Staples theory is perhaps Canada’s most significant contribution to the study of political economy. The theory was developed inductively in the 1920s and 1930s as an attempt to create an approach that attended to the particularities of Canada (Howlett et al., 1999). Early staples theorists found liberal and socialist approaches inadequate when applied to Canadian reality as these approaches had been developed for industrialized Europe (Ibid, p. 82). Staples theory was popular in the middle part of the twentieth century, but by the 1960s several scholars were challenging it or abandoning it for other approaches (Ibid, p. 87). The theory has never fully been extinguished, however (Howlett et al., 1999). Mel Watkins’ revived it with his new staples approach and in the 1970s staples theory was given new life under the neo-Innisian approach (Ibid, p. 89). Still, for several decades now, staples theory has been a relatively minor approach in the study of Canadian political economy (Howlett et al., 1999). Based on an examination of three elements of Canada in the early 21st century, the economy, institutions, and technology, as they relate to Canada’s oil and gas sector, I argue that the staples approach is still relevant for Canada in the 21st century. While the overall staples framework remains relevant and many principles of early staples theory still hold, some elements of the theory need revision. While natural resources continue to be fundamental to the Canadian economy, it appears that Canada has escaped the ‘staples trap’ that worried theorists decades ago.
II. STAPLES THEORY
Harold Innis was one of the early founders of staples theory (Howlett et al., 1999). Innis argued that Canadian political economy could be understood by examining the succession of natural resources that dominated economic activity in the country (Ibid, p. 84). This series of resources started with cod and then moved on to fur, lumber, grain, and minerals (Ibid). Throughout Canadian history, the Canadian economy has been dominated by the extraction and export of these resources to core countries, notably the UK and over time increasingly the USA (Ibid). Immigrants were drawn to Canada for the opportunity to earn their livelihoods in the resource industries and, as the Canadian population grew, more and more resources had to be extracted to meet the country’s needs (Ibid, p. 85). This economic model based on the export of raw resources had several consequences for the political economy of Canada (Ibid). One consequence was that the Canadian economy was highly vulnerable to fluctuating commodity prices (Ibid). If demand in the core countries declined or if other countries started generating supply, natural resource prices would go down and the Canadian economy would suffer (Ibid). Over time, demand would catch up with supply and commodity prices would rise again, injecting wealth into Canada (Ibid). Thus, as an economy defined by the export of raw resources, Canada experienced pronounced boom-bust cycles of economic activity that were largely dependent on factors outside the country (Ibid).
In addition to having consequences for Canada’s economy, resource extraction also affected the development of technology in Canada (Ibid; Hayter & Barnes, 1990). Innis argued that Canada’s reliance on the export of unprocessed resources stunted technological development in Canada as an advanced level of technology was not required (Howlett et al., 1999). The technological backwardness of Canada reinforced natural resources as Canada’s main economic activity as a lack of technology inhibited economic diversification (Ibid).
Hayter and Barnes (1990) have highlighted what early staples theorists said about institutions in Canada. Hayter and Barnes (1990) discuss two types of institutions, the state and the firm. As a result of Canada’s reliance on staples, the state is required to invest in the development of infrastructure to support the staples economy (Ibid). In Canada’s formative years, the state invested heavily in the development of the CPR and port facilities as these were needed to access and transport Canada’s natural resources (Ibid). In terms of the institutional structure of the firm, Hayter and Barnes (1990) point to Innis’ arguments that a staples economy produced a distinct corporate structure marked by large, capital-rich foreign owned and controlled companies.
These three areas of concern—economy, institutions, and technology–form the framework for my analysis of the relevance of staples theory in the early 21st century. This framework is based on the framework used by Hayter and Barnes (1990) to analyze the BC economy from a staples perspective, although in their analysis they identified geography instead of the economy as a central concern. Their explicit focus on geography is based on the significant attention Innis devoted to geography in his analyses (Ibid). While I recognize that geography is central in much of staples theory, I have decided to leave out an explicit examination of Canadian geography for the sake of brevity, and instead I focus on the economy in order to ascertain how significant natural resources are in Canada’s economy in the new millennium. The framework I use in this paper to examine the relevance of staples theory for 21st century Canada is summarized in Figure 1
Figure 1 Qualities of country with Staples Economy
• High percentage of GDP derived from exports, natural resources
• High percentage of employment in natural resources
• Undiversified economy vulnerable to boom-bust cycles
• State provides infrastructure/subsidies for resource extraction
• Firms are large and foreign-controlled
• Limited technological development, technologically backward
Adapted from Hayter & Barnes, 1990
In the early 21st century, Canada’s economy continues to rely heavily on exports. In 2006, 36.4% of Canada’s GDP was derived from exports (International Trade Canada, 2007). The importance of exports for the Canadian economy has grown significantly in recent decades due to intensified globalization and trade agreements like NAFTA (Andresen, 2008). Andresen’s (2008) analysis of Canadian trade patterns before and after the implementation of free trade reveals that, while “Canada’s dependence on the US through international trade remains high, that dependency is qualitatively different than it was before the establishment of free trade within North America” (p. 36). The difference is that Canada is now exporting more medium and high value-added products than even before (Andresen, 2008). Also, since even before free trade, the majority of Canada’s exports are manufactured goods and the majority of Canada’s GDP comes from the service sector (Ibid). This leads Andresen (2008) to conclude that Canada is escaping the ‘staples trap’.
Nevertheless, natural resources continue to be an important component of Canada’s economy in the 21st century. Natural resources accounted for 46.4% of the value of Canadian exports in 2005 (Natural Resources Canada, 2007). As a percentage of GDP however, natural resources are a significant minority, accounting for 13% of Canada’s GDP in 2005 (Ibid). Energy, which includes oil and gas as well as hydroelectric and nuclear power generation, is Canada’s single most important natural resource, in 2005 contributing 5.9% to Canada’s GDP (Ibid). Figure 2 shows that energy constitutes about two-thirds of the GDP generated by natural resources in Canada. Furs were the dominant Canadian staple in the 18th century, minerals in the 19th century, and grain in the early 20th century; Canada’s 21st century staples economy is utterly defined by the oil and gas sector. From 2000 to 2020, the Alberta oil sands are expected to generate over $789 billion in GDP across Canada (Parliamentary Committee, 2006).
Figure 2 Sectoral Breakdown of Canada’s Staples Economy, 2002
- Energy: 67%
- Agriculture: 16%
- Mining: 9%
- Forestry: 7%
- Fishing & Hunting: 1%
Source: Statistics Canada, 2003
Natural resources are also an important source of employment for many Canadians. In 2005, 6.2% of Canadian employees were directly employed in natural resource jobs (Natural Resources Canada, 2007). Many more Canadians have jobs that are indirectly linked to the natural resource sector. The natural resources sector spurs demand for industrial inputs, financial services, and homes and cars for resource workers. It is difficult to measure these effects, but one study estimates that 44% of the employment generated by the Alberta oil sands is in the form of indirect employment outside of the province (CAPP, 2005). This means that, while 13% of Canada’s GDP comes directly from natural resources, if one considers the indirect effects of natural resources the importance of natural resources in the Canadian economy is much greater. In the case of Canada’s oil and gas sector, it is estimated that only 48% of the economic benefits arising from that sector are direct benefits, with the remaining majority of the economic impact in the form of indirect and induced economic benefits in other sectors (Timilsina, 2005). Thus, the Canadian economy of the early 21st century remains significantly based on natural resources and, while the economy has diversified into the higher value-added manufacturing and service sectors, much of this economic diversity is fundamentally tied to the natural resources sector.
As an economy significantly dependent on natural resources and integrated with global markets, in particular the US, the Canadian economy remains vulnerable to boom-bust cycles in commodity markets. The 21st century is still in its infancy and throughout the early years of this century Canada has experienced an economic boom fueled by high prices for oil and other commodities (Bryan, 2008). Many analysts are predicting that a period of reduced growth is imminent for Canada due to the recent economic slow down in the US (Beauchesne, 2008). So far the Canadian economy has managed to stay on track despite the troubles in the US and this can be seen as evidence of the continued dominance of natural resources in the Canadian economy. Despite the fact that Canada’s largest trading partner is experiencing an economic slow down, the Canadian economy continues to perform well based on the strength of commodities (Bryan, 2008). That being said, while the Canadian economy may be holding its ground on the national level, disparities are apparent on a regional basis. While the current economic climate is favouring the energy economies of the West and Newfoundland, manufacturing in Ontario and Quebec is experiencing a downturn (Beauchesne, 2008). Some analysts say that Ontario and Quebec are now in a recession, even though nationally the Canadian economy is growing, if at a reduced pace (Ibid).
As the commodity that fuels the global economy, oil stands out as a rather unique commodity for Canada to base its staples economy on. Even if there is an economic slow down or recession, demand for oil will likely remain high (Mouawad, 2008; Radler, 2008). With many petroleum specialists predicting oil production to peak and then decline in the near future, Canada’s vast reserves, second only in size to the reserves of Saudi Arabia, will be an important source of oil in the 21st century (Jones, 2003). Canadian oil is favoured by many because, unlike other sources such as the Middle East, Venezuela and Nigeria, Canada is a politically stable country (Ibid). The US government has stated that it wants to reduce its dependence on Middle Eastern oil and many analysts believe that Canadian oil will be a key source to help the US achieve that goal (Alberts, 2006). Thus, even if the American economy goes into recession and demand for oil in the US shrinks, one can expect the US to reduce its consumption of Middle Eastern oil, increasing Canada’s market share for oil in the US. Adding weight to these observations, a Statistics Canada report found that oil is especially resilient against the vagaries of business cycles and that the manufacturing sector is especially vulnerable to these cycles (Salem, 2002). Thus, contrary to traditional staples theory, in strictly economic terms, it is preferable for Canada to have a staples economy based on oil than an economy based on manufacturing.
Based on this discussion of Canada’s economy in the early 21st century, it is apparent that staples theory continues to be relevant, if in need of some updating. Exports of natural resources continue to be a fundamental aspect of the Canadian economy. It appears that, while the Canadian economy has diversified, much of this economic diversification is based on the natural resource sector. While Canada, as an exporter of natural resources, remains vulnerable to boom-bust cycles, the current high prices for natural resources, and oil in particular, are acting as a buffer against the economic downturn being experienced in the US. Also, with oil as Canada’s dominant staple in the 21st century, Canada is less vulnerable to cyclical changes in the economy because oil is a unique commodity that is particularly resistant to business cycles. Taken together, this account of Canada’s 21st century economy points to an economy that, while being heavily reliant on staples, so far has escaped the ‘staples trap’. Now I turn to a discussion of institutions in Canada, in particular, the firm and the state.
In the early 21st century a significant portion of the firms operating in Canada continue to be foreign-owned. In 2005, just under 30% of all corporate revenues generated in Canada came from foreign-owned firms (Statistics Canada, 2007). US-controlled firms are the most significant presence in Canada, accounting for 63% of the revenues generated by foreign firms in Canada (Ibid). From 2002 to 2005, the share of foreign ownership controlled by US companies declined slightly, while ownership from the UK, Netherlands, and Germany increased (Ibid). This suggests that the source of foreign direct investment in Canada is diversifying (Ibid). Foreign ownership is high throughout Canada’s economy, but it is highest of all in the manufacturing sector, with 49% of assets controlled by foreign-owned firms (Ibid). By comparison, the oil and gas sector is about 39% foreign-owned. Canada’s transportation, retail, and wholesale trade sectors also feature high levels of foreign ownership. Foreign ownership in the Canadian economy can be understood as part of a broader trend toward increased economic globalization (MacPherson, 1996). Foreign direct investment is in fact greater in the Netherlands and the UK, two countries that are not usually regarded as having staples economies (Burgess, 2000). Also, Canada is itself a major source of foreign investment overseas, with greater levels of foreign investment than many other industrialized countries (Burgess, 2000). Thus, Canada’s high rate of both inward and outward foreign direct investment can be seen as part of the wider process of globalization (MacPherson, 1996).
According to traditional staples theory, the state is seen as relatively weak and unable to resist the imperatives of a staples economy (Howlett et al., 1999, p. 98). State policies tend to reinforce the dominance of natural resources in the economy as the economic power of the capitalist class involved in the extraction of staples is translated into political power (Ibid). Also, the costly infrastructure necessary for the extraction and transport of natural resources often must be subsidized by the state (Hayter & Barnes, 1990).
In the 21st century, it is apparent that the Canadian state continues to subsidize natural resource extraction. In a report on government spending in the oil and gas industry published by the Climate Action Network, it was found that in 2002 the federal government spent $1.4 billion in direct spending, program spending, and tax cuts for the industry (Taylor et al., 2005). From 1996 to 2002, total subsidies to the industry amounted to over $8.3 billion (Ibid). State spending on the industry includes subsidies for exploration, pipeline infrastructure and offshore extraction infrastructure (Ibid). The report found a pattern of government support leading to further entrenchment of oil and gas extraction consistent with staples theory:
We found expenditure to increase over the study period. When government expenditure associated with oil and gas production increases, so too does the benefit derived by industry. The result is an increase in the viability and profitability of projects and incentives for investors to continue and even accelerate investments in oil and gas. (Taylor et al., 2005)
The report concludes that, with massive government subsidies for oil and gas, the government is contradicting its stated commitment to reduce greenhouse gas emissions. Since the government ratified the Kyoto Protocol and committed to reducing greenhouse gas emissions to 6% below 1990 levels, emissions have increased by 24% (CBC, 2007). In recent years, the oil and gas industry has vigorously lobbied the Canadian government and Conservative Party insiders have even been linked to the oil and gas lobby groups (CBC, 2001; De Souza, 2008). Perhaps responding to the pressure and the importance of oil for Canada’s economy, in 2007 federal Environment Minister John Baird announced that Canada would no longer attempt to meet its Kyoto commitment (CBC, 2007).
This discussion of state subsidies for oil and gas and the Canadian government’s failure to reduce greenhouse gas emissions confirms that an early principle of staples theory still holds in the new millennium. With oil as Canada’s dominant staple in the 21st century, traditional staples theory would predict this pattern of behaviour for the state. Oil has simply become too fundamental to the Canadian economy for the government to seriously tackle the issue of reducing greenhouse gas emissions and state subsidies to the industry further entrench the dominance of oil in the economy. Having discussed the economy and the state, I now turn to examining how technology in Canada in the early 21st century imbricates with staples theory.
According to traditional staples theory, a staples economy is expected to lead to technological backwardness as the extraction and export of raw resources requires minimal technology (Howlett et al., 1999). There is another school of thought however, regarding the relationship between technology and resource extraction. According to this other perspective, resource dependency actually necessitates technological innovation as resource abundance declines due to overharvesting (Clapp, 1998). The first stage in the resource cycle is the extraction of the most easily accessible and richest parts of the resource base, requiring relatively low levels of technology (Ibid). Over time, as the resource stock is diminished, people must turn to new technologies to harvest what remains (Ibid). This happens in forestry as mechanized tree fellers are deployed to cut down difficult-to-access trees (Ibid). Also, in the case of fishing, the adoption of radar technologies can allow fishers to find what little remains of fish stocks after decades of overfishing (Ibid).
The development and implementation of new technologies have enabled oil to become Canada’s dominant staple in the 21st century. The bulk of Canada’s oil reserves exist in the form of oil sands—a difficult and very expensive source to extract oil from (Armistead, 2002). Oil sands are an expensive source of oil because the oil must be separated from grains of sand (Ibid). While the oil sands have been known to exist for centuries, it was not until the 1990s that the resource started to be mined in a significant way (Ibid). Prior to the 1990s, more easily accessible conventional oil supplies were the focus of the oil industry in Canada (Ibid). As those sources started to dry up in Canada, and as oil prices have increased on the international market due to ever-increasing demand, the oil sands became cost competitive with conventional sources (Ibid). In other words, the high price of oil driven by growing scarcity made it economically feasible to apply the expensive technologies required to develop the oil sands (Ibid). These technologies include horizontal and multilateral wells, gas injection, steam-assisted gravity drainage and electromagnetic heating (Islam, 1997; Moritis, 2002). Electromagnetic heating works by warming the permafrost that contains or caps the oil sands, significantly improving the recovery of oil from the oil sands (Islam, 1997). While many of these technologies have been developed outside of Canada, Canada has also contributed to the technological innovation, often with the assistance of the state subsidies described in the previous section (Taylor et al., 2005). Government initiatives aimed at developing new technologies for oil extraction include the Petroleum Technology Research Centre, the Canadian Oil Sands Network for Research and Development, the National Centre for Upgrading Technology, and Technology Partnerships Canada (Industry Canada, 2007; Taylor et al., 2005).
Perhaps Canada’s most significant contribution to technology used for natural resource extraction and management is in the field of Geographic Information Systems or GIS. A GIS is an automated spatial database that can be used for analyzing spatial data and spatial problem solving (Heywood et al., 2002). GIS was invented in Canada in the 1960s by Roger Tomlinson when he was working for the Canada Land Inventory, an inventory of the agricultural capacity of all land in Canada (Chrisman, 2005). GIS is also an important technology for oil exploration and extraction (Natural Resources Canada, 2007). In the 21st century, Canada continues to be a world leader in the field of GIS (Natural Resources Canada, n.d.). The invention of GIS in Canada is an excellent example of how Canada’s staples economy, rather than stunting technological development, has actually led to technological innovation.
This discussion has shown that staples theory continues to be relevant to Canada in the 21st century. Canada in the new millennium, with its affluent, diversified economy and high level of technological sophistication has escaped the so-called ‘staples trap’, while continuing to rely heavily on the export of natural resources and on the economic activity this stimulates in other sectors. In the 21st century, oil stands out as Canada’s defining staple, much like the staples that successively dominated Canada in the past: cod, furs, minerals, and grain. Consistent with staples theory, the state in Canada heavily subsidizes Canada’s dominant staple, oil and gas, and appears unable to implement policies that would undermine that sector of the economy, such as the Kyoto Protocol.
While staples theory continues to be a relevant framework of analysis, this examination of Canadian early 21st century reality highlights some important revisions for the theory as it was originally conceptualized. Whereas Innisian staples theory argues that Canada’s staples economy is highly vulnerable to boom-bust cycles, with oil as Canada’s dominant staple, Canada may in fact be more sheltered from these cycles. Also, while foreign ownership of business in Canada is high, it is high too elsewhere in the world and Canada itself is a source of foreign investment overseas. Thus, staples theory’s emphasis on foreign ownership may no longer be applicable in the 21st century, when global capital flows more freely, from and to a greater diversity of places. In addition, early staples theorists’ pessimism about Canada’s technological outlook is no longer applicable because as resource reserves decline, resource extraction becomes a technology-intensive activity. This is particularly so in the case of oil, which would not be Canada’s dominant staple in the 21st century if it were not for advances in technology allowing for the recovery of oil from Canada’s oil sands. These revisions to staples theory are not equivalent to a full-scale overhauling of the approach. Rather, staples theory has always been an inductive approach, based on observation of current and historical trends. In this sense, these revisions, grounded in an empirical examination of Canadian reality, are very much in keeping with the original spirit of staples theory. The ability to examine Canada’s political economy in the early 21st century through a staples lens and to confirm well-established tenets of staples theory while also developing new insights speaks to the robustness of staples theory. As a made-in-Canada approach, staples theory will likely continue to be relevant to the study of Canadian political economy for decades to come.
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