Canadian Industrial Policy

james tannerEssays

Canadian Industry

It is time that we Canadians reassert our sovereignty over our economy again. Over the last 40 years the Canadian economy has been drifting without the guidance of the public interest. Our governments have reneged on their responsibility to guide the economy, to encourage investment and ingenuity in areas which will diversify and balance economic activity. We have been left to the vagaries of the market which have been dominated by our larger trading partners. Canadian sovereignty is compromised by these pervasive market interests.

Canadian politics have been successfully manipulated by powerful international interests and unfortunately some Canadians have accepted the associated seductive ideologies. These consumerist and libertarian ideas are not balanced economic theories, but rather appeals to greed and dreams of individualistic wealth. Libertarian ideology proposes to minimize or eliminate Government involvement in the economy without practical evidence. The reality, the true effects of unbridled market economics inevitably results in increased economic disparities, income and wealth inequality and more unstable economic cycles.

The basic theoretical error is that wealth comes from an individual or an individual’s ingenuity or hard work. In reality wealth means the command over goods and services produced by others. Without OTHERS we would all be poor indeed. Libertarian theory does not take real social relationships into account. In an economy we cooperate within a system of rules to promote our mutual wealth. When wealth becomes unbalanced, when income is concentrated in the hands of fewer people investment is distorted. With poor income equality the true value of goods and services is not reflected in the market. The income imbalance intensifies the antiquated ownership or resource allocation systems. But it is not my purpose in this essay to expound basic theories of economic relations but rather to re-emphasize the importance of that neglected tool of national economic success, the public interest.

Economics has never been an intellectually difficult discipline. The difficulties arise with the attempted manipulation of economic ideas to serve specific political or individual interests. Supply-side libertarian ideas have polluted our political system and resulted in the abandonment of Canadian Industrial Policy developed during and after the Second World War continuing up to the mid- 1970s. Canadians had developed a National Energy Policy which created Petro-Canada and began to increase the percentage of Canadian ownership over our oil and gas industry. But this was abandoned during the supply – side reaction. However, without guidance on global warming and now with large over investments in oil sands production we are again demanding a new energy policy.  But this oil and energy use crisis has made the lack of industrial policy obvious in this one area, when in my opinion we need it in almost every sector of our economy.

Historical Perspectives      

Over the last 30 years the ideology of the libertarian ideology and unbridled market has pushed the Canadian economy into continuing to focus on suppling resources to larger consumer nations. During the 1980s, Brian Mulroney pushed the NAFTA which limited our ability to apply industrial policies designed to develop a more balanced Canadian economy. Over the last 10 years Stephen Harper’s government has promoted our oil and gas resources so much we have begun to drift back to the staple export economy of our national youth when Canada was only a supplier of natural resources to other more industrialized and dominant economies.

Our early distinguished economic historian, Dr. Harold Innis[1], stated the Canadian staple-based market economy was originally created to serve the interests of the industrialized British and American consumers. Early Canadian industrial policy involved Canadian Government support and participation in building railroads, canals, and export infrastructure so that we could ship our resources[2] to market. This was true of our first corporation, the Hudson’s Bay Company, which was a Crown monopoly. The HBC exported furs and imported manufactured goods. The eventual involvement of the Canadian Government in the transcontinental railway was designed to ship manufactured goods in to an agricultural producing and raw resource producing country. To encourage the capital needed we granted large amounts of land to the Canadian Pacific Railway company and the HBC.

In an effort to mature our resource based economy politicians like the famous Right Honourable C.D. Howe continued the policies of Government cooperation with large corporate interests during the war years by supporting and developing Canadian manufacturing and aerospace industries (Avro Arrow). After the wars, governments continued this strategy, supporting the development of the Trans Canada Pipelines in the 1950s and Trans Canada Airlines, special rail freight rates and port development. Because of the huge amounts of initial capital required to build such large national projects, our economy continued to be dominated by large powerful corporations cooperating with our governments to export resources. The oil and gas, mining and forestry industries naturally developed under this structure. Our banks and financial institutions are also large and highly concentrated as a reflection of the structure of our capital economy. In cyclical times we have allowed our smaller banks to fail. The large size of the country and the relatively small markets have made competitive markets difficult to maintain resulting in many oligopolistic market structures. Even the development of the Oil Sands required huge government support to get started.

This is reflected in our telephone services and now our media services which are now even more oligopolistic. Our economic structure has given rise to many of our political problems. Historically this process began early. The collapse of the fur trade led to the Métis uprisings of the 19th century as they were deprived of their lands and any control over capital. The railway shipping monopolies led to the farmer’s movements of the early 1900s. The domination of foreign oil giants led to the Canadian nationalist movement of the 1970s. The over-exploitation of tar sands has led to our oil crisis and contributed to global warming.

Canada consumer markets have been populated by immigration into centers like Toronto, Montreal and Vancouver where a merchant economy grew to support the original resource extraction of furs, and continued to grow to support lumber, wheat, mining and then oil and gas and potash. Despite the Aboriginal presence, many farmers immigrated to and populated western Canada and a large agricultural economy grew. However, most of the Canadian economic activity was resource based requiring intensive investments and government infrastructure support. This structure makes Canada particularly vulnerable to the whims of international capital. This is obvious given the current capital flight from Canada based upon the recent collapse in oil prices. This has brought the Canadian economy to the brink of another recession and crushed the Canadian dollar.

In the 1960s and 1970s there was a growing awareness of the implications of the staple economy and this was most apparent in the oil and gas sector where foreign ownership was around 95%. Once the foreign dominance of the sector became well known a nationalist movement developed in Canada. The more prominent academic nationalist authors of this time were Mel Watkins and James Laxer. Publisher Mel Hurtig also became a spokespersons for Canadian nationalism. Academic reports were written describing Canada as a branch-plant economy dominated by foreign capital. Questions about political sovereignty and self determination were discussed. How can Canadians be truly independent if our industries are owned by foreign capital?

But these ideas were not limited to Canada. The post WW2 period and the collapse of European imperialist networks gave rise to significant nationalism in the Middle East, Africa and Asia. The socialist ideology and new cold war politics challenged the conventional capital based control mechanisms of American Manifest Destiny. Capitalism was no longer synonymous with freedom.

So when the Arab nations began to take back their ownership of oil and gas resources and raised oil prices significantly, the Canadian Government of the day also wished to claim back some of the Canadian sovereignty lost through massive foreign capital investments. The National Energy Program and PetroCanada were born.

There were two major events in the early 1980s which reversed the direction of popular national and international political and economic thought. The most important of these was the collapse of the Soviet economic structures. It is apparent that the Soviet system had not introduced enough decentralized decision making nor consumer nor producer incentives. The inefficiencies in centralized planning destabilized their political structures. This led to a complete change in the world power structure and debate.

The second event was the coincidental resurgence of the faith in and domination of large capital. If central planning was bad, then “free” capital decisions were perceived as the only alternative. Then the ideologies of the “supply-side” became popular once again despite the proof of their failures. A world–wide competition for capital investment began as Eastern-European economies became independent and Asian economies struggled to develop. Like never before, capital became king. Stock markets claimed to be perfect and investment bankers were gods.

In Canada we moved towards free trade. We deregulated natural gas, then electrical power. We opened up our exports of gas and oil again and stopped planning our energy development and abandoned industrial strategies. After all capital markets were perfect and who can argue with the desire of the sovereign consumer. Oh, yea, we dismantled the Wheat Board and started to dismantle our environmental protection too. Ops! We forgot that most of those sovereign consumers were not living in Canada!

This history provides us with lessons we need to heed or be destined to repeat our mistakes. Canadians must administer their resources and build the economy “in the public interest” and develop industrial policies which support that end. Pursuing ideologically based ideals like free markets or free trade will only bring imbalance and misallocation of resources – that is allocations NOT in the public interest.

[1] Innis, Harold, The fur trade in Canada: an introduction to Canadian economic history

[2] First Furs, then timber, minerals such as coal, gold and nickel, etc. then oil and gas and potash.