Staples Extraction And The Canadian Economy

We are told by Prime Minister Carney that Canada will become an “energy superpower” in accord with his major national projects.

This is indeed the continuation of Canada’s past history when in the words of the late great Canadian economic historian Harold Innis we were “hewers of wood and drawers of water.” Although the phrase can now be updated to read we are “hewers of wood and drawers of bitumen.” So the resource extraction economy will continue to be Canada’s predicament.

What Canada urgently needs are refineries and petrochemical industry built by Canadians and wholly owned by Canada; wood manufacturing to turn the raw logs which are currently exported into manufactured products such as furniture, building materials, and similar value-added products. Only then the raw staples in excess of Canada’s industrial needs should be exported.

“Beginning early in the 2000s, Canada’s economic and political trajectory came to be dominated by an unprecedented resource extraction and export boom focused on the petroleum industry, and on bitumen mining in northern Alberta, in particular. The negative side-effects of this boom quickly became obvious, including a destructive over-appreciation of the Canadian dollar, negative spillovers on other export industries (like manufacturing), undue political influence of fossil fuel industries and tighter geopolitical integration into U.S. orbit and, of course, horrible implications for Canada’s performance in greenhouse gas emissions.

Extracting ourselves from overreliance on petroleum extraction and export will be painful, but it is also inevitable. And it opens many promising economic, regional and environmental opportunities, as well. We are confident that Canada will traverse that challenge successfully: the political and economic forces leading us away from petroleum dependence are ultimately unstoppable.” (Source: The Staple Theory @ 50)

“All theories retain the genes of their parents, and likewise the Staple Theory. The time was the early 1960s, the heyday of economic history at the University of Toronto. Harold Innis had died a decade earlier, but his legacy was alive and well. He had artfully overridden disciplinary boundaries in his books to focus on Canada as a society: the way it was conceived and nurtured. He showed how natural resources (staples) had played a central role throughout.

Walt Rostow (also an economic historian) declared a “Decade of Development” ahead. All underdeveloped countries should take a leaf out of the experience of the developed countries, he argued, and embark on the path of self-sustaining industrial growth. In the end, despite massive amounts of foreign aid, all this amounted to little more than a declaration of innocent myopia. Nevertheless, how to successfully launch a country onto this path to industrial growth was the challenge of the day. Soon the difficulties loomed up: how could the less developed countries, so heavily dependent on the export of natural resources, proceed to launch new secondary industries? Countries were mired in their respective staples, with seemingly little chance of shifting into industrial development. Were these countries fated to drag their heels until they could extricate themselves from this staples dependence? How to escape from this debilitating role and move into the realm of high value-added manufacturing? In the countries of Latin America, for example, staples were regarded as the albatross that had dragged them down during the time that the industrial giants such as the United States had raced ahead.” (Source: The Staple Theory @ 50)

“Enter Watkins’ staple theory of economic growth, showing how Canada had in fact found a way out of its own staples dependence. Canada had, after all, emerged as a developed country despite its initial reliance on the export of staples. How had this occurred? That was the intriguing question that Watkins resolved in his classic 1963 article.

Wheat production required tractors and harvesters; mineral production required elaborate mining machinery. How to take advantage of these opportunities? There were further possibilities. Instead of simply digging things out of the ground and exporting them in their raw state, economic growth could come from further processing of these raw materials. Softwood lumber could be turned into paper by constructing paper mills. Flour mills could (and should) process the wheat into flour; steel mills should process the iron ore. Who would take up these industrial opportunities? Here, Watkins argued, lay the key to the transition into industrial growth—the industrial linkages that staples production offered.” (Source: The Staple Theory @ 50)

“Canada. . . . . could be held up as an example of how these linkages could work to foster industrial growth at least for some staple-reliant countries. But little of this would have actually occurred in a laissez-faire society, where industrial imports from an adjacent economy might have swamped the fledgling domestic industries responding to the demand for the products of these backward and forward linkages. These new industries were sheltered in Canada behind a tariff wall. Local manufacturers did seize the opportunities on their doorstep and created an industrial base for the country. In the postwar period, as Watkins pointed out, Canadian business was often slow on the uptake, and alas foreign owners garnered many of these industrial opportunities.” (Source: The Staple Theory @ 50)

“Canadian economy and polity – with their dependence on global forces largely beyond our control and with their increasing capacity for environmental degradation – has actually deepened Canada’s dependency on export of raw resources.

Born as an offshoot of Europe, like other New World colonies, Canada could not survive without a staple to export to the metropolis. Canada has actually managed (that is, mismanaged) to regress to its origins. Sadly, bitumen is the worst of staples, matched only by asbestos; while it had little overall significance for Canadian economic growth, the governments of Canada and Quebec, while ultimately banning its use at home, wouldn’t ban its export to poor countries, with weak worker protection even until the last mine in Quebec closed. There is evidently a serious problem of addiction to resource exports with slight regard of the consequences for the world.

Bitumen is what economic historians have come to call a superstaple, with an impact bordering on the monocultural. For the New World, the dark side of cotton and sugar was slavery, with horrifying global consequences. For bitumen it is extreme climate change and its catastrophic consequences for the wellness of the world and of its entire species.

Oil has a track record – it is, of course, not just a staple export for Canada, and bitumen is not our first export of oil – and it is not a happy one. Compared with almost any other staple anywhere (for example, wheat in western Canada or fish in the Atlantic provinces) studies show oil comes out second-best even before climate change is factored in. The best of the linkages is fiscal linkage, royalties and taxes which can then be used to seed diversified, greener, development. But Canadian governments are too deferential to the oil companies, with their enormous power, too lacking in imagination, to do that. The weakness of linkages in general from oil almost guarantees Dutch disease and worse.” (Source: The Staple Theory @ 50)

[Dutch disease is an economic phenomenon where the rapid growth of one booming sector—typically natural resource extraction—causes the value of a nation’s currency to appreciate. This makes the country’s other exports too expensive for global markets, often leading to the decline or “hollowing out” of domestic manufacturing and agriculture. (Wikipedia)]