The Great Depression of the 1930s was felt over most of the world. Both Canada and the United States lacked adequate social welfare programs to deal with such a severe crisis. In comparison, much of Europe faced an even larger crisis as the effects of the Depression were worsened because of the huge losses of young people in the First World War. This sharp decrease in the youth population caused the proportion of older people in European society to increase greatly. The attempts of foreign governments to deal with these problems were followed with interest in Canada throughout the 1930s and 1940s.
Until the 1930s, the economic policies of most Western European democracies placed great emphasis on financial austerity and keeping the nation's budget balanced. By the mid-1930s, however, it had become clear that such practices were not effective in the face of the Depression, and a number of governments adopted a new set of ideas, most famously stated by the British economist John Maynard Keynes in his 1936 book, The General Theory of Employment, Interest and Money. Keynes argued that the only solution to such a large crisis lay in a new role for government. Governments had to become actively involved in directing the economies of their countries, and to do this they would have to borrow money as required to stimulate their economies through grants, loans, and social programs.
One of the first countries to attempt a large-scale initiative of this kind was the United States. In 1935, a Social Security Act was passed as part of President Franklin D. Roosevelt's New Deal. The Act introduced two provisions for old age: a non-contributory pension similar to Canada's Old Age Pension and an old age "insurance" plan that was contributory. The idea of this program became very popular in Canada. Prime Minister R.B. Bennett tried to set up a similar social security plan for Canada in 1935 within his Canadian New Deal, but national contributory pensions were deemed unconstitutional by the Supreme Court and the program failed.
The Second World War sparked economic recovery in much of the West, but it also brought widespread social upheaval to Europe, much as the First World War did a generation earlier. As a result, early in the war many people began to call for fundamental social reform that had not occurred following the Great War. In response, governments began to develop plans to avoid a similar economic decline. The Depression had removed the stigma attached to unemployment and poverty, and many governments worked towards creating social security networks that, in peacetime, would not only protect their citizens from destitution but would guarantee them a basic level of economic security as a right of citizenship.
A proposal that proved most influential in Canada was a report released in Britain in 1942 called Social Insurance and Allied Services, also known as theBeveridge Report. Its author, Sir William Beveridge, called for a comprehensive system of social security that would ultimately end all poverty. The system would include national medical care, pensions and employment programs. Many of these proposals were adopted by the British Labour government after 1945. These innovations, combined with the model of the new American social security system, presented possibilities which the Canadian government sought to emulate.
In addition to ideas offered by foreign governments, the link between social security and social stability, which was at the heart of the American and British programs, came to be recognized in international institutions. Greater regulation of the global economy was established when the International Monetary Fund and World Bank were created in 1944, and greater social security measures were advocated by the International Labour Organization. In 1948, with the support of the newly formed United Nations, the International Labour Organization passed a convention asserting people's right to organize and form unions, which would enable them to lobby for greater social benefits.