.

DICTATORSHIP dictatorship

Form of government in which one person or an oligarchy possesses absolute power without effective constitutional checks. With constitutional democracy, it is one of the two chief forms of government in use today.
 IN NEWFOUNDLAND

The Commission of Government took over responsibility for Newfoundland's affairs in early 1934. There was an immediate recovery in business confidence and the city of St. Johns
See also St. John's, Newfoundland or Saint John, New Brunswick


City of St. John was a federal electoral district in New Brunswick, Canada, that was represented in the Canadian House of Commons from 1867 to 1917.
 was able to complete a debt offering which had stalled stall 1  
n.
1. A compartment for one domestic animal in a barn or shed.

2.
a. A booth, cubicle, or stand used by a vendor, as at a market.

b.
 before the commission reported. It took some actions which offended of·fend  
v. of·fend·ed, of·fend·ing, of·fends

v.tr.
1. To cause displeasure, anger, resentment, or wounded feelings in.

2.
 public opinion, such as closing the national museum, but pursued other reforms which had a positive impact on the economy. It reduced tariffs, modernized mod·ern·ize  
v. mo·dern·ized, mo·dern·iz·ing, mo·dern·iz·es

v.tr.
To make modern in appearance, style, or character; update.

v.intr.
To accept or adopt modern ways, ideas, or style.
 the post office, and improved the professional quality of the civil service. It also experimented with promoting agriculture because of a perception that fishing alone would not be able to sustain reasonable living standards living standards nplnivel msg de vida

living standards living nplniveau m de vie

living standards living npl
 for many people. It introduced a salt subsidy to help bolster the incomes of the fishermen as well. But despite its best efforts, the commission could not fundamentally transform the country's economic situation because of the continuing low price of fish and the fact that all other resources were controlled by foreign business interests. In 1936, the island had total exports of $28 million. Foreign companies generated newsprint newsprint

low grade paper used for newspapers. Old newspapers are fed to cattle as an alternative roughage and may occasionally be ingested by dogs. Significant amounts of lead are accumulated in tissues; no cases of poisoning have been recorded in cattle, though it has been
 exports worth $13.2 billion and mineral exports worth $6.4 million. The value of fishing and lobster lobster, marine crustacean with five pairs of jointed legs, the first bearing large pincerlike claws of unequal size adapted to crushing the shells of its prey.  exports from local people was worth only $8 million.

In 1939, a member of the Commission of Government, T. Lodge, published a book, Dictatorship in Newfoundland, about his experience and ideas for the future. He stressed the ambiguous nature of the commission's mandate in striving to govern without the formal consent of the governed "Consent of the governed" is a political theory stating that a government's legitimacy and moral right to use state power is, or ought to be, derived from the people or society over which that power is exercised. . He said,
   "The Secretary of State (for the Dominions) appears
   to contemplate that the Commission Government
   should go on for a generation. It is inherently
   improbable either that the people of
   Newfoundland will acquiesce for a generation in
   complete disenfranchisement, or that the mother
   of Parliaments will be content to watch the indefinite
   continuance of something which might
   plausibly be described as negation of political
   freedom. Few would deny that the Commission
   has steadily lost popularity during the first five
   years of its existence. It is not surprising that this
   should be so. Its advent was hailed as promising
   new heaven and earth, and in the nature of things
   this promise could never have been fulfilled.
   Nevertheless, though no one would deny a decline
   in popularity few would maintain that the
   alternative of a return to responsible government
   would yet be welcomed by the general public.

   "There is an uneasy feeling prevalent that there is
   something wrong with the system, without any
   general unanimity as to the direction in which
   any modification should be sought. Except in a
   very limited circle, there is little theoretical criticism
   of the undemocratic character of the government.
   Indeed, the academic objections to the constitution
   are somewhat unreal. The Newfoundlander
   may have lost his right to record a vote at four
   yearly intervals and thereby to choose between
   two sets of politicians. He is still able to bear
   upon his rulers a direct influence far more potent
   than any influence exerted by an individual elector
   in England. If he has a grievance he considers
   entitled to bring it to the personal notice of the
   Commissioner concerned and, within the limits
   of what is physically possible, his rights in this
   respect are admitted and respected.

   "The weakness which the system has revealed is
   the weakness common to all non-democratic
   forms of government--that which is consequent
   to the absence of any responsible criticism. In so
   far as the individual criticizes any measure he
   does so free from any risk of being called upon
   to shoulder the responsibility for carrying out an
   alternative. The two daily newspapers of the island
   have steadily given a qualified support to
   the Government, but that support has tended to
   become more and more grudging. Each considers
   itself entitled to criticize freely without any
   duty of advocating any precise alternative to the
   policy criticized."


Lodge closed the book on a philosophical note about the unpleasant nature of the choices which Britain had confronted in 1933.
   "The immediate material benefits which the
   Commission have brought are obvious. The
   spiritual price which is paid is less clear but just
   as real. To have assumed responsibility for the
   good government of Newfoundland from altruistic
   motives and to have achieved economic rehabilitation
   might have cost the British taxpayer
   a few million. It would have added to the prestige
   of the British Empire. To have abandoned
   the principle of democracy without accomplishing
   economic rehabilitation is surely the unforgivable
   sin."


Newfoundland remained under the control of the Commission of Government through World War II. Britain dispatched delegations to the island in order to promote discussion about its political future. The major issue was should Newfoundland return to self-government or become a province of Canada For other uses, see Provinces and territories of Canada and Ecclesiastical Province of Canada.

The Province of Canada or the United Province of Canada was a in North America from 1841 to 1867.
? There was an initial consensus that Newfoundland should regain some elements of self-government but still give Britain a veto veto [Lat.,=I forbid], power of one functionary (e.g., the president) of a government, or of one member of a group or coalition, to block the operation of laws or agreements passed or entered into by the other functionaries or members.

In the U.S.
 over economic policy. The British government was reluctant to accept such an ambiguous outcome, so it promoted a national convention to debate the island's future. The commission also began discussions about a $100 million reconstruction program, including $39 million for economic development and $30 million for communications. The new Labour government under Clement Attlee was horrified hor·ri·fy  
tr.v. hor·ri·fied, hor·ri·fy·ing, hor·ri·fies
1. To cause to feel horror. See Synonyms at dismay.

2. To cause unpleasant surprise to; shock.
 at the prospect of expending such large sums in Newfoundland at a time of great fiscal austerity at home.

"WE ARE NOT A NATION"

The convention met in 1946. The proponents of the confederation were led by a pig farmer and radio commentator, Joey Smallwood Joseph Roberts "Joey" Smallwood, PC , CC (December 24, 1900 – December 18 1991) was the main force that brought Newfoundland into Confederation, and became the first Premier of the province. . He argued, "We are not a nation. We are merely a medium-sized municipality MUNICIPALITY. The body of officers, taken collectively, belonging to a city, who are appointed to manage its affairs and defend its interests. , a mere miniature borough of a large city." He argued that Newfoundland had become a poor and backward part of North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere.  which needed confederation with Canada to recover. The supporters of self-government responded with strong emotional arguments invoking the island's past achievements and need to remain independent. A small minority also favored much closer links with the United States in return for granting it military leases. The war had transformed Newfoundland society by attracting thousands of American servicemen and encouraging 28,000 of them to take local wives. Britain consistently supported the cause of confederation by refusing to make any significant debt concessions to Newfoundland if it resumed self-government. Canada, by contrast, offered to assume responsibility for 90 percent of the island's public debt and leave only 10 percent for the local government.

The convention offered the people two proposals. They would be a continuation of Commission government for five more years or a return to responsible self-government with the restoration of institutions abolished in 1933. The Commission voted by 29-16 against recommending confederation with Canada. The British government then used its powers to intervene and force the issue of confederation on the referendum ballot. Britain had long favored confederation and did not want to lose a critical opportunity for promoting it. The country then entered a referendum campaign which was highly polarizing on the basis of both religion and geography. The Catholic Church strongly supported the return of self-government, as did the city of St. Johns. Other regions were more sympathetic to confederation. In the first vote, 44.6 percent favored a return to self-government, 41.1 percent favored confederation with Canada, and 14.3 percent favored continuation of the commission of government. Seven weeks later another referendum was held. This time, confederation received 52.3 percent of the vote compared to 47.7 percent for responsible self-government, a majority of 6,989 votes.

As Newfoundland had no parliament to ratify ratify v. to confirm and adopt the act of another even though it was not approved beforehand. Example: An employee for Holsinger's Hardware orders carpentry equipment from Phillips Screws and Nails although the employee was not authorized to buy anything.  a treaty with Canada, the British government appointed civil servants to negotiate the treaty of union. The British North America Act British North America Act, law passed by the British Parliament in 1867 that provided for the unification of the Canadian provinces into the dominion of Canada. Until 1982 the act also functioned as the constitution of Canada.  actually required a country wishing to federate fed·er·ate  
v. fed·er·at·ed, fed·er·at·ing, fed·er·ates

v.tr.
To cause to join into a league, federal union, or similar association.

v.intr.
To become united into a federal union.
 with Canada to be solicited by the parliament of the country but the British decided to overlook this provision of the law in order to complete the process. On April 1, 1949, Newfoundland therefore became the first dominion of the British Empire ever to become the province of another country without having the action ratified rat·i·fy  
tr.v. rat·i·fied, rat·i·fy·ing, rat·i·fies
To approve and give formal sanction to; confirm. See Synonyms at approve.
 by its own parliament. The confederation treaty was an act of Britain and Canada, not Newfoundland.

The Newfoundland political history of the 1930s is now considered to be a minor chapter in the history of Canada Canada is a country of 32 million inhabitants that occupies the northern portion of the North American continent, and is the world's second largest country in area.[1] . There is practically no awareness of the extraordinary events which occurred there. The British parliament and the parliament of a self-governing dominion agreed that democracy should be subordinate to debt. The oldest parliament in the British Empire after Westminster was abolished and a dictatorship was imposed on 280,000 English-speaking people who had known seventy-eight years of direct democracy. The British government then used its constitutional powers to steer the country into a federation with Canada.

NEWFOUNDLAND'S LEGACY: THE IMF

If the IMF had existed in 1933, it would have granted emergency debt relief to Newfoundland and the country would have never given up democracy or independence. Indeed, democracy is now a pre-condition for IMF aid. But as no institution such as the IMF existed in 1933, Newfoundland was compelled to choose between democracy and default.

The interesting question which lingers today in the debate about sovereign debt restructuring is how to draw the line between the IMF imposing policies on national governments and their capacity for pursuing effective action independently. If the Amulree Commission were to be dispatched to Buenos Aires Buenos Aires (bwā`nəs ī`rēz, âr`ēz, Span. bwā`nōs ī`rās), city and federal district (1991 pop.  today, it would be fascinating to read its commentaries on Argentina's political institutions and capacity for responsible self-government. The Argentine Argentine

having some relationship with the country Argentina.


Argentine tick
margaropuswinthemi.

Argentine tortoise
geochelonechilensis.
 record has been so abysmal a·bys·mal  
adj.
1. Resembling an abyss in depth; unfathomable.

2. Very profound; limitless: abysmal misery.

3. Very bad: an abysmal performance.
 it would not be difficult to imagine the Commission proposing either the restoration of Spanish imperial rule or the establishment of an Argentine protectorate under the nominal rule of the IMF.

In fact, the late Professor Rudiger Dornbusch of MIT MIT - Massachusetts Institute of Technology  wrote an article in April, 2002, proposing a neo-colonial solution to the Argentine economic crisis. He said,
   "Argentinians must humbly acknowledge that
   without massive external support and intrusion
   they can't get out of the mess. What kind of external
   support? It goes well beyond funding. At the
   heart of Argentina's problems is a crisis of trust as
   a society and confidence in the future of the economy.
   No one group is willing to concede the power
   to resolve the claims and fix the country to any
   other local group. Somebody has to run the country
   with a tight grip; dictatorship is neither likely
   nor desirable. But since everybody thinks--often
   correctly--that everybody else is selfish and corrupt,
   there is no social pact that can be reached.
   Without this social pact, day-to-day cannibalization
   of social and economic capital will continue.
   Ever more gruesome outcomes are on the horizon.

   "Argentina now must give up much of its monetary,
   fiscal, regulatory and asset management
   sovereignty for an extended period, say five
   years. After World War I, the League of Nations
   recognized the fundamental problem of a dysfunctional
   society in Austria. It resolved that issue,
   along with financial support, by having--with
   the consent of parliament--a resident Commissioner
   General, appointed by and responsible
   to The League of Nations."

   "It worked! And here is what Argentina must accept
   to do in exchange for new loans. Commissioners
   should come from distant, disinterested
   small countries (Finland, the Netherlands, Ireland
   for example) where people have understood
   that economic institutions safeguard stability and
   are the foundation of prosperity.

   "Specifically, a board of experienced foreign central
   bankers should take control of Argentina's
   monetary policy. This solution would have many
   of the reputation-virtues of a currency board,
   without the costs of having to adopt a monetary
   policy tailored to somebody else's needs. The new
   pesos should not be printed in Argentina's soil.

   "Another foreign agent is needed to verify fiscal
   performance and sign the checks from the
   nation to the provinces. Much of the fiscal
   problem has to do with fiscal federalism in designing
   and enforcing a sharing of responsibilities
   and resources in a way that is financially
   affordable. Tax evasion and corruption--and
   the government's acceptance of this state of affairs--has
   to be suppressed in the most radical
   fashion. Foreign micromanagement is not feasible
   but agreed incentive mechanisms and a
   sharing of experience are. Argentina is not the
   first country to experience tax collection issues,
   effective answers are available and must be imposed.
   A reformed, more professional civil service
   will be particularly helpful."


Instead of following Dornbusch's advice, the IMF recently agreed to extend its loans to Argentina without obtaining any significant concessions to promote reform. The IMF decided to defer de·fer 1  
v. de·ferred, de·fer·ring, de·fers

v.tr.
1. To put off; postpone.

2. To postpone the induction of (one eligible for the military draft).

v.intr.
 reform until after Argentina's presidential election in April. After Argentina's fragmented and strife-ridden exercise in democracy, it is unclear if the winner, Nestor Kirchner, will have any mandate for reform. There is a significant risk that Argentine democracy will be incompatible with effective policy action and thus prolong pro·long  
tr.v. pro·longed, pro·long·ing, pro·longs
1. To lengthen in duration; protract.

2. To lengthen in extent.
 the country's economic woes. Unemployment could rise to 30 percent and poverty could engulf en·gulf  
tr.v. en·gulfed, en·gulf·ing, en·gulfs
To swallow up or overwhelm by or as if by overflowing and enclosing: The spring tide engulfed the beach houses.
 another large share of the population. Argentina may be a country where the only viable model for genuine economic rehabilitation rehabilitation: see physical therapy.  is the Newfoundland model.

The story of Newfoundland during the 1930s continues to be a unique tale of how the British Empire coped with a debt crisis in a small country. But it is a tale which should not be completely forgotten because it is also a reminder of why, in the aftermath of World War II, the nations of the world created the International Monetary Fund. They did not want countries to ever again confront a choice between debt and democracy.

It is a legacy worth pondering pon·der  
v. pon·dered, pon·der·ing, pon·ders

v.tr.
To weigh in the mind with thoroughness and care.

v.intr.
To reflect or consider with thoroughness and care.
 as we contemplate the future of policies for helping troubled countries cope with the demands of the global financial marketplace.

David Hale David Hale may refer to:
  • David Hale (ice hockey) (born 1981)
  • David Hale (Whitewater), former Arkansas judge and Whitewater trial witness
  • David Hale (footballer) (born 1984), Australian rules footballer
  • David Hale (ambassador), US Ambassador to Jordan
 is chairman, Prince Street Capital Management in Chicago, and a TIE executive editor.
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Author:Hale, David (American banker)
Publication:The International Economy
Geographic Code:1CNEW
Date:Jun 22, 2003
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