Canadian Northern Railway
The Canadian Northern Railway (CNoR) was a regional railroad that operated mainly in Saskatchewan and Manitoba Provinces of Canada before it began a massive expansion project in the first decade of the Twentieth Century which turned it into Canada's third transcontinental railroad. Over-expansion of track and over-extended in credit, the expansion led eventually to its bankruptcy, the greatest business failure in Canadian history. It was taken over by the Canadian government in 1917 and became one of the constituent parts of the Canadian National Railway.
Origin
The CNoR was started in 1894 by William Mackenzie and Donald Mann, who, unusually, remained the sole owners of the line until the government take-over during World War I. Mackenzie and Mann were major construction contractors for the Canadian Pacific Railway (CPR) and invested their millions in the CNoR. As Manitoban farmland was then developing, the provincial government of Manitoba wanted the railway as means to counter the monopoly that the CPR had over rail transportation in the upper plains. Thus the Manitoban government subsidized much of the railway's construction. Construction was rapid and within five years was operating 1300 miles of track in Manitoba and Saskatchewan with extensions started in Alberta. Its headquarters was in Winnipeg.
Construction
Mann was the principal construction engineer and had a knack for knowing where to build that would render profitable markets for the CNoR. He built slowly, always with an eye for markets, and cheaply. His expectation, and promise to Manitoban farmers, was to upgrade when traffic justified it and profits allowed.
When it opened, the CNoR was a 438-mile regional system serving farm villages between Winnipeg and Port Arthur (Thunder Bay). Where competitive with the CPR, the CNoR slashed rates. Always aware of its rivalry with the CPR, the CNoR harbored dreams of further encroachments into CP territory.
Pacific Extension
After the government of Wilfred Laurie announced its intention to build a second Canadian transcontinental line, Mackenzie and Mann launched the CNoR into a rapid building program westward. By 1902, it was operating 1300 miles of line and gave up any show that it was regional carrier when it moved its corporate offices to the Railway Chambers in Toronto. The Laurie government also authorized Mackenzie and Mann to build from Port Arthur and Ottawa.
At this time also, Charles Melville Hays of the Grand Trunk Railway was making plans to build to the Pacific with the help of the Canadian government. Mackenzie and Mann were certain that they would get government backing for their expansion as well.
Realizing that the construction of two transcontinentals through the sparsely populated western plains and Rockies probably meant that neither would be profitable, President Charles Rivers Wilson of the Grand Trunk suggested that the GTR and CNoR merge. This merger made sense as the GTR was strong in Ontario where the CNoR barely existed while the CNoR had already crossed the eastern plains ahead of the GTR. Mackenzie and Mann however were still ambitious and fully confident of their ability to build a great Canadian rail system and ignored the GTR proposal.
The Laurie government, a champion of laissez-faire liberalism, therefore let the two Pacific extensions go forward, dooming both to bankruptcy and eventually a government bailout.
Mackenzie and Mann funded their construction largely through bond guarantees from the provinces.
Through the Rockies, the CNoR and the Grand Trunk Pacific shared track through Yellowhead Pass. All in all, the CNoR route had easier grades than the CPR.
Eastern Expansion
Because of the audacity of their vision and their contributions to the development of Canada, both Mackenzie and Mann were knighted in 1911. The CNoR reached as far west as Edmonton, was building in the mountains, and served half of Canada's plains farm communities. But the CNoR still had no access to eastern Canada when Mackenzie and Mann went on a buying spree.
During this time, the duo acquired about 1600 miles of track in eastern Canada. They bought 650 miles in Ontario, nearly as much in Quebec, and 350 miles in Nova Scotia. Now Mackenzie urged the government to finance a connection through Ontario between these two locuses of CNoR activity. Laurie pledged the government to finance this line which guaranteed CNoR as the third of Canada's transcontinentals. But it proved too much for Canada's voters.
Arguing that Laurie had over-extended Canadian credit for private railways and at tax-payer expense for which the taxpayers received nothing, Robert Borden defeated Laurie in the 1912 general election.
Mackenzie and Mann also desired access to Montreal, a difficult prospect as the GTR and CPR had by this time controlled the best access to the city. Mackenzie and Mann beat the GTR and CPR by building under Mount Royal a three mile tunnel. It is the second-longest tunnel on a Canadian railway. The CNoR planned a massive station at the location of Montreal's Central Station.
1912 was a boom year for the CNoR. Farmers produced a bumper crop of grain and every available boxcar was full. The future looked bright for the CNoR.
Decline
Beginning in 1913, with war clouds looming in Europe and the grain boom ending, the prospects of the CNoR began to decline. The credit markets were getting tight and the CNoR was having trouble meeting its obligations.
The people of western Canada began complaining that the Canadian government had been dumping millions into the CNoR while allowing Mackenzie and Mann to remain the sole proprietors without accountability to the people who were funding them.
In 1915, Mackenzie drove the last spike of the 9000-mile CNoR system near Kamloops Junction, British Columbia. But the CNoR was teetering on the edge of bankruptcy. Its insolvency threaten to close the Canadian Bank of Commerce, CNoR's largest backer, and with the war, would bring about a general collapse of Canadian finances. Canadian Finance Minister Thomas White predicted that with Canadian finances already stretched to the limit because of the war, the bankruptcy of the CNoR would ruin Canadian credit everywhere and turn hundreds of prairie towns into ghost towns. The Borden government continued the periodic cash infusions to keep the CNoR afloat, but also began looking for alternatives.
Government Takeover
In 1916, the Borden government created the Royal Commission to Inquire into Railways and Transportation in Canada. It was chaired by the chairman of the New York Central Railroad Alfred H. Smith, and assisted by British railway economist William M. Acworth and Canadian Board of Railways Commissioner Henry Drayton. The commission's majority report (written by Drayton and Acworth) noted that the strengths and weaknesses of the GTR and CNoR complimented each other and recommended that both be taken over by the Canadian government but operated on a commercial basis as a single system along with the government-owned National Transcontinental Railway (NTR) and Intercolonial Railway. Smith, the commission's chairman, rejected this plan in a minority report that condemned any government ownership of the railways.
By the summer of 1917, half of Canada's rail system was bankrupt including the CNoR. Prime Minister Borden put forward the proposals of the Drayton-Acworth report as the solution to Canada's railroad problem. In August, the government bought the Canadian Northern from Mackenzie and Mann for $10 millions, about 10% of the par value of its stock. The government gave each 100 shares as a token of their contributions to Canadian railroad construction. A month later, the government consolidated the Canadian Northern, with the NTR, the Intercolonial, the Prince Edward Island Railway, and the Hudson Bay Railway into the Canadian Government Railways led by CNoR's General Manager David Blythe Hanna. In 1923, the government reorganized the lines as the Canadian National Railway.
Personally bankrupted, Mackenzie and Mann spent the rest of their lives in obscurity.