The New Staple State: Political Economy and Public Policy Regimes in Canada’s Primary Industries


partment of Foreign Affairs and International Trade 2003



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Source: Department of Foreign Affairs and International Trade 2003
A provincial consideration of natural resource related trade—the heart of staples based research-- reveals a greater dependence on the natural resources sector. The role of resources in the various provinces is best demonstrated by two sets of statistics in Table 2. The first, revealed comparative advantage, shows the ratio of the provincial share in resources trade to the national share of resources in total trade. If this statistic is greater than one, then the province trades relatively more in natural resources than it does for all other commodities. Conversely, if the ratio is less than one, resources are less important for their overall scheme of provincial trade. The second set of statistics is a dependency ratio that shows the share of natural resources in total provincial trade. This statistic indicates that trade in resources accounts for a certain percentage of total provincial trade. Both Ontario and Quebec had revealed comparative advantage scores less than one (0.46 and 0.99 respectively) and an export dependency less than 40% (18.6% and 39.99% respectively). High revealed comparative advantage and export dependencies were evident in nearly all provinces and territories. In the case of the Prairie provinces, both Alberta and Saskatchewan are highly dependent upon natural resource sectors. Their sources of dependency are highly differentiated. The oil and gas dominates Alberta’s natural resource sector while agriculture is the leading sector in Saskatchewan. Manitoba, on the other hand, has a comparatively diversified economy and diversified natural resource sector. While Manitoba is still dependent on natural resources, their economy includes strengths in agriculture, forestry, mining, and hydropower. Furthermore, Manitoba is a crucial transportation hub. As a consequence, transportation, an indirect but important staple related service sector plays an important role in Manitoba’s economy (4.7% of GDP and 20% of foreign based commodity exports) (Manitoba 2004). The variety of economic compositions and natural resource endowments in the three Prairie provinces suggests that state responses will also differ. The most surprising statistic was the results for British Columbia that revealed high comparative advantage (1.87) and (75.87) export dependency scores. However, as argued earlier, the province’s transformation to a post-staples economy should suggest lower scores. Recently, The Economist reported that the natural resource “sunset” had “given way to a new dawn” and driving a revival in the Province’s economy (2005). These cases suggest that a theory of the state related to staples development be developed in order to fully understand the differences between the staples state and the post-staples state.

Defining the Staples State


Conceptualizing the capitalist state’s evolution is a critical starting point to developing an understanding of a staples and post-staples state. The evolution of the state in Canada has always included staples. For political economists, it is a matter of linking staples production with a generalized state form. Four generalized forms are discussed in relation to staples production (Table 3): the minimalist state, the emergent state, the Keynesian welfare state, and the competitive state. There is a vast literature that describes each state typology. The point of this section is to capture the broad parameters of this evolution and illustrate the changing relationship between the state and staples production. Table 3 also highlights the importance the role organizations play in defining the state. Through its evolution, the state is defined by its organizational characteristics (Laumann and Knoke 1987). Moreover, the role organizations play also becomes important in the policy-making process.

Minimalist State


The pre-20th century period defined the minimal state period during which state involvement was sparse to non-existent in nearly all staples-based sectors. Conversely, staples defined Canada’s overall economic growth (Hessing and Howlett 1997). The state and its actions revolved around the facilitation or impacts on resource development for colonial or mercantilist interests. For example, the impact of a particular colonial policy decision, such the 1831 Colonial Trade Act or the 1854 Reciprocity Treaty defined the extent of state involvement. In The Fur Trade in Canada: An Introduction to Canadian Economic History, Innis (1930) stated that the administration of the early fur industry revolved around the interaction of two large mercantilist companies and their officials, namely the Northwest and the Hudson's Bay Companies, with the early traders. He notes that"[I]t was significant, however, that business organization was of vital importance [to the development of Canada's fur trade]" (Innis 1930 p.387). In the conclusion, Innis does acknowledge the staple related business linkages with early Canadian state: "The lords of the lakes and forests have passed away but their work will endure in the boundaries of the Dominion of Canada and in Canadian institutional life" (Innis 1930 p.393).

Similarly, in the forest sector, the Department of the Interior’s Dominion Forestry branch, the precursor of today's Canadian Forest Service was established in 1899. However, rapid commercial timber harvesting had been underway and proceeded unabated for nearly a century prior, particularly during the early 1800s.51 In eastern Canada, concern over the depletion of forested lands, precipitated calls for timber regulations (Ontario 1893). The Forestry branch was charged with the monumental task of the "protection of standing forests on Dominion lands" (Canada 1918). In western Canada, the Forestry branch reported that in 1918 it employed 562 members of which only 44 were "technically trained foresters" (Canada 1918). The Commission (1918) also highlighted the challenges of forest administration.

In the early stages, forest matters were dealt with by the officials of the Department of Lands. The work centred chiefly in Vancouver, at the office of the timbers inspectors. A forest ranger with a launch patrolled the 700 miles of coast-line between Vancouver and Prince Rupert. The forests of the interior country were administered by collectors, who paid occasional visits in quest of royalty due from operators who had cut Crown timber. In those days, even though logging operations were conducted on a small scale, this slender staff was unable to cope with the situation effectively (p115).
Prior to World War I, state involvement by either level of government in forest matters was very limited. A newly emerging cadre of forest professionals first seriously raised the concerns about the depletion of forests--at the 1906 Canadian Forest Convention in Montreal and the 1909 North America Conservation Conference (Burton 1972). State involvement within the natural resource sector was very limited. The state’s focus during the latter half of the 19th century was the expansion and settlement of Canada’s hinterland (e.g. construction of the CPR railway).

Emergent State and New Industrialism: The Staples State’s Golden Era


The minimal state conception contrasts with emergent industrialized capitalist state (1900-1945) and the growth of a “new generation of staples,” particularly the expansion of prairie based agriculture development. However, the role of the state in relationship to staples productions across all provinces and all sectors was rapidly developed during this period that Nelles (1974) refers to the “new industrialism.” One of the driving factors behind economic growth was a booming population as a result of the Federal government’s immigration policy. Canada’s net migration increased in the 1901-11, 1911-21, and 1921-31 periods by 716,000, 232,000, and 229,000 respectively (Marr and Paterson 1980). The influx of immigrants is largely attributed to the Prairie wheat boom, which saw the increase of populations (Marr and Paterson 1980). That is, Manitoba’s population increased from 152,506 to 461,394 between 1891 to 1911; Saskatchewan’s grew from 91,279 to 492,432 between 1901 and 1911; and Alberta’s grew from 73,022 in 1901 to 374,295 in 1911 (Innis 1943). Attracted to free or inexpensive landholdings, the area of Prairie land in farm holdings grew from 5.9% in 1881 to 52.9% in 1911. By 1971, this rate was 78.7% and by 2001, 81.4% (Statistics Canada 1995).

Accompanying the demographic and economic expansion of the agriculture sector was increased political activity in the form of protest movements. This emergence was most profoundly shown by the formation of the agricultural cooperative movements as well as many of the Prairie agricultural organizations, such as the Manitoba Grain Growers' Association and the Alberta Farmers' Association, some of which continue be in operation today. Grace Skogstad’s (Chapter Three) discussion of the initial early 20th century struggles by farmers to form agriculture cooperatives underlies longstanding history of the political and policy interaction between farmer-based organizations and the state. From her chapter, the growth of organizational activity on the Prairies outlined the importance of organizations in developing early agricultural policies. The role of producer-based groups continues to dominate current agricultural policy making.

Whereas the issue of marketing and prices dominated the early 20th century agriculture sector, conservation came to the forefront of the burgeoning Canadian forest sector and was the reason for the rise in the “emerging state.” Forest related industrial, particularly after World War I, was spectacular. Between 1918 and 1922 pulpwood production quadrupled and there were over 300 pulp mills established throughout Canada. In response to this economic growth, the 1924 Royal Commission on Pulpwood found that many tracts of lands in the western provinces had been cut over (Howlett 2001). The push for conservation-oriented policies was a predominant concern among civil servants within the Dominion Forest Branch (Gillis and Roach 1986). This matter also resonated from within newly formed prairie Provincial departments of forests that were established as a result of the 1930 Natural Resources Transfer Agreement that transferred the ownership of resource rights from the Dominion government to the Provinces. The prominence of provincial forestry responsibilities and the concern over the long-term sustained timber yields signaled the beginning of extensive state involvement throughout the Canadian forest sector. Within the mining sector McAllister (Chapter 11) also highlights the how “scientific management, business, and liberalism heavily influenced the political culture of public and private organizations in the early 20th century.” The growth of the large-scale bureaucratic state was one of the lasting legacies of the Keynesian Welfare State (KWS) and its downfall.

A notable aspect of this period is the number institutional and structural outcomes and developments that continue to influence natural resources sectors today. The outcomes from such path dependencies over a period of time are not determined by any particular set of initial conditions. Rather, a system that exhibits path dependency is one “in which the outcomes are related stochastically to initial conditions, and the particular outcome that obtains in any give run of the system depends on the choice or outcomes of intermediate events between the initial event and the outcome” (Goldstone 1998 835). In forestry, for example, the initial event, namely the transfer of forested Crown lands to provincial governments eventually led to creation of large-scale industrial tenure arrangements. Regardless of the staple’s state current development, path dependencies exhibited across all natural sectors continue to shape the state’s response



KWS Legacy and Crisis: Wither the Staples State?


There is ample scholarly analysis and debate of the KWS and its subsequent crisis (See Crozier et al 1975; Gough 1979; Offe 1984; Esping-Andersen 1990 for extensive overviews of the welfare state). The 1946 to 1990 period marks a declining period of the Canadian staples economy. During the previous “emerging state” period staples were defined the classic staples core-periphery relationship. Innis and other staples theorists often focused on the mercantilist relationship between the core and subordinate periphery as the defining source of political struggle. This uneven relationship was built on the extraction of staples and their transportation to the centre for processing. Periphery based producers then purchased capital from the centre. This unequal relationship produced such seminal works such as CB McPherson ‘s 1953 Democracy in Alberta chronicled the rise of Prairie political protest movement in the early part of the 20th century. During the KWS period, the relationship between the core and periphery changed (Gilpin 1974). The periphery retained and attempted to foster industrial growth. Provincial states developed strategies and ambitions of their own (Gilpin 1974; Pratt 1977) (Cairns 1988). Conversely, economic activity was no longer linked to the domestic centres for financial and other service related sectors (Krugman 1991). Between 1940 and 1994, the percentage of Canadian exports to the U.S. increased from 41.1% to 81.4%. However, the growths in exports (both in total dollar value and a percentage of exports) were for manufactured goods. This period marked the debate regarding Canada’s branch plant relationship with the U.S (Levitt 1970) (Watkins 1970).

In the area of staples dependence, Provincial and Federal governments made concerned efforts to overcome a common problem, namely the “staples trap.” Staples dependence, it is argued, over a long period of time leads to well-established investment and market patterns (path dependencies) that are difficult to change (Marchak 1983). In some cases, regional decision-makers can become ‘addicted’ to resource extraction with little opportunity to escape (Freudenberg 1992). According to Marchak (1983), escape from the staple’s trap can take a number of different forms. National and Provincial governments during the KWS period pursued three notable strategies. The first strategy is to do nothing, which leads to resource exhaustion and permanent underdevelopment. Such a strategy was undertaken in Atlantic Canada leading to the exhaustion of its key resources such as the fisheries and coal, and the subsequent decline of its economy (OECD 2002). The second strategy was promoting a new or existing staples base. Macallister (Chapter 11) details the subsidization throughout the mining industry such as a national a flow-through share program that allows a company to flow a 100 % tax deduction for the cost of eligible exploration expenses. Urquhart and Pratt (1994) examine the Province of Alberta’s role in expanding its forest sector through the use of generous government land tenure arrangements and favourable loans to multinational forestry corporations. The third and most prevalent strategy during the KWS period was the strategy of diversification in resource dependent regions. This strategy has, for a number of decades, been an ongoing policy direction of both the federal and provincial governments. For example, Pearson government established the Department of Regional Economic Expansion (DREE) and the Department of Regional Industrial Expansion (DRIE). The Mulroney Conservative government began to gradually reduce the level of industrial incentives and began to promote a knowledge based industries (Doern and Phidd 1992). Federal agencies such as the Atlantic Canada Opportunities Agency (ACOA) and Western Economic Diversification (WED) remained in order to tap into “insufficiently exploited local competitive advantages” but were a shadow of previous attempts to enhance regional development (OECD 2002). The shift to a knowledge based economy marks the beginning of the competitive state.Table 3 Evolution of the staples state


Type


Minimal State

Emergent State

Keynsian Welfare State and Crisis

Competitive states

Time period


Pre-20th Century

1900-1945

1946-1970s

1970s-1990s



1990s-present

Role of staples in relation to the state

Colonial and mercantilist expansion

Core-periphery relationships, staples traps, rise of protest movements

Key path dependencies



U.S. Branch economy, regional economic development policies, state expansion and then retreat

Globalization and re-scaling, environmental protest movements

Schumpeterian and Richardian states


Organizations


Few – mainly companies

Rise in organizations

Organizational State

Organizational State

Coordination


Market

Market-Hierarchal

Hierarchal

Hierarchal-Network

Dominant staples


Fur, Forestry (timber)

Agriculture, Forestry (pulp and paper), Mining

Oil and Gas

Multiple



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