The Post-Staples State: The Political Economy of Canada’s Primary Industries



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Chapter XII Between Old “Provincial Hydros” and Neoliberal Regional Energy Regimes: Electricity Energy Policy Studies in Canada – Alex Netherton




Regulatory State / Urban Modernization & Resource Industrialization

Canada’s formative hydro paradigm was geared towards producing energy for industry and urban modernization Indeed, according to John Dales, H. V. Nelles and Christopher Armstrong, the leading historians in this field, the “story” surrounding the formative electrical energy policy regimes was the struggle over the control over hydro, and its use to seed industrialization, particularly from it’s initial discovery in the late 19th century through to the second world war. (Armstrong 1981; Dales 1957; Nelles 1974)

Thinking of hydro, or water power resources, as a staple is a little like assuming that a whale is a big fish. Great similarities, but also significant differences. Hydro, thought of as “water power” is a resource that has been important for Canada’s industrial development, and hydro mega-projects themselves also have many “staples like” features. Once water power was used to power grist mills and motor machinery. But since the late nineteenth century the term hydro usually referred to the use of water power as a fuel to generate electricity, one of the most important modern forms of energy. Neither water power nor hydroelectricity is produced primarily for export markets, though energy can be a significant part of the value of other resources and manufactured items heading for export. For these reasons, hydro has been thought of as a “quasi staple.” (Dales 1957)

Hydroelectric systems also need economic and financial balancing, and are prone to the classic staples problem of excess capacity. Simply put, the high costs of hydro mega-projects and infrastructure means that utilities experience inordinately high costs while markets are still low—and within time, markets grow to utilize the full potential of a dam. Electricity producers, therefore, are often at the forefront of making economic strategies that cultivate energy consumption. Hence the ideas of rents and linkages integral to staples analysis are also extraordinarily important to hydro.

Hydroelectric technology is quite efficient, though it necessitates significant change and management of the sociopshere. Dams, reservoirs, river diversions, control works and the mitigative engineering that goes with them are all are one aspect of hydroelectricity’s ecological footprint. Another aspect is the complex network of transmission and distribution lines connecting production to point of use. Electricity networks are not like a train or pipeline in which a particular resource is shipped from point A to point B. Rather a network or grid is actually a balancing act in which managers balance the energy at one point with the loss of energy at other points. Since electricity can not be stored (except in the form of water reservoirs or alternative fuels), balancing is literally done at the speed of light. Grids need constant management to meet daily and seasonal peaks and troughs of demand.

Finally, when we think of hydro a technology, we are really thinking about technologies that produce electrical energy. Electricity itself is one of the most important technologies of the twentieth and twenty-first century, important not only to economic development, but also, since nearly everyone is connected to the grid, social development.

Hydro was the key to the leading edge technology that would transform productive and domestic political economies. Some of the greatest students of electrification, such as Thomas Hughes, for example, define electrical utilities as technological networks or later as systems (Hughes 1983), a concept adopted by Armstrong and Nelles and applied to Canada. (Armstrong and Nelles 1986) The diffusion of these networks extended the control of the networks. (Jacobson 2000) Hughes recognized that networks vary across time and space, each assemblage had its own”culture of power”–a concept that was also used by Nelles and Armstrong to distinguish between US and Canadian “cultures of power.” In this analysis, we will use the term “regime” to refer to the ensemble of institutions, actors and values that comprise a particular network.

The strategic importance of the technology, the resource requirements, the capital intensity of hydro infrastructure and the long-term nature of the investment risks made the area a natural monopoly. Initially, impetus for development came from private capital, at first US utility and industrial interests, then former Canadian railway entrepreneurs and financiers. Often power utilities emerged from their role in proving electricity for ‘electric railways’ or urban transportation monopolies (Armstrong and Nelles 1986). The windfall rents available to those who could control or first use the new technology made its diffusion the centre of public policy.

Growing urban populism contested private monopoly by means of public power movements that pushed for municipal public ownership–or power at cost, while interests more favourable to private capital promoted a more conservative “regulatory” alternative. (Armstrong and Nelles 1983; Currie 1946; Dafoe 1936) The contestation between these policy networks produces a variety of regulatory regimes and mixed ownership patterns emerged. A series of private monopolies dominated Québec and British Columbia, while Ontario developed a hybrid monopoly commission that developed power and regulated a provincial transmission grid that supplied the energy to municipal distribution utilities. In other provinces there was a mixture of private and public utility networks. Armstrong and Nelles attribute these differences to such factors as relative abundance or scarcity of hydro resources, the fiscal and financial strength of the provincial governments, the characteristics of the regional political economy, ideologies and cohesion of central agents such as state elites, business and financial groups, and public power movements. They also indicate that Canadian political culture was more receptive to submitting the privileges of private capital to the public good. Public ownership in the electricity sector really acted as a public agent to organize markets and define paradigmatic state-society relations.

The first electricity networks were defined by urban regions, and as hydro resources were developed these networks were also involved in regional industrialization. Additionally, industrial producers emerged that developed hydro resources for local mines, pulp and paper and later, aluminum smelting. The operating assumption was regional network self reliance–meaning that each network stood on its own or that the relationships between them were ad hoc rather than systemic. Industrial producers were barred from selling power as public utilities.

The ecological footprint of early hydro regimes was concentrated on rivers (and their associated drainage systems) that were close to the urban populations. Some of these rivers, such as the Niagara, Winnipeg and Ottawa Rivers, were part of international and interprovincial boundaries and drainage basins. Remote hydro resources could not be exploited because long distance transmission technologies were relatively inefficient. Initially hydro investments were ad hoc, but with time the planning and conservation regimes played a larger role in determining the most rational and efficient use of resources, and thus capital. Provincial governments played a key role in shaping these conservation strategies through a licencing procedure. While the rights to hydro resources were first sold as private property, over time provincial governments claimed ownership of these resources and then licenced their use in return for a form of royalty. Investment was sequenced through the timing and terms of licences.

Some deeply set path dependencies were established during the formative period. First, early electrical energy regimes were marked by dominance of partnerships between innovative engineers and financiers. (Hughes 1983) Hydroelectricity technology was developed in the United States where the electricity capital goods industry was more highly developed and where most North American technological research and innovation occurred. Patterns of financing for the Canadian and US industry differed. In the United States a more powerful and highly developed utility financial market led towards the development electricity pyramids or holding companies, such as the Samuel Insull empire, that were both tied to technological innovation and the control of large urban-regional networks. In Canada, the promoter-entrepreneurs connecting local resource interests with metropolitan capital in Montreal, Toronto, London and New York had their role, but the hydro financial sector was simply much smaller, more regionally based and less cohesive. Only one major financial pyramid, Nesbitt, Thomson Limited, a forerunner to today’s Power Corporation, emerged before the depression. Moreover, the state played a larger role in hydro financing, maintaining the power to bend the interests of hydro capital to public policy.

Second, a profound asymmetry developed around the exigencies of international and interprovincial relations, reflecting the importance of early ‘defensive expansionism’ and the unsettled and ambiguous nature of early Canadian federalism. The public power movement was concerned that if firm hydroelectricity was exported, it could not be eventually reclaimed for domestic markets. Accordingly, Ottawa responded by stopping long-term export commitments of hydroelectricity.

Canada and the United States established an enduring process for binational resource conservation and dispute resolution. The 1909 Canada-United States Boundary Waters Treaty established the International Joint Commission (IJC), itself a framework to provide equal rights in boundary water resources and a consensual binational process for settling disputes. The IJC then provided the framework to establish conservation boards to ensure the equitable sharing of hydro resources for Niagara Falls (the lynchpin of Ontario early Ontario energy policy, the Lake of the Woods, Rainy and Winnipeg River System (central to the Manitoba energy strategy). In time the IJC process spread to all boundary waters.

Ottawa did not have the same success in shaping interprovincial conservation regimes or a national electricity policy. Christopher Armstrong details how during this whole period the constitutional jurisdiction of hydro was ambiguous, leaving the determination of federal and provincial roles more to the play of politics than the constitution. Though provinces generally claimed ownership of resources and crown lands, hydro resources were not enumerated in the constitutional division of powers. Ottawa had clear responsibilities for fisheries and navigation, even in inland waters, and also powers to regulate international and interprovincial trade. But the waning years of the National Policy were also a nadir of federal power. (Armstrong 1981) Indeed, when Prime Minister Mackenzie King’s Liberal government attempted to outline a federal role in hydro (aside from the then federal control over resources in the prairie provinces), the majority of his MPs from both Québec and Ontario, as well as their respective provincial governments, opposed the initiative. Even a constitutional reference did not clarify the issues nor set out a clear federal-provincial division of tasks in the field. As a result, Ottawa did not have the political support to shape the development of the policy regime. It did not establish interprovincial water conservation agreements or set terms for interprovincial trade in electricity. Nor could it bring the Ontario and Quebec together with the US Government for agreement on how to develop the hydro capacity of the Saint Lawrence River. Protecting hydro for the domestic market really meant protecting it for provincial purposes. Hydro regimes were effectively centred in provincial capitals. Even in the prairie provinces, hydro planning and licencing would need the consent of the junior provinces. Interprovincial trade policy became a matter of voluntary agreements or contracts between provinces.

Provincial hydro regimes, did, however, have substantial economic impact. Electricity networks spread throughout urban Canada and a “cheap power policy” was used to fuel industrialization, social and technological modernization. Peter Wylie, for example, estimates that the technological adaptation and restructuring of Canadian manufacturing during the 1900-1929 period led to an over five fold increase in production and to significant decreases (up to 15 percent ) in the manufacturing costs. (Wylie 1990) Certainly, the 1929-39 depression and subsequent world war acted as “perturbations” that substantially affected the development of the formative energy paradigm. The only complete failure of a hydro utility during the period, for example, occurred in Manitoba when the collapse of key industrial markets forced Winnipeg Electric, the Nesbitt-Thomson affiliate and the province’s major private utility, into “financial reorganization”. Yet the regime itself had several anomalies.

Though John Dales had chronicled the efforts of the five regional Québec monopolies to foster industrialization, his study of the Québec hydro sector came to the astounding conclusion that the unfettered monopolies had stifled the economic development of the province! (Dales 1957) At issue were the high rates that weakly regulated monopolies charged urban domestic consumers, as opposed to the cheap commercial and industrial rates offered business, a defacto tax that Dales considered a drag on the economy. The regulatory issue was important because although Canadian political culture was more accepting of regulation than that of the United States, the actual form of regulation was generally not particularly effective. (Currie 1946; DuprÈ and Party 1998) Dales was also critical of the complacency of the Montréal monopoly’s with respect to Saint Lawrence hydro resources, energy Dales thought would have substantially aided in the development of the region. Research suggests similar problems on the Prairies where the lack of surplus power in Manitoba during the war hindered war-related industrialization and economic development. (Netherton 1993) Indeed, during the war all provinces would be under pressure to renew investment in electrical energy infrastructure.

Lastly, these formative regimes institutionalised social inequality, particularly between rural and urban society. The latter had the population density that made their inclusion within electrical networks economially viable for public and private utilities. But the low density of rural populations and especially the lack of agricultural income on the prairies during 1930s made rural electrification conventionally impossible.



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