The Political Economy of Canada’s Primary Industries

The Post-Staples State:

The Political Economy of Canada’s Primary Industries

Edited By

Michael Howlett

Department of Political Science

Simon Fraser University

Burnaby BC

Canada

Keith Brownsey

Department of Public Policy

Mount Royal College

Calgary, Alberta

Canada

Submitted to UBC Press

November 15, 2005

Table of Contents

Table of Contents ii

Table of Figures vii

Table of Tables viii

Acknowledgements ix

Part I – Introduction x

Chapter 1 – Introduction – Michael Howlett (SFU) and Keith Brownsey (Mt. Royal College) 1

Overview: Staples and Post-Staples Political Economy 3

Staples Theory 5

The Historical Foundations 8

Debates in the 1970s and 1980s 15

Contemporary Staples Theory 23

Organization of the Book 28

References 32

Part 2 – Consumption Industries: Agriculture and the Fisheries 37

Chapter II: “The Two Faces of Canadian Agriculture in a Post-Staples Economy” – Grace Skogstad (Toronto) 38

Introduction 38

Agriculture as a Dominant Staple: late 19th century – 1930 41

Depression and War and the National Interest: 1930-1945 42

State Intervention and Restructuring in the Post-war Period 44

State Retrenchment, Regionalisation, and Globalization in the 1980s and 1990s 46

Regional Market Integration and Dependence 47

Integration into the Multilateral Trading Regime 50

Redefining State Fiscal Obligations 51

The Political Organization of the Agri-Food Sector and State-Sector Relations 53

The Structural Inferiority of Staples Producers in a Mature Staples Sector 56

Conclusion 58

References 63

Chapter III: “The New Agriculture: Genetically-Engineered Food in Canada” – Elizabeth Moore (Agriculture and Agri-food Canada) 69

Introduction 69

The first wave of GE food policy: a mature staples context 70

Jumping on the bandwagon: investment in GE food technology 73

Regulation as a tool for promotion and protection 76

The second wave of GE food policy: post-staple pressures and responses 78

The road ahead for GE food policy in Canada 87

References 93

Chapter IV - The Relationship between the Staples State and International Trade As Pertains to the Canadian Fisheries Industry - Gunhild Hoogensen 99

Introduction: 99

Trade policy, Staples, and the fisheries 103

Subsidies 108

Trade Agreements 111

The role of the trade agreements and WTO – good, bad, and does it matter? 116

Conclusion: 118

References 121

Chapter V: "Caught in a Staples Vise: The Political Economy of Canadian Aquaculture” - Jeremy Rayner (Malaspina) and Michael Howlett (SFU) 125

Introduction: 125

(Overly) Optimistic Expansion in the 1980s and 1990s 125

Emerging Problems with Aquacultural Development 127

A Post-Staples Policy Process? 130

Aquaculture as a Problematic Post-Staples Industry 131

The Finfish Sector 135

The Shellfish Sector 137

The Existing Canadian Aquaculture Regulatory Framework 138

The Federal Situation 141

Provincial Developments 148

Conclusion 155

References 159

Part 3 – Extraction Industries: Minerals and Forests 169

Chapter VI: Shifting Foundations: a Political History of Canadian Mineral Policy - Mary Louise McAllister, 170

Promising Prospects: Staples and the nascent mineral industry 172

Embedded Interests: Establishing the Staples Economy 176

Shifting Ground: Competing Interests 179

Competitive Pressures on the Resource Industry: 180

Access to Land Issues 181

Adverse Environmental and Social Impacts of Mining 183

The Decline of the Resource Community 188

Uncertain Territory: Complex Environments 190

Emerging Conceptual Perspectives 190

Rising to the Challenge? Responses to Change 192

Seismic Shifts or Minor Tremors in the Status Quo? 193

Conclusions: New Frontiers 198

Chapter VII: “Complexity, Governance and Canada's Diamond Mines” – Patricia J Fitzpatrick (Waterloo) 206

Complexity, Governance and Canada's Diamond Mines 206

The Northwest Territories Policy Community 208

Aboriginal organizations 209

Territorial Government 211

Non-Governmental Organizations 212

Proponents 214

Summary 214

Diamond Development in the North 215

West Kitikmeot Slave Society 216

Community Capacity and Public Participation in the BHP Review Process 218

The Implications of Superadded Agreement 220

BHP Independent Environmental Monitoring Agency 223

The Diavik Diamonds (DDMI) Project: Comprehensive Study 224

West Kitikmeot Slave Society Revisited 224

Community Capacity and Public Participation in DDMI EA 225

Superadded Agreements: New Players 227

Advisory Board 229

Cumulative Effects Assessment and Management Strategy 230

Other Diamond Developments in the North 231

Cross Scale Institutional Linkages 232

Conclusion 235

References 236

Tables 237

Chapter VIII Knotty Tales: Exploring Canadian Forest Policy Narratives - Jocelyn Thorpe and L. Anders Sandberg, 240

Introduction 240

The Staples to Post-Staples Narrative 243

Questioning the Staples to Post-Staples Transition 247

The Softwood Lumber Dispute 248

Forests as Carbon Sinks 250

Parks Versus Staples? 251

Summary 253

Staples By and For More People 253

Summary 258

Beyond the Staples to Post-Staples Transition 259

Summary and Policy Implications 265

Conclusion 267

References 270

Chapter IX: “The Post-state Staples Economy: The Impact of Forest Certification as a NSMD (NSMD) Governance System” – Benjamin Cashore (Yale), Graeme Auld, James Lawson, and Deanna Newsom 281

Introduction 281

Emergence of Forest Certification and its Two Conceptions of Non-State Governance 282

Two Conceptions of Forest Certification 284

Key Features of NSMD Environmental Governance 291

Emergence and Support for Forest Certification in Canada 294

British Columbia 297

Standards-setting process 301

U-turn 305

Canadian Maritimes 308

Development of the Standards 310

Conclusions: Non-state Governance 315

Part 4 – Transmission Industries: Oil & Gas and Water 319

Chapter X: 1The New Oil Order: The Post Staples Paradigm and the Canadian Upstream Oil and Gas Industry - Keith Brownsey (Mount Royal College) 320

1. Introduction: 320

The Canadian Oilpatch 323

A History of the Canadian Oil and Gas Industry 327

The Colonial Period 329

The Era of Multinational Domination 330

The Nationalization of Oil and Gas 335

The Era of Benign Neglect 343

The New NEP and Kyoto 347

Conclusions 353

References 357

Chapter XI: "Offshore Petroleum Politics: A Changing Frontier in a Global System" - Peter Clancy, (SFX) 361

Offshore Petroleum as a Distinct Political Economy 363

Spatial and Temporal Dimensions 365

Offshore Petro-Capital as a Political Factor 370

Technology as a Political Variable 377

Science, Knowledge Domains and Epistemes 380

Federalism and the Offshore Domain 383

State Strength and Capacities 386

Offshore Petroleum Regulation in the New Millennium 390

Conclusions 395

References 399

1 409

Chapter XII Between Old “Provincial Hydros” and Neoliberal Regional Energy Regimes: Electricity Energy Policy Studies in Canada – Alex Netherton 409

Regulatory State / Urban Modernization & Resource Industrialization 409

Keynesian Welfare-State / ‘Permeable’ Fordism, 1946-1987 417

Provincial State Ownership, Mega-projects and Network Reorganization 423

New Interests and Structural Pressures for Change 427

Neoliberal-Sustainable / Regionalization 431

Drivers of Paradigm Change 436

Federalism and Electricity Grids: Interprovincial and Regional 437

Canada-United States Policy Integration as a Policy Driver: Conservation and Trade Regimes 441

The Emerging Supra National Power of FERC 443

Conclusions 451

Electrical Energy Policy: A Research Agenda 456

References 458

1Chapter XIII: "From Black Gold to Blue Gold: Lessons from an Altered Petroleum Trade Regime for An Emerging Water Trade Regime" - John N. McDougall, (UWO ) 472

The Cost of Bulk-Water Transmission 473

The Emerging Trade Regime Affecting Oil, Gas and Water Exports 477

Free Trade Agreements and Water Exports and Investments 482

Conclusion: The Effects of Free Trade Agreements on National Resource Policies 493

References 495

Part 5 – Conclusion: Toward a Post-Staples State? 499

Chapter XIV - Contours of the Post-Staples State: The Reconstruction of Political Economy and Social Identity in 21st Century Canada - Thomas A. Hutton 500

Introduction: the post-staples hypothesis in context 500

New dynamics of regional divergence in the post-staples state 511

Conclusion: normative dimensions of the post-staples state 523

References 527

Chapter XV - The Dynamic (Post) Staples State: Responding to Challenges—Old and new - Adam Wellstead 532

Introduction 532

Contemporary Staples Economies 535

Defining the Staples State 541

Minimalist State 541

Emergent State and New Industrialism: The Staples State’s Golden Era 543

KWS Legacy and Crisis: Wither the Staples State? 546

Competitive State: A Reconsideration of the Staples State 549

Governance 552

Anthropology of the state and neo-pluralism 554

Policy Communities and Networks: Drivers of Richardian (Staples) Competitive States 556

Conclusion 559

References 562

ENDNOTES 571

Table of Figures

Figure 1. Policy Instruments, by Principal Governing Resource 139

Figure 1 – Certfied Forest Land 318

Sources 318

Figure 1 - Offshore Petroleum Management Issue Areas and Instruments 399

Table 5. Policy Process Focus of the Volume’s Chapters 558

Table of Tables

Table 1. Canadians Living on Farms 61

Table 2. Changes in Canadian Farm Structure, Selected Years 61

Table 1: Modern land claims agreements settled in Northwest Territories and Nunavut. 237

Table 2: Northern and Aboriginal Employment Targets (as identified in the Socio-Economic Agreement) and Actuals at Ekatitm . 237

Table 3: Local Business Supply Targets at Ekatitm (as identified in the Socio-Economic Agreement). 237

Table 4: Northern and Aboriginal Employment Targets (as identified in the Socio-Economic Agreement) and Actuals at DDMI . 238

Table 5: Local Business Supply Targets at DDMI (as identified in the Socio-Economic Agreement. 238

Table 6: Capacity of the Institutions affecting diamond development in the north. 238

Table. 1.2, Conceptions of forest sector NSMD certification governance systems 284

Table 2: Comparison of FSC and FSC competitor programs in Canada 289

Table 3: Key Features of NSMD governance 291

Table 1. Economic indicators for Canada’s natural resource sectors 536

Table 2. The role of resources in provincial exports: 1997-2001 averages 538

Table 3 Evolution of the staples state 548

Table 4. Modes of Coordination within Competitive Capitalist States 552

Acknowledgements

Part I – Introduction

Chapter 1 – Introduction – Michael Howlett (SFU) and Keith Brownsey (Mt. Royal College)

For generations provinces like British Columbia and Quebec were known for their forestry resources, while others like Prince Edward Island, Saskatchewan and Manitoba were known for their farms. Ontario mining was legendary, as were the oil and gas wells of Alberta and the fisheries of Newfoundland, New Brunswick and Nova Scotia. It was common wisdom that fifty cents of every dollar in British Columbia came from the forestry industry and that aawmills, pulp and paper, and shingle mills and other related industry employed hundreds of thousands of people in cutting, hauling, and producing various wood products. Those days are gone. The Douglas Fir no longer reigns in British Columbia’s economy but rather, eco-tourism, film and television production, aquaculture and other industries have taken a strong if not leading role in the province’s economy.1 While still important to British Columbia’s economy, as with most other provinces, the original ‘staples’ resource industries of farming, fishing, mining and forestry have given way to service and other types of business. The wheat economy of the prairies has diversified into various agricultural products from canola seed to cattle as well as undergone a process of consolidated into large agribusiness. On the east and west coasts, the Atlantic cod fisheries have vanished and the Pacific salmon stocks have dwindled. Even in the energy sector a hegemony of high valued goods has emerged. The staples of hydroelectricity and crude oil and natural gas have been transformed by environmental regulation, decreasing conventional reserves of liquid hydrocarbons, conflict over land use, new technology, and scarcity of supply. As well, there is a security premium on oil and gas reserves that adds to the final production and consumption cost.

No longer tied to the original staples industries, Canada has become an advanced industrial economy but one which remains different from the typical model of advanced manufacturing and services found in Europe, the US and Japan. The new base of the Canadian economy retains its origins in early staples industries with many new activities grafted onto those traditional sector. This transformation of the old staples political economy has ushered in some elements of a new political and social order at the same time that it as exacerbated or worsened many elements of the old. Over the last several decades the transformation of significant components of Canada’s staples economy has led to demands for many institutional, legal and political reforms which would better represent the Canada’s new globalized and regionalized configuration of business and social life.

Changes in the staples economy are illustrated by the rise of social movements, urbanization and an increasingly disconnected regional politics. They are also a product of the globalization and regionalization of markets. All together, the transformation of the staples economy has been attributed to such factors as industrialization and urbanization, resources depletion, increasing competition from low cost producers, immigration from non-European countries, the regionalization of markets and industrial restructuring as well as the rising importance of social movements and knowledge elites. Simply put, the traditional staples industries within Canada have been affected by a variety of factors which together have transformed the Canadian political economy.

The contributors to this volume provide an overview of the changes in Canada’s political economy. Each tries to answer a series of questions. First, what was the traditional staples economy? Second, how were the various staples industries organized within the centre-periphery model? What was the political impact of the staples model of development? What factors led to change within a particular industry? How did a post-staples economy evolve? How does it differ from a staples economy? And what are the political consequences of the post-staples society? The different contributors examine industries as varied as diamond mining in the Northwest Territories and aquaculture off the coast of British Columbia. Yet, within the wide parameters of the post-staples paradigm there is a congruence of events and processes which can be identified as a new model of economic and political development which is dramatically different from its predecessor and which has altered domestic social relations.

Overview: Staples and Post-Staples Political Economy

A staple refers to a raw, or unfinished bulk commodity product which is sold in export markets. Timber, fish and minerals are staples, usually extracted and sold in external markets without significant amounts of processing.2 The significance of having an economy based on exporting unfinished bulk goods lies with how it affects policy-making in specific resource sectors by creating continuing issues with resource technologies, profits, rents, location and availability,3 how it affects policy-making in related areas such as the environment4 or transportation infrastructure,5 and also how it affects policy in less directly affect areas such as welfare, health and social policy.

As the Toronto School of staples theorists noted, many consequences for government and society flow from having an economy based on exports of such unfinished bulk goods. Their significance lies not only in how they affect resource policy-making by creating continuing issues with resource location and availability, provide only a limited need for education and technical skills in frontier resource communities, entrench a system of metropolitan-hinterland links in both economy and culture, but also in how populations, governments and industries in staples-dependent areas react to their continued vulnerability to international market conditions. As Naylor and others have shown, the development of a staple-based economy, for example, triggers government and private sector investments in large-scale infrastructure activities such as transportation and communications facilities required to co-ordinate the extraction and shipment of bulk commodities to markets in distant lands designed, as well as provisions of export subsidies and credits designed to facilitate trade and the distortion of the banking and financial system away from consumer and small business credit to a concentration on large industrial loans and profits. 6

The fact that staples reliant countries have tended to focus on markets in foreign lands is significant, in itself. As most staples-based countries have a monopoly or near-monopoly on the production of only a very few resources or agricultural goods, producers must sell at prices set by international conditions of supply and demand. While international demand for most resources—outside of wartime—has increased at a relatively steady but low rate, world supplies of particular primary products are highly variable. A good harvest, or the discovery of significant new reserves of minerals or oil, or the addition of new production capacity in the fishery or forest products sectors can quickly add to world supplies and drive down world prices until demand slowly catches up and surpasses supplies, resulting in sudden price increases triggering a new investment cycle and subsequent downturn.7 As Cameron has noted, these fluctuations in international supplies account for the “boom and bust” cycles prevalent in most resource industries and, by implication, most resource-based economies, and lead affected populations to press governments to provide a range of social, unemployment and other types of insurance schemes as well as make large-scale public expenditures in areas of job creation and employment.8

While most observers would agree that historically Canada can be characterized as a staples economy and that this has had a significant impact on the evolution of Canada's resource regimes and practices, as the discussion in other chapters of this book show, there is considerable disagreement over whether this depiction continues to characterize the overall Canadian economy and whether and to what extent it will continue to do so in future years.9

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