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

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Keynesian Welfare-State / ‘Permeable’ Fordism, 1946-1987

After facing depression and war effort exigencies, when public leadership thought of postwar energy needs, they began to see the role of the state in more systematic terms than previously. The new overall policy objective was not the pursuit of and control over electrification, but to ensure that sufficient investment could be made to meet postwar needs, and to ensure equity among the various fragmented electrical networks. The emerging energy policy paradigm conformed to Keynesian-welfare state principles, or the Canadian technocratic variety (Campbell 1987) in that it necessitated a massive state assisted investment program for electrical energy and, at the same time, the systematic continuation of promotional rates, the “cheap power”policy that subsidized and facilitated the mass production and consumption of electrical goods, a system of production and economic regulation often term ‘Fordism’. So began the era of ‘mega-projects’ and ‘provincial hydros’. As we will see below, critics would eventually draw lines between these two points, arguing that subsidizing energy simply fed the need for more.

Thought the conceptual integration of staples and energy policy with the construction of Canada’s mass production and mass consumption economy appears to be a ‘common sense’ idea, it is clearly not the norm. In the 1970s ‘New Canadian Political Economy’ staples analysis would change to reflect a nationalist-continentalist debate. NeoInnisians blended dependency theory to the staples approach to form a somewhat deterministic “dependent industrialization” thesis. Within this perspective attention focuses on the role of foreign direct investment (primarily American) in manufacturing and resource industries, as well as the increasing importance of continental markets for Canadian resources. In different forms the essential argument is that an alliance between Canadian finance and multinational firms blocked an indigenous national path of development. Instead Canadian industrialization became dependent upon US resource and manufacturing capital. Also, in its original formation, analyses highlighted the difference between the protected national market for manufacturers and the open international market for resources. The tariff wall acted as an incentive for foreign branch plant industrialization, resulting in an inefficient truncated miniature replica effect, an industrial structure that was inefficient, turned on the domestic market, and dependent upon foreign technology. (Clark-Jones 1987; Clement 1977; Howlett, Netherton and Ramesh 1999; Williams 1986) Karl Froshauer’s historical analysis of hydro development strategies of five provinces conforms to this general nationalist critique of postwar development.

Not all nationalists accepted the dependent industrialization thesis or the proposition that the Canadian business class was necessarily comprador or subordinate to continental interests. (Niosi 1983) John Richards, for example, outlined a “new staples” argument, with antecedents from Mackintosh. Richards rejects the concept of “dependent industrialization” on the grounds that the concept assumes that an alternative autonomous national path of development existed, a reality he questions, given the regional articulation and international position of the Canadian economy. What Richards forcefully argues, however, is that the provincial state can manage resources to generate and redistribute rents or to foster a forward linked economic development strategy. (Richards 1985; Richards and Pratt 1979)

While the staples tradition within the New Political Economy highlighted the unique economic structures and international position of Canada, comparative literature on Fordism highlighted the importance of internal political struggles and labour process in forming Fordism as a system of production and regime of regulation. Jane Jenson brought the two together by developing the concept of “permeable Fordism” to denote the ways in which Fordism was shaped by the different matrix of social and political forces in the Canadian political economy, many of the same variables identified by the NeoInnisians. Important to Jenson’s approach to Fordism is that it’s articulation was shaped by domestic politics, what she terms the “societal paradigm.” (Jenson 1989, 1990, 1993)

Focussing on Canada’s ‘permeable Fordism’ has important consequences for the analysis of the postwar energy strategy. Instead of the NeoInnisian focus on the production of hydro as a staple for continental export or to Canada’s dependent industrialization in relation to the United States, energy policy is defined and analysed in relation to it’s own domestic market and energy regime. A.W. Currie’s postwar review of Canadian utility regulation makes the point. In Ontario (the province with the most developed electricity market), he states the cost of appliances, not the cost of electricity, had become the impediment to the continued electrification of society. (Currie 1946) The viable corporate strategy for utilities, therefore, was to help cultivate the mass consumption of appliances. It was not uncommon, for example, for public utilities to subsidize the cost of purchasing major appliances, such as electric stoves, refrigerators and washing machines. In rural electrification programs utilities could even offer perspective customers a whole set of appliances in special five year financial packages. (Netherton 1993) As the postwar period grew, popular utility demonstration programs, such as “live better electrically” were witness to the convergence of electricity policy to that of the mass production of electrical wares–from the energy guzzling big appliances to the transformation of “hand tools” into “power tools” and later, the transistor transformation of communications andhome entertainment. This approach then ties together and emphasizes Canadian domestic (household), commercial and industrial (mass manufacturing) demand stemming from the articulation of Canada’s “permeable Fordism” as the drivers of electricity policy rather than the production of electricity as a continental staple. Indeed, as the work of Joy Parr illustrates, domestic technology, particularly in the kitchen, as the intersection of market, state and domestic sphere, took on an extraordinary importance in postwar culture and design, economic policy, utility business incomes and mass manufacturers. (Parr 1996, 1999, 2002; Williams 1998) One can only surmise that if this modernization had occurred after the rise of the second wave of feminism, women would have gained greater financial power and property rights. However, electrification appeared to be shaped in the interests of dominant institutions, particularly utilities and mass manufactures, institutions that benefited from a passive energy consumerism within society.

Once set in motion, the combination of cheap power and permeable Fordism, given continued economic growth, produced pressures that produced the “provincial hydros” and “mega-projects” regime. With annual growth between six and seven percent, utilities looked at doubling their capacity decade. Accordingly provincial utilities commenced massive coal, nuclear and hydro investment programs–stretching provincial financial capacity to its limits. The whole energy policy paradigm was thrown into a crisis after the 1973 OPEC oil embargo and the mid-decade inflation and then stagflation hat ended the Keynesian era, wrecking havoc on both energy demand and utility financing (Wolfe 1984).

The relative importance of Canada’s petroleum, coal, hydro and uranium changed substantially during this period. During the 1950s hydro or water power, was not considered the wave of the future, not the resource on which to build long-term economic or energy strategies. (Davis and Royal Commission on Canada's Economic Prospects. 1957) Rather, economic thinking looked to petroleum products and natural gas as fuels of the future. Accordingly, a great part of the North American eastern seaboard used oil to generate electricity. For industrial Ontario, coal was used for large scale generation, but it was not considered to be a secure resource or technology, expensive to produce and transport, and environmentally difficult.

By the 1960s uranium and nuclear power technology were thought to be the major substitute for coal and generally, the way of the future. Still, Canadian provinces with hydro resources embarked upon massive investment programs, part of highly visible and symbolic regional economic development and modernization strategies and in the province of Quebec, an integral part of the Quiet Revolution. (Beale 1980) When the 1970s, the oil embargo precipitated a windfall rise in the value of oil, along side an acknowledgement of its scarcity, the relative economics of electricity generation changed dramatically. “Renewable” hydro would become a substitute for “finite” petroleum in the generation of electricity–and Ottawa would establish a series of oil replacement policies. (Canada. Dept. of Energy Mines and Resources. 1973) At the same time, the economic and environmental opposition to the nuclear alternative in the United States and Western Europe precipitated an almost total collapse of the nuclear option in the United States. (Campbell 1989) Canada’s CANDU nuclear energy technology, however, became a replacement for coal in Ontario, Canada’s largest energy market.

After the oil crisis thinking on hydroelectric policy began to consider whether the provincial state could exact rents or foster economic development from hydro resources the same way as Alberta and Saskatchewan were doing the same with petroleum. (Richards and Pratt 1979) This would prove to be difficult. Eric Kierans, one of the early innovative thinkers in this area was shocked to see that Manitoba Hydro investments were not even conceived in terms of a social investment and argued that without a meaningful analysis of a rater of return building large mega-projects for export entailed a waste of social capital, eroding the ability of the first NDP government to reach its broad social and economic goals. (Manitoba Hydro. Manitoba Hydro Task Force 1973, 1976) This issue became more salient as post 1973 declines in energy consumption left financially strapped utilities with burdensome surplus capacity. Several binational energy sector groups looked at expanding exports. Through their representation in the Canadian Electrical Association, Canadian utilities also supported building for export. (Battle, Gislason, Douglas et al. 1982) Even the federal government, seeking to equalize windfall rents, published an elaborate analysis of the potential rent value of hydroelectric energy. (Zuker, Jenkins and Economic Council of Canada. 1984). However, neither the United States or Canada was willing to radically alter regulatory procedure, and at root, the US government did not think that Canada would be an economically viable long-term supplier of electricity. In the short-term, US utilities picked up surplus Canadian electricity on the export market at low “economy” prices. For the long run, the US administration took the view that Canadian electricity had export advantage primarily because it was publically subsidized. Accordingly, US Federal approval for its introduction as a long-term supply was not in the cards. (United States. Department of Energy. Office of Policy Planning and Analysis. 1987).

As Canadian utilities entered into a period of excess capacity, declining demand and related financial stress, economists began to critically assess the postwar paradigm, particularly the “cheap power” policy. For Adrian Vining, publically owned utilities tended to overproduce and underprice, while private utilities tended to do more innovation. (Vining 1981) Jean-Thomas Bernard presented the familiar argument that the cheap promotional rate structures (the price goes down the more one consumes) were the root of the problem. As a result of this policy, Canadian hydroelectricity exports, especially those of Hydro Quebec, were unable to capture any rents. Their solutions pointed towards utilities adopting marginal cost pricing–making rates reflect the actual cost of producing a unit of electricity and using time of day pricing, as practised in France and elsewhere. ]

At mid-decade the economic analysis more profoundly criticized the statist hydro regime when the Economic Council of Canada advocated a more market oriented electricity energy strategy. (Economic Council of Canada. 1985).

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